Page 166 - The UnCaptive Agent

THREE ESSENTIAL FUNCTIONSOF YOUR AGENCY AND HOW TO STAFF THEM 139

them for companies just like yours. You should contract
with one for your needs as you open your doors.

Financials

The accounting reports that you should review every
month include the balance sheet, the profit and loss
statement, and a statement of cash flows. The balance
sheet essentially tells you what you owe, who owes you,
how much cash you have, and whether your net worth
is a positive or negative number. The balance sheet is
important for any business, but it is especially critical
for agencies that are doing a significant amount of
agency bill business because your ability to pay insurance
company bills, known as accounts current, depend upon
active and aggressive management of cash and accounts
receivable, both of which are listed on the balance sheet.
The profit and loss statement or the income state-
ment as it’s also known shows how much money you
earned in a given period of time and where the money
came from. It also shows the expenses you incurred. And
finally, it tells you whether or not you made a profit or
experienced a loss for that accounting period. This is a
critical management tool. To be of maximal value, your
profit and loss statement (as well as your balance sheet)
should be performed on the accrual basis of accounting
as opposed to cash basis. While many small companies
select cash basis accounting, it does not line up expenses
with income properly and does not give you as accurate
a picture of how you performed in a given period of
time as a set of accrual statements.
Many new business owners aren’t familiar with the
difference between “cash basis accounting” and “accrual
basis accounting.” Since I’ve expressed a preference for
one over the other, I think it’s worth a brief explanation.