Accounting

There are four basic reasons why accounting is important to a successful life insurance agent.

1. It is impossible to direct any business venture unless you know where it is going. To know that, you need to know where the enterprise has been. This information is what accounting is all about.

2. Accounting for your personal assets is perhaps even more important than for business accounting. The only way to become financially independent is to build personal net worth. Accounting for your personal net worth is the only way to measure your progress and direction.

3. Many agents report that a thorough knowledge of accounting is essential to making sales. Many agents in the personal market discover that, when they present a personal balance sheet to a client, it is, in the vast majority of cases, the first time the prospect ever saw his own personal balance sheet. Presenting a personal balance sheet to a client is not only a nice thing to do, for many agents it is the key to the sale.

The secret to personal sales is often traced to the ability to find the dollars necessary to pay the premium. Often these dollars are found by analyzing your client’s personal balance sheet and income statement.

The same analogy can be made for corporate sales. Analysis of a corporation’s balance sheet and income statement is the key to buy/sell agreement valuation, owner’s estate planning, and many other corporate sales opportunities.

If you want to make sales, find the premium dollars. Knowledge of accounting helps you do this.

4. Many agents report that when they set up their own business with a balance sheet and income statement, it will help them relate to their corporate clients better. Having real experience in accounting makes it easier to discuss corporate clients’ problems with feeling and understanding.

One of the best ways to become knowledgeable in accounting concepts is to set up your own personal balance sheet and your own income statement. Some agents like to review their personal income statement and balance sheets monthly, some semiannually, some annually. Some agents prefer to do income statements monthly but only do the balance sheet once a year.

Other agents, who have adopted computerized accounting, usually have balance sheets and income statements for their personal financial affairs completed each month. How often a person does his personal income statement and balance sheet is strictly his or her own personal decision. But when it comes to a business income statement and balance sheet, almost all successful businesses have an accounting period that runs from month to month.

It is extremely important, if you are to have a successful life insurance practice, to run your business as if it were a business, and not as some extension of your personal financial situation. It does not matter whether you are incorporated or operating as a sole proprietorship. Successful agents feel it essential that you separate your business income from your other personal income.

The simple way to do this is to establish a checking account in the business’ name and deposit 100 percent of your commission checks into that account. If you need money, pay yourself a salary from your business account. It is highly recommended that you pay yourself the same salary every month and take annual bonuses if you have funds left over at the end of your fiscal year.

When you deposit 100 percent of your commission checks into one account, the separate accounting for the expenses of your business will be a natural and very simple thing to keep. This is important for tax reasons, of course. But the greatest reason for doing this is that you can see trends in your business. You can see if your net income is going up or down. If things start going badly, you can take action promptly.

By taking a constant salary all during the year, you will be in a position at the end of the year to determine the size of your bonus based on the amount of capital you need to retain inside the business. You can also analyze your income tax situation and determine whether you want to pay more bonus and tax it personally or keep funds inside your business for future use.

Often young agents are held up in their growth because their manager won’t hire a secretary or buy them a computer. If you do a proper method of accounting and accumulate money inside your business checkbook, you will be in a position to hire your own staff, buy your own computer, rent your own office, etc. You don’t have to wait for anyone to decide you need this kind of help. If you are the captain of your own business accounting system, the numbers will be very quickly apparent to you each month as you review them. Is it time to raise your pay? Add staff? Buy a car phone? Add a computer? Etc.

It has been consistently proven time and time again that the best investment a successful life insurance agent can make is the investment in his or her own business. There are hundreds of stories of life insurance agents who created successful sales situations, made lots of money and then lost that money by making bad investments. So, we repeat for your knowledge and the importance — the best investment you can make is in your own business.

Additional information on this subject can be found in the Cost of Doing Business report available from MDRT.

There is another very strong reason for running your insurance business like a business and keeping your business money separate from your personal monies. In the early phases of one’s insurance career, the pressure to create a sale from an agent needing money is sometimes very severe. Often the client feels this pressure and, instead of listening to what the young agent says, the client starts to react to the pressure he perceives he feels from the desperate agent seeking a sale.

Many agents report that, when they started running their insurance practice like a business and segregated their funds, taking a flat salary out every month, they began to develop a significant amount of cash within their business account. As this cash account grew to $10,000, $15,000, $20,000 or even $50,000, the need to make a sale is substantially reduced. As a result, the agent is much more relaxed. His client feels his relaxed nature and pays more attention to what he says rather than to the stress he feels from someone hungry for a sale. As a consequence, the sales actually increase because there was a significant amount of money in the bank causing the agent to relax.

If you need a sale, the client will feel it. When you have $50,000 in the bank you don’t need a sale. You might like one, but you don’t need one. As a consequence, you are more relaxed and in a much stronger position in dealing with the client.