How To Make Your Life Easier, and Richer

Agency owners can make their lives easier and richer if they follow one simple rule: Run their agency as a business. This means doing what businesses do, including working on the business rather than just in it.

This is solid advice. There is nothing novel about this advice, but it is high quality advice. A well-run business has less internal friction, less of the daily minutiae that saps energy, fewer frustrations and even fewer emails relative to the email floods usually received when one is running an agency. Running an agency like a business is like using motor oil in a motor. Profits are inevitably higher, as is the growth rate.

This panacea does have a price – everything has a price. The currency for this price cannot be borrowed. It must be paid in full, upfront. The price is true leadership combined with an absolute commitment to running a business. This is an easy sentence to write or say, but it is the execution of this sentence that is hard. Making execution even harder is all of the ways you can convince yourself that you are committed to building a business when you are not.

Similarly, making running an agency even more difficult are all the advisors and carriers and such that give self-serving advice that seems like good business advice but is not. I grew up in a strict church that preached how the devil was always disguised to lead one astray. It is a poor analogy (on some, but absolutely not on all levels). Agency owners are often led astray by their own misunderstandings and subconscious twists of reality. Quite often, agency owners are misdirected by third parties telling them, “You really are building a business” when they are really just working in an agency. One horrible misdirection involves setting an agency up for sale when the agency has no idea that is what the advisor is doing. Maybe the worst involves almost setting up agencies for E&O claims.

Agency owners are vulnerable, like kids without vaccines, to these manipulations because most got into insurance for almost any and every reason other than to run a business. Maybe they got into insurance because they like people, like helping people, like making money, like sales, and maybe they like the insurance industry. I have found few who became an owner primarily because they liked balance sheets, training producers, hiring staff, and dealing with agency management system upgrades.

To make life easier and richer, here are my recommendations, with special points for small agencies, because they do have it harder.

1. Outsource

Identify what you do not like to do but are required to do to run the business (versus running the agency – think business). Then hire someone or outsource every one of these items you can afford to get them off your plate.

Not doing the stuff you dislike frees up massive amounts of time and energy. I’ve read estimates and detailed studies that show 70% differences in time and energy savings. In other words, a person may require 70% more time to do something he/she does not like versus something they do like. To save that 70% wastage means massive additional hours being available to do what you enjoy. You will make your money back on those extra investments. You do have to pay upfront though.

Agency owners are often led astray by their own misunderstandings and subconscious twists of reality.

2. Trust

Paying money is only one aspect. Finding people that you trust to take over those duties may be difficult. Trust is a major issue. I have found people running agencies struggle more finding people to trust. To some extent, trust is their issue, not the other person’s trustworthiness. People running a business seem to have dealt with their lack of trust of others more successfully. Either way, finding the right person is often difficult.

This point is also a real susceptibility, too. Humans tend to be good and knowledgeable at what they like. When hiring someone for a job the employer does not want to do themselves, one often lacks the ability to judge whether that person is truly qualified. I see this problem every week in two specific areas owners already know they need to outsource: law and taxes. Extremely few attorneys or accountants know insurance agency accounting or law. Owners know they need professionals, but they do not know law or accounting and the professionals they hire do not know insurance agency law or accounting, and both are unique. With both parties being blind, all kinds of mistakes occur.

A good example is how attorneys write producer contracts. Producer vesting and deferred compensation are great examples. Few producers or agency owners know anything about the 409A regulations. Few general practice accountants or attorneys know anything about 409A regulations either. Yet, these are crucial regulations that absolutely apply to independent insurance agencies.

If you want to work less and make more, run your agency like a business.

3. Don’t Be Cheap

Many owners unnecessarily exacerbate situations by being cheap. The complete ineptitude exhibited by some of the online chat forums where owners ask, “How do you….?” Or “Do you have an employment agreement for …. That I can use?” should be outlawed. We mandate motorcycle helmets to protect people from themselves, so we should ban these sites for the same reason. For example, a producer contract from one state may have zero applicability in another state.

Why anyone would think some generic contract would apply to every situation in every state is beyond me. Ignorance I suppose, but the solution is to accept that running a business requires making investments and spending money you may not emotionally want to spend. Asking an ignorant person for advice makes no sense and just because they run a similar firm does not qualify them to give serious legal or accounting or HR advice. While a peer may be an expert, not all peers are experts.

The disasters I have seen on buy/sell agreements resulting from peer advice, even non-specialized attorneys’ advice are particularly potent warning signs. Separate from paying for quality advice, but similar, is paying for high quality agency management systems and then getting fully trained on those systems. The difference between my clients who are running agencies and do not know how to use their agency management systems and those who are running businesses and do know their system well is a strong correlation.

4. Owner Compensation

Owner compensation is another great place to distinguish between whether you are running a business or an agency. If you are running a business, your compensation will be dictated by good business practices rather than tax strategies. For example, an owner(s) running a business will have a good formula for being paid and determining how much money to leave in the agency (especially for trust monies and working capital). A tax strategy is determined by how much one can take out of the company and pay as little tax as possible.

5. Accounting Practices

A good example of running a business is using a CPA who will take the time to learn, on their dime, how trust laws apply (all states are trust law states) to agencies, agency bill accounting, and will encourage you to run a business through clean accounting practices.

6. Producer Compensation

Paying producers what they are worth rather than what they need is another differentiator. Agencies run as businesses typically pay 25% to 50% less than agencies run as agencies. It is one reason agencies run as businesses are more profitable.

7. Workplace Drama

Agencies run as businesses typically have less drama. Now, some agency owners like workplace drama so this may be too high a price to pay.

If you want to work less and make more, run your agency like a business.