Freight brokering is rewarding work, but like any business, there’s an end to the journey.
That shouldn’t mean that’s the end of reaping the rewards of years of hard work.
As a freight agency owner, retirement doesn’t mean you have to abandon your business to enjoy life post-brokerage. LDI’s Agent Program offers a unique opportunity for freight agents to think long term about their careers and beyond.
When an agent comes to us saying he or she is thinking of hanging up their hat, we roll up our sleeves to figure out how to make that desire a reality in the most favorable way possible.
When an agent retires with a long-established book of business, there’s a risk that the hard-earned customer base could dissipate. It’s a shame to allow years of business relationships—dare we say friendships?–vanish without any benefit to the agency owner.
Rather, LDI allows agents to be creative to come up with long term residual commission options. We put together a process to allow agency owners to gradually transition their book of business to another trusted and well-established agency. The deal is drafted to fit each agent and their individual situation. An agreement can last anywhere from a few months to a couple of years to fully transition a book of business between the two agencies.
For example, a retiring agent will partner with a trustworthy established agent our Corporate office selected. It’s an agent match that we at HQ believe will deliver the same level of service, if not better, to the retiring agent’s customers. So far, the matches have been good, but we would never force a bad fit to work together. The retiring agent will then participate in the transition of his or her book of business to the new agency. This is like a “warm leads” hand off to the established agency, but the retiring agent is still involved. They’ll do customer introductions, walk the new agency through customer expectations, and help smooth out any bumps during the transition. After the allotted amount of time, the retiring agent steps away entirely and continues to receive residual commissions for a pre-determined schedule.
Selling a Book of Business
This option is available but not recommended. In our experience, it’s hard to evaluate a freight broker’s book of business. There are a lot of variables involved:
- How old is the book?
- How diverse is the book?
- How involved was the original agent?
- How long will original agent stay in involved with this book?
Normally, a book of business is valued at 1 to 3 times the annual profit of the business.
If a freight broker helps transition the book of business over the course of months or even years, that increases the value of the book.
If the retiring broker does a clean cut, the value of the book goes down because the buyer is essentially buying a relationship, which isn’t guaranteed to remain.
Why Does This Happen?
In this industry, a good deal of business is built on relationships and loyalty. Freight brokers rarely have any kind of contractual agreements, so there is nothing stopping a customer from walking away from a new broker a month later if rapport isn’t established.
The buying broker alleviates some of this risk by spreading the purchase out. He or she can also implement conditions for any changes to the original customer base.
This rarely works out well. When a book of business fluctuates in the first few months, the buyer argues the book isn’t worth its original value. The seller argues that shouldn’t matter, because there was potential to make that customer work.
So the seller still wants payment because it wasn’t their fault the buyer couldn’t keep the customers. The buyer doesn’t want to pay for something that doesn’t generate revenue, much less profit.
It’s sticky. That’s why LDI encourages the trailing commissions and a slow transition of business. When the seller remains involved for the first several months to help establish a working relationship between their customers and a new broker, the book of business is likely to remain engaged.
Disclaimer: we aren’t tax accountants or financial advisors. We do recommend speaking with a professional in the field to assist you in making the best decision for your personal situation.
A freight broker agent program such as LDI’s cannot sponsor (pay into) a 1099 freight agent’s 401K or IRA plans because the agent is not a company employee. While agents can’t participate in a company sponsored plan, there are many options self-employed and small business owners can buy into themselves.
Information for retirement plans can be found directly on the United States Internal Revenue Service’s website: Retirement Plans for Self-Employed People
For more information from third party websites that are more involved in the subject than we are, see the following resources. LDI is not affiliated and does not endorse any of these websites. And again, please consult a tax accountant or financial advisor to help you choose the right retirement plan for your situation:
Related Reading: How to Guarantee Profits (Without Really Trying)
For more information on how you can make owning a freight agency a reality for you, and a comfortable retirement a very real possibility, contact us at 1-800-554-3734. One of our recruiters will help you decide if a LDI freight agency is right for you!