Tired of Waiting for Better Financial Results Next Month?  3 Things You Can Do Now, to Start Being More Proactive with Your Insurance Agency’s Financial Management

If you follow Angela’s Foundational Elements for Success, you know that the 3rd element for Insurance Agency Success is proactive financial management.  However, you might be wondering… what does it mean to be proactive with your financial management?

Angela just did an episode talking about this on The Successful Agency.  If you missed it, you can watch it here.

In this blog post, we’re going to briefly cover 3 things you can do (as a starting point) that will help you work towards achieving this foundational element.

Let’s Start with Defining “Proactive”
What does proactive mean?  Proactive is a behavior that involves acting “in advance” to a future situation, versus reacting to it when it happens.  Being proactive with your finances is crucial to insurance agency success.  Now, depending on what your goals are, will greatly impact what your financial strategies should be.

What We See on the Inside
We do accounting for about 175 insurance agencies every month.  With a lot of these agencies, we provide bookkeeping services that include sending them their monthly financial reports.  Many times, when we send the reports, the agency owner will say something like, “well gosh I was hoping for better results this time, maybe next month will be better.”

When we hear this, we know it won’t be unless the agency starts making some changes.  When it comes to finances, you can’t bury your head in the sand because insurance accounting intimidates you.  You also can’t keep hoping for better results next month.  You have to do the things required, to give you those better results.

Insurance Accounting Can Be Intimidating
Many agency owners come from the sales side, and they ‘re amazing salespeople.  They’re excellent at building relationships with clients and that’s one of the many things that make them great agency owners.  However, a lot of times, accounting isn’t one of their favorite parts of their business.  In fact, it can be a whole different personality type to love sales versus loving accounting.  Because of this, we see a lot of owners bury their heads about their financials.

Here Are 3 Things You Can Do Now to Get Started:

#1: The Four 25’s
We have an excellent episode of The Successful Agency coming out next week where our financial analyst, John Powell, will cover The Four 25’s in greater detail.  Basically, we want to only spend 75%, so we can have a profit of 25%.  Agencies should spend 25% on sales cost/producer commissions.  They should spend 25% on service costs and spend 25% on administrative (things like your management system, phone system, receptionist, rent, etc.).  This leaves 25% left for profit.  In most agencies we find, they don’t even know what they’re spending in these 4 areas.  What’s the first step to figuring out what you’re spending?  Doing a four 25’s analysis.  You need to look at all of your expenses and classify each of them into these 4 categories.  Then, add it all up and look at the numbers to see what you’re spending.

#2: 80/20 Analysis
A lot of agencies have heard about the 80/20 analysis but haven’t actually performed one.  20% of your clients should be generating 80% of your revenue.  Should you have different service standards for those 20% of clients?  We believe the answer to that is yes.  Beyond clients, you should do this analysis on carriers as well as staff!  To learn more about how to conduct an 80/20 analysis, check out episode 1 of The Successful Agency.

#3: Measure Progress
The third item to do is start measuring your progress towards your goals.  You want to start by knowing where you’re at now and finding out where you want to be.  Know your book of business.  You can also use tools like Risk Match and Power BI.  Another great way to measure progress?  Get outside help!

If you’re large enough, hire a strategic minded CFO.  Someone you can trust, someone who will listen to you and your goals.  If you want to sell your agency in 3 years, have them present to you the strategies to help get you there.  If you’re smaller, get your local CPA involved. You can’t just meet with them once a year at tax time.  You may need to meet with them monthly or quarterly to talk about your goals.

You can also work with our financial professionals.  We have CPAs and financial analysts with 20,30, and even 40 years of insurance industry experience.  Our team is made up of experts who really understand insurance financial statements.  Maybe you already have a CPA and you just need someone to explain some of the differences between accounting and insurance accounting, we are happy to do that.

Need help with your accounting?  Want to talk about your financial goals and start being proactive today?  Reach out to us, we can’t wait to hear from you!