ContractCoach, LLC. A Jeff Hastings Agency, Inc. Company A-Coach

Transcription

1 ContractCoach, LLC. A Jeff Hastings Agency, Inc. Company A-Coach

2 2 Budget Design Leads the Agency Toward the Vision Like anything else, you have to have a plan for a destination to get where you are going. Although your budget will not show you the future, it will help you stay on track. Knowing your Agencies numbers is not enough to realize your vision. A budget will show you if your vision is realistic. The budget is responsible for guiding you to move towards your goals. If this area is not one of your strengths, but a pain point, don t worry, you will learn all you need to know through our lesson plans. Let s begin with a few facts. Accuracy is important. Creating a routine to forecast what you re up against that might affect your finances is crucial to your success. You have to recognize the what if s that might occur during the up-coming months. Once you do this for a while, you will get into a pattern of thinking about things you once overlooked. If you want your vision for the agency to see the light of day, you will need a plan to get you there. As your skills improve in the leadership department and the financial department, you will find that your abilities as an agency owner start growing by leaps and bounds. There is no magic formula to budgeting and forecasting. It s not designed to be perfect. It s an educated guess based on current facts and history that guide your judgment. Creating your budget is the art of designing a plan to meet your vision in reverse. You are guiding your business each step of the way to obtain the necessary steps that ultimately meet up with your vision. It s a plan to operate the agency in a way that achieves your goals. It also ensures you have a way to measure the effectiveness of your plan, so you can make course corrections along the way. It will give you the information you need to make management decisions to keep the staff engaged and on track. Insurance Agencies might be smaller than corporate offices, but it doesn't mean you don't need a budget. The financial side of the business has many roles to fill. In large corporations, there is usually a whole department of people in various roles. As the leader of your agency, you will have to engage with each role a large corporation fills, but on a much smaller scale. One of the best ways to benefit from your financial business efforts is to understand what each one of those roles is. As well as, making sure you are wearing all the right hats in your agency or delegating the responsibilities over to someone you TRUST, keyword TRUST. Many Agents have been burned by people they TRUSTED. As Ronald Regan once stated, Trust but Verify. Who will you call to the table to help your Agency? In a corporate setting, this would be you, the business owner. Your Bookkeeper who knows the details of your finances as he/she enters every transaction in the correct categories and the Controller, who manages the budget and produces your reports. The controller is the one who keep the visionary informed about expenses and what has come into the agency. All of these behaviors need to be frequently reviewed to allow the agency to stay on track and make good judgments going forward. It also creates a way to keep your team of staff members involved and caring about the agency. Staff members tend to care more about their positions when they are trained to know and care about the agency goals and achievements. You develop the budget, and the staff is empowered to do their jobs well by the state of the agency reports you communicate at meetings. Making it their responsibility to meet their objectives and plan effectively, will create a culture of ownership in their positions.

3 3 Budgeting for Agency s Vision Budgeting needs to be done once a month and managed as the plan adjusts or foresees a change. Feel free to delegate out budgeting work after creating a plan. Create a process. Set-up a schedule with deadlines for reporting, time for planning and forecasting, and most importantly, time to manage and review the frequent changes the world brings. Format the budget s appearance. What software will you use? Who will be responsible for creating the reports and when? When will the process get reviewed and what are the red flags to bring to your attention? Setup reports that go over the variance of what you planned of what actually happened. Try and keep the forms easy to read and use. You should be using your income statements and your operating budget to gather all the data you need. We recommend having a similar format with both of these reports. Most agents use Business accounting software like Quick Books. Most software has functions that will keep you on track with reports that track everything you need and create variance reports that have a similar look and feel about them with minimal input once you set it up correctly. Will your variance report monthly, quarterly or annually? You decide and make recommendations for the leadership team to make decisions. As a controller, you will have to wheel and deal with yourself about how money gets redistributed if you change course a little. Budget management is what leads to action. The budget decides what you need to achieve, and the variance tells you what happened. When you see the red flags, meaning unexpected issues, you might need to make adjustments. This is how you know where to focus your attention. Start asking the right questions to get the agency back on track. Some agents do not know where the focus needs to be, because they are not spending enough time looking at the financial's of their agency. Don t fool yourself into thinking that you not a real company because of the way home office pays you. Insurance agencies need this section just as much as home office does. Don t be fooled, it is common-place for this to be a weakness in an agency. Set up a schedule of events for your agency s financial health to start improving today. You will probably be the one doing most of the planning and forecasting. As you take off one hat to wear another be sure to adjust your view to meet the needs of each position. Some positions need your leadership skills; some positions need you to be a manager who provides feedback on things that seem irrational or out of line with your objectives. When you are wearing the controller hat, remember to think like a manager and look at the details, as well as the big picture.

4 4 Budgeting for Agency s Vision As you improve so will your creative side. Soon you ll find new ways to use the Agency budget dollars to your advantage. If you re tracking the results on all the categories you invest money into, a new approach and result will follow. We've all heard the definition of insanity is-doing the same thing over and over and expecting a different result. If you are not happy with where you are now financial, start today to develop a new plan that will drive improved results. What used to be a weak hold on finances can grow into a firm hold of your agency finances. If you re struggling with time management issues, hiring an accountant to handle part of the process may be cost effective, provided what you do with the extra time generates agency growth. Try focusing on your revenues and profits to help achieve your vision, set up specific deadlines to achieve specific goals. Create monthly goals for revenue and profits. Track your performance. Have them increase each month slightly to meet the checkpoints necessary as you drive towards the vision for the Agency. We suggest calculating the profit goals first so you will know what to expect as far as revenue goals. The Operating Profit goal is equal to the revenue target times the gross margin percentage, minus your agency operating expenses. The Revenue goal is equal to the operating profit goals times the operating expenses, divided by the gross profit margin. Use your current income statements and expenses as your guides. Bottom line is, I didn't return to Apple to make a fortune. I've been very lucky in my life and already have one. When I was 25, my net worth was $100 million or so. I decided then that I wasn't going to let it ruin my life. There's no way you could ever spend it all, and I don't view wealth as something that validates my intelligence. -Steve Jobs

5 5 Budgeting for Agency s Vision, continued... Once you have worked with your new schedule over a year, you will see patterns that will continue unless you do some strategic planning to build up your renewals during the tough months. When you can see the problems of the pattern, you can now plan to do something about it. One suggestion is to add a strong marketing push or focus, on your commercial marketing a few months in advance of the unstable times. Let s review how forecasting works in an Agency. Pay attention, it is imperative that you experience the trials and errors of learning how to forecast well. Every error should provide a learning experience that is invaluable. Over time, your goals and objectives will be fine-tuned to where you are moving closer and closer to your vision becoming a reality. First make assumptions based on your past and present, feel free to modify it based on your goals for the next few months. Forecasting is nothing more than what you're aiming for added to what you predict will happen. Usually, your renewals will be predictable if you factor in your current retention ratio. What your Agency will generate as far as new business is the tougher part of forecasting. Since the agency doesn t have a crystal ball to predict the future, there will be variance; hence the variance reports. Once you have a few years of data and more experience building your vision you will be much better at this. Start-up Agencies will grow at an amazing pace since they do not have a client base to stabilize the growth. Faster than you think the agency will become harder and harder to grow, as service issues take precedence and the focus on customer service become the main source of attention. It is up to you as a leader to make sure that sales and marketing continue to stay on pace with your objectives. This is where good financial planning during the early phases of your Agency can benefit you. Business owners have to define their objectives on realistic achievements. Having goals that make you feel like a failure will undoubtedly de-motivate you and your team. Nothing is worse that working hard and feeling like you have done a good job, just for the boss to inform you that of unmet monthly goals again and again. The job insecurity and the feelings of failure will hamper your performance and attitude. In turn, your customer experience and retention will begin or continue to fall too. Sounds like a recipe for disaster. Make reasonable assumptions. If your team is doing a good job, the reports need to reflect it and motive them further. Make notes on why you made the adjustments you made to your plans. Over time, those notes may become your saving grace to understanding why things are the way they are. A coach could easily take those notes and reports to see if your financial reasoning is sound or needs some coaching. A coach would also recognize if you're unrealistic or expecting too little.

6 6 Forecasting and Using Good Judgment in Agency s Forecasting is not the time to be making guesses or being precise. It s a time to take what you have learned about your current business and markets. Understand what you need to accomplish and merge them all together to formulate a way in which you will create the most educated assumptions about the outcome of your Agency. When forecasting the future, think about some of the following questions. What changes is the insurance industry going through right now and how might that impact my results? Consider new and existing business as well as customer perceptions. Will I be changing or adding to my staff expenses? Will I need to invest in new technology or office equipment, to achieve goals already set up and planned? Do my plans create a need to save for an upcoming lease renewal, moving the office or rebranding the office?what else do I lease or have a contract on that could change? Will I be able to grow at the pace I planned with my current budget and forecasting plans? Is the economy adding new opportunities like rollovers and benefits needs or do I have a negative outlook and only see that people can t afford my policies. Take advantage of the economic changes. They always create new opportunities, if you look at it properly. Are my marketing plans effective for the upcoming months or do I need to make changes? How does that impact my planning on the financial side? Do I need to invest in further education for myself or chosen staff members? What designations does the agency represent or plan to represent? Am I ready to dive into financial services? What does that cost? How much will time cost from which positions to secure licensing and compliance setup properly? What effects does that have on the current plans? When and how will the Agency market for that? Do my thoughts change the operating expenses, the budget, payroll, and forecast for long and short-term goals? When I change one item in one place, are the effects grand enough to revise my plan or accept that the variance reports will be off a little as expected? Large changes will create a need for revising the concerned documents. Your budget needs to be right. Yes, we are asking you to have a vision for your finances as part of your leadership tools. In the insurance industry lots of our reports are based on 12-month moving cycles. Is your agency going to function in sync? Budgeting is not an annual event. Set up a schedule and add reviewing your financials to your calendar today. Know what the timelines are for your financial planning in all areas. Create a schedule and stick to it.

7 7 How to Know if my Agency is Financially Healthy There are certain indicators that your agency is healthy. Your insurance carrier may provide reports to track retention, loss ratios, profitability, and commissions. Missing from the formula of financial health may the Agency expenses and total incomes from all sources. It s up to you to create a report that shows all the highlights of the most important information you need to be able to see easily where you stand each month. The report must show how well your systems for the whole agency are performing. Reviewing this report should show you exactly which areas need attention to keep driving the agency towards success. Again this report is an overview. Resist the urge to make it so complex that viewing it becomes overwhelming. In a culture of ownership, managers need to be kept abreast of the reasons why the plans change. If staff members and managers are going to care passionately about their positions and the agency as a whole, then being a good leader--who brings the explanations that empower the team to stay on the same page--is crucial. It s simple to become a leader who empowers the team. Produce a report, analyze the report, make adjustments for improvement, track the results and communicate with your team about the Why. Looking your reports only once is not enough. Develop the habit of connecting how management decisions come from the understanding of financial reports. By now you re probably ready for a list of things to look at regularly: Total Revenues= all commissions, other incomes (if any), dividends, capital gains, rents received, etc. Operating expenses (including taxes) Net Profit= revenues-expenses Cash position=available cash Current ratio=what you own divided by what you owe Net sales=new Business-lost policies Retention ratio over all carriers not just your main carrier Profitability=Total Revenues total expenses Loss ratio=see home office reports

8 8 Worksheets Previous Year s Summary/Current Year s Summary Balance Sheet Fiscal Year Fiscal Year Fiscal Year Cash Accounts Receivable Inventory Current Asssets Fixed Assets Total Assets Accounts Payable Current Liabilities Total Equity Income Statement Fiscal Year Fiscal Year Fiscal Year Revenues Direct Costs Gross Profit Operating Expenses Net Profit Before Taxes