Setting up a separate account to manage the cash flow of an insurance practice is an important part of running the practice like a business. Agents doing this should consider leaving some extra money in their business and draw a minimal salary to live on, says Charles Gleason of The Gleason Corporation, Sanibel, Fla.
“Take a low draw every month and let money pile up inside the business,” he says.
One reason for letting money accumulate inside the business is “youve got to manage cash flow,” says Richard Brunsman, president of RT Brunsman Insurance and Investments, LLC, Cincinnati, Ohio.
Brunsman figures out how much money he needs to live on for a year, and then takes expenses into consideration. Based on those figures, he takes a weekly draw from his business account.
Since it is difficult for Brunsman to predict accurately when his first-year commission revenue will come in, having extra money in the account helps him manage the cash flow of his business.
“You either have to have cash on hand, or you have to borrow it,” he says.
Both Brunsman and Gleason recommend that agents keep a balance in their account of at least 6 months of gross earnings.
Gleason explains why this is important. “If you want to hire new staff, the capital is there. If you need to buy new computers or equipment, you can buy it.”
But most importantly, Gleason feels that having a substantial cash balance in your business will eliminate stress and help generate more sales. “If you need a sale, your prospect feels it,” he continues. “If youve got $50,000 in your bank account, you dont need a sale and your prospect will listen to what youre saying instead of feeling your pressure.”
Reproduced from National Underwriter Life & Health/Financial Services Edition, January 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.