Financial Management 101

By and | September 16, 2019

Typically, financial management is learned on the job rather than through formal training. Agency owners frequently start off as producers, so selling is their strength, not dealing with credits and debits. It is not unusual for some business owners to dread handling the accounting for their firm. However, it is not good to let accounting and financial management tasks in a firm to suffer because of owner indifference, fear and ignorance of the subject.

An agency needs to be financially sound for its clients, carriers and employees. There can also be a selfish reason: sound financial management is necessary to provide owners with their personal income and enhance equity in the business.

Basic financial management is easy to learn. Once a system is set up, there’s not much to financial management. The key is to develop a system that will be used and not ignored or misused.

Starting Point

A good accounting system is accurate, easy to use and quickly understood by an outside party. The most robust accounting system is integrated with the agency management system. This allows management to see the relationship between the agency’s finances, client accounts, policy premiums and agency commissions.

Software like QuickBooks or Excel can be used by small agencies that are mostly on direct bill. But those methods don’t work well when handling fiduciary funds (i.e., agency bill) and there can easily be a disconnect when trying to reconcile the financials to the book of business.

An agency should have both an “operating account” for agency money and a “trust account” for client money, regardless of local and state requirements. This clarifies the handling of fiduciary funds and helps to avoid the error of showing premiums received as agency income.

Define the Role

In a small agency, the owner should be able to handle the accounting, or perhaps use an outside bookkeeper to enter the data. In most medium to large firms, the agency owner’s role should be strategic, not centered on day-to-day tasks.

The owner should focus on monthly or quarterly reports and review budgets. Management should make all decisions based on how they will affect the value of the firm. This focus helps management choose the direction that will lead to more money for their retirement from either the sale of their stock internally, the merger with another firm or the eventual sale of the firm to a third-party buyer.

The employee handling the accounting/bookkeeping will perform the necessary day-to-day functions, as well as prepare reports for management. We recommend that a checklist be created of the typical tasks that person is expected to perform.

The following is a brief list of key items to include on all checklists. Some accounting tasks might be handled by the service staff rather than the bookkeeper, such as issuing agency bill invoices.

Day-to Day Bookkeeping

  • Issue client agency bill invoices.
  • Record and reconcile customer accounts receivable.
  • Handle bank deposits.
  • Record and pay agency bill premiums to carriers.
  • Record and reconcile direct bill commissions.
  • Review vendor bills and handle disbursements.
  • Process payroll.
  • Calculate producer commissions.
  • Handle collections of A/R over 60 days.
  • Review bank accounts and cash position.


  • Reconcile all bank accounts.
  • Verify all payroll taxes were paid.
  • Run balance sheet:
    • Review cash position;
    • Review receivables and payables;
    • Calculate ratios: trust, current, etc.
  • Run aged A/R report:
    • Review and correct 60-plus days receivables.
    • Run monthly and year-to-date income statement:
    • Compare statement to last year, the budget and industry standards;
    • Analyze any deviations.
  • Prepare monthly producer statements for owner’s review.


  • Make quarterly tax payments.
  • Perform the following additional analysis to quarterly income statement:
    • Calculate changes from prior quarter and last year (net change and percent change);
    • Estimate projections for the next quarter for revenues and expenses;
    • Calculate net profit and make recommendations how much should be reserved;
    • Review investments and debt liabilities.


  • Calculate personnel standards (revenue per employee, etc.):
    • Compare to industry standards;
    • Compare to last period and last year;
    • Analyze the book of business and CSR workloads.
    • Provide report to owner with recommendations. (Perform for each producer, each CSR and the agency overall.)
  • Determine commercial lines and personal lines commission revenues and the number of accounts handled (add to CSR workload report the number of transactions if possible).
  • Calculate the average size of accounts:
    • Compare to industry standards and last year.
  • Prepare a report showing each market’s volume:
    • Compare to last period and last year.
  • Prepare a list of top 50 accounts for each producer and the agency:
    • Compare to last period and last year.


  • Organize financials for CPA to prepare for taxes.
  • Fill out and send annual tax forms, such as payroll and sales taxes.
  • Assist the owners to develop a budget for the next year.

All well-run firms exhibit certain financial management characteristics, including:

  • Accounting process is well-defined and followed.
  • Strong internal controls are in place.
  • Reviews are performed by independent outside professionals.
  • Management reviews financial reports and acts based on results.
  • Forecasts are used to assist with sales management.
  • Budgets are developed and compared to actual results.
  • Agency has good control over expenses.
  • Good communication between accounting and management.


Financial management might not be fun, but it should be easy. By setting up a system and spending a little time each month, agency owners can be sure their financial affairs are in good shape.

About Bill Schoeffler

More from Bill Schoeffler

About Catherine Oak

Oak is the founder of the consulting firm, Oak & Associates, based in Northern California and Central Oregon. Oak & Associates. Phone: 707-936-6565. Email: More from Catherine Oak

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Insurance Journal West September 16, 2019
September 16, 2019
Insurance Journal West Magazine

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