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  • Chris Burand

Agency Financial Management

Updated: Aug 25

I perform many agency valuations each year. Virtually every new client who requests a valuation tells me they have good data. They advise me their data is so good I will have an easy time valuing their agency.

I perform many agency valuations each year. Virtually every new client who requests a valuation tells me they have good data. They advise me their data is so good I will have an easy time valuing their agency.


Almost none of these agencies have good data. Their data is often of horrendous quality. The disconnect between what an agency owner thinks is good data and what truly is good data is due to many factors, mostly related to owners not possessing context for what defines good data. They think their data is good because it is good enough for them to function. What they do not understand is that the data required for a valuation, a loan, and even a sale is much more extensive than what they need on a daily basis.


Here are specific reasons and great solutions:

  • The amount of data and the quality of the data agencies need to operate is far less than the data required for high quality management, valuations, loans from banks that know agencies, and the sale of an agency. Having never known any differently an agency owner would not have any reason to know their data is poor because they are getting by just fine and have never borrowed money or had their agencies valued previously. It is just pure inexperience.

  • With better data, even small agencies can improve growth and profitability. For no other reason than improving their future, I encourage agency owners to work with someone who knows what data can make the biggest difference in the operation of your agency.

  • For valuations, a buyer, a lender, or many appraisers are experienced and knowledgeable third-parties and will require detailed and quality data because a mistake in a valuation carries a much more significant penalty than most operational mistakes due to poor data. The difference is that an operational mistake may cost 5% or even 10% whereas a mistake on a valuation due to poor data may cause a 50% - 100% error. Think of it this way: If someone makes an operational mistake of $50,000 in profit, that is a $50,000 mistake, but if the valuation is based on EBITDA at 6 times, that is a $300,000 mistake.

The stakes are high so the parties involved want to be sure the data is correct and complete.

  • One reason agency owners think their data is good is because their accountant has not advised them otherwise. Unfortunately, far too many agency accountants do not know how to do proper accounting for independent insurance agencies. Agency accounting is unique because of agency bill business. This difference has resulted in different accounting laws and regulations and by contract. These accountants are making E&O accounting errors and the errors can continue for decades if the situation does not become too serious. No one really ever sees the errors except the IRS and they do not know what to look for either.

The accounting mistakes start to matter when one of two events occur. The agency cannot pay its company payables or the agency is being valued. Many agency owners have vented frustration at me for pointing out their accounting issues by saying, "It's never mattered before!"


The best time to live in your house is often the day prior to selling it because everything works and looks pretty. You've fixed all of the issues, big and small, you were okay living with for years and would have continued to live with if you were not selling your home. The same goes for an agency that needs to fix its accounting.


From a lender's, a buyer's and a good appraiser's perspective, they want comprehensive data no matter how honest you are because all these parties have seen too much abuse from otherwise "great guys."


  • Balance sheets matter and your accountant should insist you have a quality balance sheet. I can understand the local accountant not knowing agency accounting rules. I have no patience with accountants who do not advise agency owners they do not have a good balance sheet. That omission is inexcusable.

A long time ago when I first met one of my all-time favorite clients, I had to explain to him how he was slowly going broke. I showed him by using his balance sheet. I'll always remember him saying, "That's what a balance sheet is for. I've always wondered."


Balance sheets are the first financial statement in formal filings because balance sheets are considered the most important financial statement in assessing the health of a company. You may not need a balance sheet every day or every year because you know your agency is well capitalized. However, without a quality balance sheet, no one else can know you are well capitalized. Again, too many times agency owners have asked me to just trust them when they say their balance sheet is whole. When I finally review their accounts, their balance sheets are awful. Don’t take offense when any of these third-parties require verification.


Accordingly, get a good balance sheet. The better agency management systems have decent automated balance sheets if the data is input correctly. If your agency is small and your accountant says you do not need a balance sheet, find a better accountant.


  • Use your agency management system well. In smaller agencies especially I find owners using alternative accounting systems. These alternative systems may be easier to use, but they are not designed for the unique agency accounting requirements. Besides, you are paying for the full system so why not learn to use it?

  • I ask many questions multiple ways as checks and balances relative to financial verification. The following points often result in more than 50% of agencies providing incorrect data. I recommend reviewing these points to ascertain the quality of your data and possibly improve your profitability:

  1. Policy counts and account counts. Your counts matter. Retention is far more important on an account/policy basis than a commission basis. If your current and historic counts are wrong, you can't know your actual retention. You can't determine your cross-sell rate. You can't even determine the quality and some E&O aspects without this data. Very often, agencies cannot provide correct counts.

  2. Producer compensation. Approximately 75% of the valuations I do include statements like, "We pay producers 40/30 or 50/25 or 30/30 or whatever the commission split." But, when I test what producers are actually paid, I find most are paid materially more and some materially less than their supposed splits. The reasons this happens are numerous including mistakes, fraud, side deals the owner fails to disclose, and many other reasons. Check and verify your compensation is correct. A buyer will verify these figures.

Every agency will be valued. It is like death and taxes. My suggestion is that an owner should not make any assumptions that their data is good -- or bad. If you have not recently had your agency valued, get it done long before it is necessary. Doing so will aid you in creating good data and quite probably, if you follow a good appraiser's suggestions/observations, will provide an opportunity to increase your agency's value.


I can vouch that the task of having to search out good data in a rush right before a sale is a far worse alternative than consistently maintaining your data. Don't assume your data is good and wait. Get it checked and have the agency valued early.

NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

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Burand & Associates, LLC is an advocate of agencies which constructively manage and improve their contingency contracts by learning how to negotiate and use their contingency contracts more effectively. We maintain that agents can achieve considerably better results without ever taking actions that are detrimental or disadvantageous to the insureds. We have never and would not ever recommend an agent or agency implement a policy or otherwise advocate increasing its contingency income ahead of the insureds' interests.

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