AGENCYBUDGET

expenses included in this category include, rent, utilities, technology, licenses, business insurance, and professional services. For example, telephones are necessary in order to ensure that the Agency is able to contact clients, potential clients, and carriers. Therefore, telephone expenses can be considered operating expenses. However, personal cell phones should not be included in this expense if they are not used for business purposes (similar to automobile expenses, discussed above).

Administration

Expenses: Administration

expenses are expenses that cannot be directly attributed to the operation of the agency. For example, Officer Life Insurance (also known as Key-Person life insurance) is included in this category because this expense is not a result of the Agency’s efforts to sell insurance and is not necessary to maintain the day-to-day operations of the Agency. It also includes expenses like Depreciation, Amortization, Interest Expense, and Shareholder Distributions. In calculating EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), many (if not all) administrative income and expenses are removed or added back in that calculation.

#2: Projecting the Future

When budgeting for any business, it is important to estimate any increases/decreases in expenses, capture new expenditures that are expected in order to accomplish your stated goals as well as the estimated increases or decreased in revenue.

Typically, agency revenue cannot increase without agency expenses increasing as well. For example, your business plan for next year might be to increase Agency Commissions by 10%, but how are you going to achieve this goal? You will need to consider what amount of your current book of business you expect to retain. Remove any accounts that will not renew, like bonds for example. In addition, apply a reasonable assumption for your retention rate based on past performance. Then plan out how you will achieve that goal, for instance, you might need to hire a new producer, start a local ad campaign, or invest

Continued from page 30 in a tool or technology to help create capacity on your team. When planning for revenue goals, keep in mind that revenue can also change due to circumstances like economic conditions, but these changes are harder to predict.

Changing circumstances can affect multiple parts of the income statement. For example, if a producer is retiring, this will decrease next year’s compensation expenses, but it will also decrease next year’s revenue. When making an adjustment to revenues or expenses, remember to consider how this circumstance may affect other parts of the income statement.

Sometimes the effects of changing circumstances can be hard to predict, such as the effects of local economic conditions. For example, if a large company opens up a new manufacturing facility in your area, it will likely improve the local economy, but it is hard to calculate the effect it will have on your Agency. In creating a budget for your