getting your insurance agency finances in order: accounting tips for independent insurance agencies

Download Getting Your Insurance Agency Finances in Order: Accounting Tips for Independent Insurance Agencies

Post on 22-Apr-2015



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This eGuide provides you and your insurance agency the resources needed to better understand your accounting system and consider new ways to make it run more efficiently and effectively. Topics covered include: -Cash vs accrual accounting -Switching to a new accounting system -Integrated accounting -Tracking commission


  • 1. 1 Getting Your Agency Finances in Order: Accounting Tips for Independent Insurance Agencies
  • 2. 2 Accounting tracks the most important aspect of your agency: your cash flow. Knowing your income and expenditures means knowing the core of your agency. If you dont have a handle on your accounting processes, its time to get a grip. This eGuide hits the high points of your accounting systems and provides ways to make your accounting process run more efficiently, and in turn help your agency run better. Whether youre just starting out or are in need of a system re-vamp, this eGuide is designed to help you determine what your agency needs to keep up with finances. Getting Your Agency Finances in Order: Accounting Tips for Independent Insurance Agencies
  • 3. 3 Tracking Your Cash Flow.........................................................................4 Making a Change....................................................................................6 Integrating Accounting ..........................................................................11 Calculating Commission........................................................................14 CONTENTS
  • 4. 4 Tracking Your Cash Flow In the accounting world, there are two primary ways to handle your agencys finances. The first is cash accounting, which tracks income and expenditures only when money actually comes in and out of your agency. The second, accrual accounting, records expenses and sales when they take place, regardless of whether or not invoices have been paid or funds have been received. These two methods have their pros and cons, and you should examine both to see which is a better fit for your agency.
  • 5. 5 Cash Accounting + Shows a clear record of your agencys cash flow + Takes less time to learn and explain + Gives clear picture of funds in your accounts - Makes it difficult to keep track of open invoices - Shows misleading picture of your profitability month to month - Poses problems when cash flow is low Accrual Accounting + Shows true finances as it captures money owed, not just money in the bank + Providers clearer view of long-term profitability + Makes it easy to follow up on receivables - Takes more time to learn and understand - Gives false picture of cash flow - Requires professional input to set up and run Before making a decision, talk things through with your agencys accountant or accounting team. Keep in mind, if you are changing from one method to another you will need approval from the IRS before proceeding.
  • 6. 6 Making a Change Although each accounting type has its own benefits and drawbacks, most insurance agencies tend to use an accrual accounting system. If youre using a cash system you may find that, as your agency grows, you are outgrowing the cash accounting method. As you start to think about switching to accrual, you should take a step back and ask yourself a few questions.
  • 7. 7 1. Although the IRS requires certain types of businesses to use accrual accounting, it is unlikely your agency is required by law to switch. However, you should consider switching if: n You are tracking your profitability over the long-term n You have more than a handful of employeessalaries tend to operate better with an accrual system as there may be times you dont physically have the cash to pay your staff n You talked with other agencies in your management systems user group and find many use the accrual system If you identify with two or more of these criteria, switching to the accrual accounting system is the right move for your agency. Once you know you need to switch, start creating a plan by asking yourself the following questions. Do I need to switch?
  • 8. 8 2. There is no universal perfect time to switch. It will be different for every agency. Think about your year: is there a time when things are a little slower? This is the right time to make the switch to a new system. If there isnt an easily identifiably slow time, your best option is to change systems at the beginning of your fiscal year. When will I switch?
  • 9. 9 3. Your employees should definitely be in on your accounting system change. The best way to get the word out is to assign a small team to head up the switch. Have them create a timeline, document the new process, and organize training. Eventually everyone in your agency should be well versed on your new system and know their place in the process. Another very important group that needs to know youre changing accounting systems is the IRS. The IRS requires any company or organization switching accounting methods to fill out Form 3115 - Application for Change in Accounting Method. You MUST file this form within 180 days (about 6 months) of the end of the year in order to make your switch. Who needs to know?
  • 10. 10 4. Take a look at the accounting system youre using. Most agencies use Quickbooks or an accounting system that integrates with their agency management system. No matter what youre using, however, things are going to change. Talk with your provider to find out what you need to do to prepare and start making adjustments sooner rather than later. As with anything new, you will have a learning curve. Take your time and make sure you know what youre doing, and be patient with mistakes. Remember, you didnt learn your current system overnight, either! How will things change?
  • 11. 11 Integrating Accounting with your Agency Management System Regardless of whether you use cash or accrual accounting, we highly recommend using an agency management system with an integrated accounting feature. The benefit of this is that all of your agency data is stored in one place. This makes tracking and reporting on finances much easier, and creates a streamlined system that ties all aspects of your prospect-to-client process together in one place.
  • 12. 12 Integrated Accounting Benefits n PROCESSES DATA DAILY: Once youve set all your invoices, payments, etc. theyll process automatically on the dates youve set. n PROVIDES DIRECT BILL COMMISSION DOWNLOAD: This capability dramatically reduces duplicate data entry by ensuring data accuracy, saving your agency hundreds of work hours. n CREATES EXPENSE REPORTS: With integrated accounting, you can easily select the data you need and create a plain or visually interesting expense report in minutes. n OFFERS EASY BRANCH ACCOUNTING: For agencies that handle multiple insurance types, integrated accounting makes it easy to view financial information for each branch separately. n SHOWS COMPLETE CLIENT RECORDS: You can see all financial activity from each client in one place, making it easy to see total financial history including prices of assets, policy costs and payment information. n INCREASES ACCESS TO FINANCIAL INFO: Since your accounting is linked with your agency management system, you can access it just as easily as any other part of your management system
  • 13. 13 The better agency management system providers offer integrated accounting as an add-on to the basic system. We suggest you consider adding it to your processes. Not only are the benefits of integrated accounting endless, it will end up paying for itself with the time and money youll save.
  • 14. 14 Calculating Commission If youre tracking your agencys premiums and commissions by Excel, STOP right now. Back away slowly from your computeryou dont need to do this! Using Excel to track your commissions is like using a pair of scissors to cut your lawn: it gets the job done, but it is painstakingly slow and prone to human error. You want a system that is easywhere you just input premiums and pay out months and you get your commissions in one keystroke. You want something that shows your total commission minus lead costs and other factors. There is a better way.
  • 15. 15 When looking at accounting systems, be sure to find one that br


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