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How to Plan for the Long Term and Flourish in a Turbulent Economy

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Don’t let bad news about the economy cloud your vision about the future of your agency. Sure, times are tough, but you can take practical steps that will allow you to achieve goals such as organic growth, expansion, or acquisition. By thinking ahead, looking for stable carriers and agencies with which to align yourself, and focusing on long-term solutions rather than short-term problems, you can maintain success in this economy while coming out on top at the end.

Think ahead
Clarify your vision of what your company should look like in the next few years. This could mean growing organically, acquiring another agency, or planning for the next generation to take over the business. Be sure this vision matches your core competencies and the talents of your staff.

You can help prepare for an uncertain future by developing a contingency plan that calls for adequate cash reserves for at least three to six months. These additional funds may be needed to keep your agency operating at a high level after suddenly losing a major client or experiencing some other unanticipated occurrence.

Seek stability
Don’t spend too much energy targeting prospects with unstable business structures or questionable practices, because some of them may not be around in a few years. Instead, go after companies and organizations that will be more likely to stay on your books and continue to generate revenue for years to come. Build long-term relationships with clients who can withstand change and adversity, and avoid relaying on only a few clients who bring in a large percentage of revenues – if one shuts down, you could lose a big chunk of commission dollars.

Make sure you do business with carriers and general agencies that are highly rated and financially solvent to help ensure that your clients’ premiums will remain relatively stable.

While some lower-rated carriers may offer high commissions that boost short-term profits, they may wind up sharply raising premiums, suspending operations, or even closing down – all of which are more likely today than ever before. Ideally, you should negotiate contracts with several reputable carriers and general agencies, diversifying your revenue sources and giving you plenty of alternatives in the future.

Look toward the long term
Whenever possible, negotiate contracts with carriers and general agents that spread commission payments over several years as opposed to large upfront commissions with little or no payouts in the future. This will give you security and peace of mind, knowing that additional revenues will still be coming in the next few years, when you may need additional cash flow.

Clients first, commissions last
You should always make it a priority to offer products that fit your clients’ needs, even if it means earning lower commissions. For example, some life insurance applicants may scramble each month to find the dollars to pay high premiums they can’t afford. It’s more important than ever to discourage clients from taking on unreasonable financial obligations, and to always give them honest, straightforward recommendations.

In the group market, many employers are ideal candidates for consumer-directed health plans, which could save them up to 30 percent on premiums while dropping your commissions by the same percentage. Still, you should strive to do what’s right for the client, which will help nurture long-term relationships that will pay off in the future.

Be a responsible borrower
If your agency is financially solvent and positioned for growth, capital is available — even in today’s tough economy — to help you achieve your goals. But before you think about borrowing, be absolutely clear about why you need these funds. Be candid with lenders; don’t exaggerate strengths or hide weaknesses. Be sure to perform proper due diligence on your agency. This includes a careful assessment of your business model, growth strategy, financial position, forecasted cash flows, and capital requirements.

The lender will want you to outline your firm’s past performance and to reveal your business plan for the future. You’ll also need to explain how an infusion of capital will enable your agency to achieve specific objectives like retaining clients, building your book of business, or acquiring another agency.

Keep your eye on those goals
Commit to your goals and you can achieve them in spite of the challenging economy. Develop a plan, tailored to your agency’s requirements, that will help find what you need – prospects with whom you can build long-term relationships and solid carriers and general agencies that will offer equitable contracts.

Rick Dennen is CEO of Oak Street Funding, a commercial finance company that serves insurance professionals. He can be reached at 866-625-3863 or [email protected].


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