2002 Best Practices Study

Pro Forma Pre-Tax Profit: The agency’s pre-tax profit when discretionary expenses (bonuses, compensation, and perks) made for the benefit of the owners, based solely on ownership, are removed, i.e. removing expenses that would not be incurred if a third-party owned the agency. Receivable to Payable Ratio: Accounts receivable divided by accounts payable. This factor measures the collection practices of an agency, with a lower ratio representing more timely collections. Revenue Per Employee: Net revenues divided by the average number of “full-time equivalent” employees your agency employed during the most recently completed fiscal year. Spread Per Employee: Total revenue per employee minus compensation per employee. While revenue per employee has been a standard productivity measure, the “spread” measures the dollars per employee available to pay all other agency expenses and generate a profit for the agency. It is another measure of productivity. Stockholders’ Equity: Total assets minus total liabilities. Stockholders’ equity reflects the “book value” of a firm. Tangible Net Worth: Total assets minus intangible assets equals total tangible assets. Total tangible assets minus total liabilities equals tangible net worth. The tangible net worth is an important measure as it represents the net value of the corporation if it were liquidated. Results are shown as a % of net revenues. Validated Producer: Salesperson whose production supports the compensation received based on the existing producer compensation percentage, formula or method used by the agency. If a salesperson has been with the agency for over three years, they should be included as validated even if they are not. Working Capital: Current assets minus current liabilities. This measures an agency’s ability to meet short-term obligations.


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