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The Value of Balance Sheets for Insurance Agencies

Running a successful agency involves effective financial management to achieve business objectives. While profit and loss statements offer insights into financial performance, balance sheets play a pivotal role in providing a comprehensive overview of an agency's financial standing at a specific moment in time.

What is a Balance Sheet?

A balance sheet, also referred to as a statement of financial position, presents an agency's assets, liabilities, and equity, presenting a snapshot of its financial health. Balance sheets capture the agency's financial position at a single point, offering invaluable insights into its solvency, liquidity, and some components of equity value.

The accounting equation is Assets = Liabilities + Shareholder’s Equity

  • Assets = What the business owns
  • Liabilities = What the business owes third parties
  • Shareholder’s Equity = What the business owes (or can be used) by Shareholders

Although an insurance agency as a service business maintains value in its service revenue, commission and fee income, it’s important to maintain up-to-date and accurate balance sheet data for operational and even legal considerations.

Example: If you utilize Agency Bill or collect Direct Bill premium for carrier sweeps, you have a fiduciary responsibility to account for those funds, commonly referred to as Trust Accounting. A common misclassification seen in insurance agency accounting is recognizing premium collected as Income and categorizing premium paid as Cost of Goods Sold. If you maintain a separate trust account on your balance sheet, and maintain up-to-date Accounts Receivable and Accounts Payable, you can accurately account for these funds without co-mingling them in your Income Statement.

Want to learn more about trust accounting? We have another article on our site that delves into this topic. Find the link at the end of this article.

Assets: What the business owns

Assets represent the resources owned or controlled by the agency and are categorized into various forms such as cash, investments, accounts receivable, and tangible assets like property and equipment.

Investing in computers, updates in your office building, and other tangible capital expenditures are an important driver to organizational growth. Tangible assets, based on IRS rules and tax law, can often be depreciated over time as Depreciation Expense. Working with a qualified CPA can help allocate these expenses to optimize your tax burden and determine how and when certain assets can be depreciated for tax purposes.

If you purchased an agency as an asset sale, or purchased a book of business from another agency, these are often recognized as intangible assets on your balance sheet. Intangible assets are treated differently for tax purposes but can be recognized for tax purposes over time through Amortization Expense. Through the life of the asset, defined by IRS rules, your accountant can help determine the amount of Amortization Expense to be recognized each year.

Liabilities: What the business owes others

Liabilities denote the agency's financial obligations or debts, including amounts owed to carriers, outstanding loans, accrued balance owed to vendors, and other obligations. By delineating liabilities, balance sheets provide a clear picture of the agency's commitments and obligations that must be met in the future.

Liabilities are often categorized as Short Term or Long Term which help to delineate whether or not the liability will be cleared in the near term or persist into the future. Short term liabilities can include things like utilities payable, carrier payables, producer payables, taxes payable, or other financial obligations that are typically paid in less than one year of being due. Long term liabilities typically include things like loans payable, long term contracts like systems or lease costs, and post termination contractual compensation owed to former employees.

Equity: What the business owes (or is available) to its shareholders

Equity represents the residual interest in the agency's assets after deducting its liabilities and serves as a measure of its financial resilience. It encompasses retained earnings, contributed capital, and other forms of equity, reflecting the agency's net worth and ownership interests.

The most common use of the equity section on a balance sheet for many small business owners is tracking retained earnings and net income available to shareholders. Retained earnings and net income commonly are used for either reinvesting back into the agency for growth, accelerated payments on liabilities, or profit available for distribution to shareholders.

Analyzing Balance Sheets for strategic insights:

Balance sheets offer critical insights into an insurance agency's financial stability, liquidity, and leverage. A healthy balance sheet characterized by strong asset composition, manageable liabilities, and robust equity signals financial strength and operational efficiency. Conversely, imbalanced sheets with excessive liabilities or dwindling equity may indicate financial vulnerabilities or inefficiencies that require attention.

Financial ratios such as Current Ratio, Trust Ratio, Tangible Net Worth, and Receivables to Payables provide valuable insights into the agency’s performance in key functions.


In essence, balance sheets play an important role in managing the resources of your agency, offering critical insights into their financial health and resilience. By keeping current data and analyzing the balance sheet, agencies can make informed decisions, mitigate risks, and position themselves for sustainable growth and success to achieve both growth and equity goals for agency stakeholders.

Want to review your balance sheet to see what insights can be uncovered? Schedule with us today for a free 30 minute consult to see how we can help you leverage your financial data to achieve your goals.

Want to learn more about trust accounting? Click here to read our prior article on Trust Accounting & What Your Agency Might Be Missing.