2014 Best Practices Study

2014 Best Practices Study

Key Benchmarks

62. Operating Pre-Tax Profit — Pretax profit minus contingents, bonus and investment income. 63. Pro Forma EBITDA — See items 60 (EBITDA) and 61 (Pro Forma Pretax Profit). 64. “Rule of 20” Score — a valuation metric developed by Reagan Consulting that is the sum of the agency’s pro forma EBITDA margin times 50% plus the organic revenue growth rate. It provides a quick means of calculating whether or not an agency is creating significant returns for its shareholders.

Profile

Revenues

Expenses

Profitability

Employee Overview

FINANCIAL STABILITY

Producer Info

65. Current Ratio — Current assets divided by current liabilities. A current ratio greater than 1:1 indicates that cash and assets with short term maturities are sufficient to meet a firm’s short-term obligations. 66. Tangible Net Worth — Total assets minus intangible assets equals total tangible assets. Total tangible assets minus total liabilities equals tangible net worth. Represents the net value of the corporation if it were liquidated. A low or negative tangible net worth impacts a firm’s ability to invest in new opportunities, develop new products, hire new employees, make other capital expenditures and handle stockholder redemption obligations. 67. Receivables/Payables Ratio — Accounts receivable divided by accounts payable. This ratio measures the collection practices of an agency, with a lower ratio representing more timely collections of those amounts due from insureds. 68. Aged Receivables — Measures the length of time that receivables are past due (over 60 days, over 90 days). Receivables aged greater than 60 days tend to have a magnified impact on the agency’s liquidity as payments are most always due to insurance companies on or before 60 days, thus forcing the agency to use its own funds to pay carriers.

Service Staff Info

Technology

Insurance Carriers Appendix

EMPLOYEE OVERVIEW

69. Total # of Employees (FTE) — Total number of full-time equivalent employees including agency principals. 70. Revenue per Employee — Net revenues divided by the total number of full-time equivalent employees. 71. Compensation per Employee — Total compensation divided by total number of full-time equivalent employees. 72. Remote Workers — An employee whose main location is in their home or other site not physically located within an agency’s physical space. 73. Spread per Employee — Total revenue per employee minus compensation per employee. While revenue per employee is a standard for measuring productivity, the “spread” measures the dollars per employee available to pay all other agency expenses and generate a profit for the agency.

PRODUCER INFORMATION

74. Validated Producer — Producers whose book of business is sufficient to cover his/her wages under agency’s commission formula. 75. Unvalidated Producer — Producers whose production does not yet cover his/her wages under agency’s commission formula. 76. NUPP — Net Investment in Unvalidated Producer Pay. Expressed as a percentage of net revenue, the NUPP is the difference between what an agency pays its unvalidated producers and what the producers would earn under the agency’s normal commission schedule. 77. Annual Pay per Producer — Includes only compensation that shows up on the producer’s W-2 that resulted from the producer’s production responsibilities.

2014 Best Practices Study

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