For many, this is not an area of strength. According to a survey conducted by Clutch, over half of small business owners operate without a budget, and many do not review or even generate monthly financial statements. Reviewing financial statements can be confusing or overwhelming as they are unsure of what to look for or focus on. There are several key insights you can gain from reviewing your financial statements. These insights can help you make small changes that will have a big impact on your business over time. Here are some tips you can use to identify insights inside your business:
Review your Profit & Loss statement and categorize your expenses by metrics that align with the industry. This will allow you to review your allocation of resources to each of these expenses and how they relate to each other as well as other agencies your size. Once the expenses are categorized it will be much easier for you to identify redundant or unnecessary costs. At this point, divide each expense category total by total revenue in order to determine the percentage of revenue you are allocating in each area. There are benchmarks available for each of these categories in the Best Practices Study1 that you can use as a guide in evaluating your allocation.
Outsourcing and automation can be a smart strategic move – especially as your customer and carrier partner expectations continue to change. By reviewing your financial statements and key performance metrics you can focus on identifying possible areas for improvement. You should focus on the areas that can help you reduce costs, streamline processes, create efficiencies, increase capacity, and allow your current team to focus their efforts on the tasks that are aligned with their expertise.
Possible areas to consider automation or outsourcing include accounting & bookkeeping, IT Services, marketing, claims processing, as well as administrative tasks such as data entry, appointment setting, and processing repetitious tasks. It is important to do your research to ensure that the outsourced work is being completed by someone who understands your business and has a proven track record.
By organizing and reviewing the financial reports, you can identify the areas of your business that are the most profitable as well as those that are not performing well. It can help you know which areas need your attention or the ones that may need to be reduced, reworked or even eliminated, as well as those you may want to invest more time and resources. By reviewing your reports by customer type, line of business, specialty, or niche you can quickly determine the areas that need your attention.
By reviewing your financial reports and key industry metrics, you can easily determine if your compensation strategy is an area that you need to focus and improve. It is important to make sure that your most valuable asset, your people are compensated fairly as well as properly motivated to hit the performance standards that are aligned with your overall goals. If you adopt a compensation structure that is not aligned with the industry or your goals, you may need to rework it to drive strong business results.
By closely reviewing your statements you can spot signs of fraud much more easily than if your reviews are infrequent or haphazard. When your review is aligned closely with the events that are occurring you have a much better idea of what amounts you expect to see. When the amounts do not align with your expectations or current trends, that could be a sign of possible errors or fraud. Checking things like your balance sheet will help you spot possible errors quickly. Consistency in your review is key to being able to spot these signs that may otherwise go unnoticed.
By carefully examining your financial statements and understanding key performance metrics and the industry benchmarks you can quickly identify opportunities to improve. Even the smallest changes can have an enormous impact on your agency over time. The agencies that are positioning themselves for the future are the ones that know their numbers and are running their agencies like businesses.
As a sizeable asset, it makes sense to spend time understanding the financial metrics that will help you grow and maximize the value of your agency. If this is not an area of strength for you, please visit www.agency-focus.com or contact carey@agenecy-focus.com for more resources and information.