Financial Strategies for Strong Profits

The use of profit and loss statements can help you track revenues and expenses, and build a better business overall

Profit and Loss (P&L) statements take a look at hard data to determine whether a business is profitable or not, and as a result, are utterly important in the financial services world. P&Ls further detail how a company’s revenue is translated into net income by reviewing the cost and expenses during a specific period.

Many brokers, even the top producers, may still not be taking full advantage of this financial tool. However, if companies like Manulife, Sun Life, Trimark, and The Investors Group think it is important to do monthly P&L statements–and they surely have more money than we do–then it is equally important for small business people to do the same. So tip #1 is, if you are not presently doing monthly P&L statements, start doing them.

You still may be asking yourself, what are the real-world benefits of doing P&Ls, and how can I implement P&Ls in my business? Well, here are a few pointers:

Estimate Your Revenue and Expenses
When you enter a new year, outline a budget of what you think your projected revenue and expenses will be. Then when you do your monthly P&Ls, you can measure out month-to-date results against your annual plan, to see if you are on track for your goals.

Compare Personal and Business Profitability
When you complete a budget, you will estimate what you think your profitability is. You should then compare that profitability with your own personal budget. If your personal budget is calling for more money, you’d better go back and review your personal budget.

Take a Close Look at Your Expense Ratio
Look at your expense ratio in your practice. This ratio is all of the costs associated with running your practice, including staffing, rent, telecommunications, technology, administrative costs, etc., divided by your total revenue. Note that your income should not be included as an expense. If the expenses before you are paid are in excess of 40% (50% if you are heavily involved in the Employee Benefits business) you do not have a healthy expense ratio. In this situation, you should either figure out ways to increase your revenue while not increasing costs, or if you think your revenue is relatively fixed, then you need to reduce costs.

Categorize Revenue
Divide your revenue into three categories and track this on a month-in, month-out basis. These categories are:

a. Trailers and renewals

b. Revenue from sales made to existing clients

c. Revenue from sales made to new clients

5. Track Your New Client Acquisitions

Speaking of new clients, track your new client acquisitions on a spreadsheet which should include names, where they came from, the process that you went through, and the discussions that you had. Also include sales results, what segment you would place that client in, and whether or not they have provided you with introductions.

Juli Leith, from The Personal Coach, provides customized one-on-one business coaching for investment and life insurance advisors.


Case Study: Hugh Wood Canada Ltd.

This independent brokerage’s use of P&Ls allows it to be proactive and resolve problems before they occur.

Relying on hard facts and data is how Hugh Wood Group Canada Ltd. monitors its monthly revenues and expenses. The Toronto-based brokerage realizes the importance of profit and loss statements, and further states it looks at “expiry lists” specifically so that executives can estimate the amount of premium and revenue yet to be booked in any given month.

“A business has to be on top of potential problems, be it revenue shortfall, excess expenditure or receivables that are not being collected in a timely manner,” says Doug Poole, president at Hugh Wood Group Canada Ltd. “Monthly results shouldn’t be a surprise at the end of the month. Possible problems need to be identified quickly and action taken.”

Poole also says the company reviews weekly reports from The Agency Manager (TAM), an insurance brokerage management system. “At any point in the month, I have an idea of how we are doing relative to our budget and/or the same month in the prior year.”

When it comes to tracking new business writing and clients, the firm does this separately by department and producer. Additionally, the brokerage tracks new submissions in the marketing department to consider workload in that team, and to see where the potential new business is being generated.

Poole offers this advice to other brokerages. “Client receivables must be monitored very closely, otherwise cash flow and bad debts can quickly escalate into a major problem,” he says. “Our approach is very firm (but fair) with both clients and staff in terms of what is expected. This is even more critical for clients that are in an underperforming sector of the economy and may not be able to meet obligations in a timely manner.”


© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the July/August 2010 edition of Canadian Insurance Top Broker magazine.

Copyright © 2017 Transcontinental Media G.P.
Transcontinental Media G.P.