Accounting Tips for Insurance Agency Owners

 

Insurance agencies are sales-focused entities. You are customer driven and results-oriented. But while you are growing your business, you may be mishandling your own finances if you manage them on your own. Even many professional accountants do not understand how insurance agencies operate and the specific requirements of agency compliance. It is important to use an accounting or bookkeeping firm with insurance agency experience so you maximize your earning potential.

 

Separate Business and Personal Accounts:

Even if you are a sole proprietorship, you should always separate your personal and business expenses. Open your phone and internet accounts as a business and pay them with a business credit card. As your agency grows and you incorporate, pay yourself a salary and pay taxes on that salary. If you just deduct money from the business to live on, you become a prime candidate for an IRS audit.

Payment of Bonuses:

The payment schedule for bonuses to agents varies between carriers. Some pay quarterly, some annually. This can create forecasting confusion. If you are relying on bonus money, you should make sure your expenses are not dependent upon the bonuses in case those qualifications are not met.

 

Collections of Premium Payments:

Some customers will be paying the agency directly; some will be paying the carriers directly. It depends on the carrier and policy. You will need to provide an accounting for both forms of payment. The payments you accept directly need to be held in trust accounts and not used to pay operating expenses.

 

Maintaining a Balance Sheet:

It is a best practice to maintain a balance sheet that shows both the operating account and the trust account. The assets column should show the deposits into these accounts and liabilities should show the amounts due to the insurance companies. This will help the agency maintain legal compliance with the trust account and avoid any discrepancies.

 

Payment Methods:

You will also need to decide what payment methods you will be accepting. It is almost always better to accept credit cards so your payment is virtually guaranteed and you don’t have to go chasing down bounced checks. However you will have to pay credit card processing fees and may need to adjust your policy estimates accordingly.

 

Payroll and Commissions:

Agents within your agency are likely paid on a salary plus commission structure. Some accountants lump these two together as one expense, but you lose a lot of information if you don’t separate the figures. You can gain a much better understanding about the success of your employees if you can break out the high commission earners versus the ones who clock a lot of hours.

 

Choose the Right Accounting Firm:

Most accounting software is insufficient for the type of accounting required by an insurance agency. You will need specialized software to manage your trust account and reconcile it with your operating account. Many accountants will try to get by with the standard software package without considering your needs. Prestige Bookkeeping understands the reporting that can set your agency apart from the competition. We specialize in a personalized approach to your business. Much like an insurance policy, not all providers are equal. You recommend your customers use the providers with the best service, reputation, and comprehensiveness. Your choice in bookkeepers is your agency’s best insurance policy.

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