ASK THE EXPERTS: Starting or Locating A Small Collection Agency

Ask the Expert is an interactive section where readers can ask direct questions to the experts at Kaulkin Ginsberg, the leading strategic advisors to the ARM industry – and a sister company of insideARM.com — as well as other seasoned industry executives.

Question: I am an experienced ARM industry executive and I have been thinking of starting or acquiring a small collection agency.  Are there any small agencies (less than 10 collectors) for sale and how do I find one, or how can I get information on starting my own?

– Matt, Connecticut

Answer: From Michael Lamm, Associate at Kaulkin Ginsberg

Steps for Acquiring a Small Collection Agency

1. Tap into your local network. To acquire an agency, the first step is finding one. Your best bet is to start voicing your acquisition interests with your network of ARM industry contacts.  

2. Get involved with your ACA unit. Another suggested path is getting involved with your local ACA chapter which tends to attract many small agencies that have under 20 collectors.  Local chapters typically have owner/executive networking events that you can attend throughout the year to get to know the other members.

3. Search the ACA membership directory.  If you know the name of the agency or the owner you are targeting and don’t have their contact information, another resource is the ACA membership directory at http://www.acainternational.org/memberdirectory.aspx.

4. Register your acquisition interests with Kaulkin Ginsberg. Many small agencies contact us when looking to sell.  Please let us know your criteria and if we come across an agency that meets your criteria (i.e. size, location, how you plan to finance the acquisition, consumer vs. commercial, etc.) we will let you know.  Feel free to email your criteria to mlamm@kaulkin.com

Tips for Starting an Agency

1. Understand the regulatory environment. 20 years ago it was a lot easier to start an agency — all you needed was a phone and a client to give you some accounts to call.  Fast forward to 2009, the ARM industry has become heavily regulated and with the current administration, more regulation is likely to come. Be sure you have a complete understanding of the licensing you will need and any other regulatory requirements you must meet in the state(s) in which you will do business.  You may also consider joining the ACA or other industry associations to stay on top of regulatory updates in your region and industry specialty.

2. Investigate start-up costs. If you plan to operate a consumer-focused agency that is national in scope, you will need to become licensed nationally which can typically cost $75,000 to $100,000 plus the costs of collection software, buying call center equipment (desks, chairs, work stations), leasing a facility and any other requirements a client may require before you obtain placements from them, like a SAS70. Just to get a consumer agency started, you could be looking at spending a $1 million before you start collecting on any accounts!

3. Weigh the benefits of start-up vs. acquisition. As a result of these start-up costs, many former executives have been leaning toward acquiring an agency that at least gets them started and then they can build on the platform.  On the flip side, when you acquire another person’s agency, you may be walking into someone else’s headache.  It may be better to create your own headache than start with someone else’s!

4.Utilize resources. If you end up going the start-up route, our portal site, www.insideARM.com has a lot of informational resources (market data, current news, publications) that you can access to help you develop your plan.

Michael Lamm (http://www.linkedin.com/pub/0/61/a2b) advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory team. Michael can be reached directly at 240-499-3808 or by email.  You can also read his other blogs/articles at http://www.insidearm.com/go/blogs/Lamm.