Stop Being Afraid of Your Numbers

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In a crude laboratory in the basement of his home. Hello everyone, and welcome back to the show. Today we have an absolutely tremendous episode for you, a conversation about agency accounting, something that everybody wants to talk about. Uh, I say that laughing because accounting is horrible. However, having done four years as the CEO and founder of Rogue Risk and having been an executive multiple times now, uh, and actually most people don't know this about me, but y- I used my math degree and was a consultant for one of the top five accounting firms, RSM McGladrey, uh, for almost five years.

Um, I've always appreciated how important accounting is. Like, I hate it. I absolutely hate thinking about it. To me, I wanna see the numbers. I wanna see the, the financial statements.

I wanna see the numbers. Numbers are important. You can't, you can't operate your business without knowing your numbers, and we talk a lot about that today, uh, with this crew of absolutely amazing people who I just adore. Uh, but, you know, I hate the work of accounting. So that being said, this solution that we're g- talking about today, Agency Point, is a rebranded version of a solution I've actually used, and I talk about that, and I wanna be upfront.

Like PFS, we were a client of PFS and Aaron Stocks for, uh, about two years, and when, uh, I sold to SIA, they took us off of PFS. But we were a client of theirs. I was incredibly happy. Uh, I love what they're doing. I love this crew.

I think this is an important topic. You, you, I-- these are-- these guys are not paying me to be here. This is not an advertising, advertisement. I love Carrie, I love Chris, I love Mick, and I think Aaron is amazing. And while I don't know him as well, I enjoyed working for, uh, or I enjoyed being a client of his company, and it helped us clean up our accounting a ton.

And, um, I just think this topic is so important that, uh, I wanna get it in front of you. So whether you use these guys or, or don't, it, it means nothing to me. Uh, they're not an advertiser. I wanna be very clear and upfront about that. I just think this topic, uh, for most business owners, it's not something you should be doing.

If you are an agency owner, you should not be doing this work. Someone else should be doing this work for you and delivering the reports to you so you can make good business decisions. But you should not be doing this work. Every minute you spend on this type of work as an agency owner is min- is time that you are losing to actually running your business, to growing your business, which is where your focus should be. So with that, um, I love you for listening to this show.

Guys, this is a highly tactical episode. It's a wonderful episode. I think you're gonna get a lot out of it. And if you do, I, I would hope that you could share this episode. Uh, we are trying to grow.

Uh, as we came off of, um, the Agency Intelligence, um, Network, uh, we h- are rebuilding our listenership, right? And we're gaining more followers every day. We're gaining more listeners. Our audience is growing. We have the YouTube version of the show if you're not watching there.

Um, we're gonna have some audio exclusives coming, so if you're not subscribed to the podcast, you're not gonna get those audio exclusives. Um, and, you know, diving more into this content work and really being a true, um, uh, information, concept, uh, uh, uh, thought, framework, idea, statistic, concept, trend provider for you guys, uh, is, is something that I love doing. It, it's what wakes me up every day. And, uh, in order to continue doing that work, we have to grow the audience. And, and, and that shows me that this is good stuff.

So, uh, if you enjoy this, share it with a friend. Subscribe if you're not subscribed. Uh, I love you for listening to this show. Let's get on to Carrie Wallace, Chris Paradiso, Mick Hunt, and Aaron Stocks. All right, party people.

Well, I'll be honest with you. When you guys wanted to do this conversation, um, I was obviously very excited, but I, I didn't mentally prepare for the powerhouse squad that would be on the call here. I was just kinda like-- Carrie was like, "Hey, you know, we're doing this thing." And I was like, "Of course. Let's talk about it.

Sounds amazing." And then, um, I, I, uh, I just didn't wrap my head around that we would have four, uh, uh, power brokers at one time on the call. I mean, normally you have to pay for this kind of thing Like, uh, some of those back, backroom deals that Paradiso does when he, when he visits New Orleans. So, um, you know, this is, this is, uh, a very interesting and exciting time for me, uh, just a, just a, just a guy trying to make his way through the podcasting world to, to, to have so many power players. But I think we're gonna talk about something that as a, as a former agency owner of a, of a small agency coming up, um, I wanna talk about, uh, just the importance of the, the accounting function in general.

I wanna talk about some of the mistakes that we're making and seeing. Um, and then I want to get into as we go, um, like what the impetus was of pulling all this together. So in, in all, uh, before we get in, I just wanna be clear for everyone, I've actually used, um, uh, Aaron's company, PFS. We use them at Rogue Risk, so we are a former client. Um, some people will see on the Agency Point website that there's a testimonial for us.

Um, you know, so we've worked directly with these guys, and we have firsthand experience or had firsthand experience with Rogue Risk, and, and that's why I was excited for, for pulling this all together. But Carrie, I'd like to, I'd like to start with you and, uh, just, just talk a little bit about like, uh, w- where did, where did Agency Point come from? Like why, why was now a time? And then, you know, we'll, we'll jump around to everybody. I, I...

Not everyone has to answer the same question, but, like, uh, w- why now? Like why pull something like this together? Why create, uh, an, an offering and a, and a company of this nature? Like, like what was the timing here and, and why did you think it was important? Yeah.

It's a great question, Ryan. I mean, as you know, I work with lots of independent insurance agencies, and one of the first questions I ask them, uh, in order to do the work that they're engaging with, with me, I have to have clean financials. I need to understand their business from a dollars and cents standpoint, and so very often it is a pain point. It's an area where agencies struggle. Um, either they're using someone that they think is fantastic, and once, uh, they send me the financials, I am the, uh, the fortunate person that needs to point out otherwise, sadly.

So there is such a huge, huge need for quality people that understand independent insurance agencies' businesses enough to provide accounting services, um, so they can run their businesses and make strong choices. Just because you go to an accountant that's down the road does not mean they understand your business. Even a CPA down the road may not understand your business. So, um, why now? It, it came up so often, um, in my work that this is such a need.

I actually explored building it myself. But as you know, as, you know, a person who's worked in several startups, building everything your own is not necessarily the smartest thing in the world to do. And as I explored and talked and thought about it, um, I think partnering made a ton of sense in order to, um, help agents and continue to stay focused in my own business. So that's why now for me it was I found someone, I found Aaron, I found Chris, um, and Mick all were around this organization that's been serving so many independent agents very, very well, and it made a lot of sense to, um, to partner together in order to bring these services. Aaron, so Carrie just used the term clean financials, and I think that...

What, what is clean financials? Like what, what does that actually look like? What does that mean? Because, uh, you know, I, I would s- I would've thought, you know, and I, I'll say firsthand experience, and I feel ba- I feel bad for your team when they first started working with us. Obviously, we got things together after a couple months, but I remember at the beginning, like I would, I would...

You know, you guys were like, "Hey, you know, we're gonna get you into, you know, we're gonna take over your QuickBooks and whatever." And I was like, "Okay, guys," like, "Go." You know what I mean? I kinda just like threw the... You know, and they're, they had 10,000 questions, as they rightly should because we, you know, hadn't processed things or tagged things properly or whatever.

So, like I think a lot of agency owners probably feel like their, their financials are good enough or they don't see a problem or, or probably it's one of these like unknown unknowns kinda things. What, what do clean financials actually look like? What are you... What is the, the goal of actually getting to clean financials? What does that output actually look like, uh, for you guys when you're, when you're working with a, with a new client?

It's a good question. Sorry. It's a good question. Uh, it could... So it, it's gonna vary depending on the size of the agency on what clean financials means, right?

But, uh, for a typical agency, the clean financials would have everything classified correctly on the income statement and balance sheet, right? So one of the biggest things that people miss, which we will probably get into later, is, you know, having their trust account reconciled correctly, or they're breaking up the fiduciary, non-fiduciary funds, picking up the non-fiduciary funds as income, whether that be retained commission or fees, right? And then, uh, properly classifying the rest of the income and expenses. So that's the typical, uh, clean financials or what I'd say for clean financials in a, in a small to midsize agency. As they get larger, that could change, right?

They might have GAAP standards they have to comply with or things like that, but that, that'd be a short answer. Um, can I... I wanna ask about the GAAP standard stuff because, uh, I, I had an experience where we, we had always run off a, a cash accounting basis for, for the obvious reason. I shouldn't say the obvious reasons. Maybe it's worth explaining.

We can do that in a second. Why, why most agencies, especially agencies when they first begin, but, but most agencies even as they, as they grow stay on a cash accounting basis. But then if you take certain levels of investment, if you join certain organizations, et cetera, that have to be held to a GAAP standard, then that kinda changes. And maybe this is a very personal question, um, just 'cause I had to experience this head-on and had a very- Strong opinion on it, um, was when you do have to comply with, say, GAAP standards, do you need to go, do, do you need to keep two sets of books? 'Cause, because my opinion was in order to accurately understand where the agency is, we always have to be on cash, and that if we need to, we could add an accrual, a set of books that are run off an accrual basis in order to hit GAAP standards. But that in order to just know exactly where we are at any given moment, we need to stay on cash.

And is this something agencies need to be thinking about? And at what point do they need to think about this? Because they could be... You could see very different snapshots at very different times using the two different methods. And because our product is earned over time and not necessarily something you can book at the moment, um, you know, I know accrual accounting becomes very difficult in a, in a standard retail agency.

So, you know, is this-- This might be getting super nerdy, but I obvious- this was something I dealt with head-on, and I'm just very interested in your take, being a pro. Um, like, you know, I'm kind of an armchair accountant. Uh, I worked for an accounting firm for a time, but I don't actually know what I'm doing, you know? Uh, um, not just a member, I'm also a client. Uh, what, what, um, what, uh, what, what also...

W- how do you, how does that work for people? When do they need to start thinking deeper about this? Yeah, most agencies will probably never have to think about it unless they're acquired or take on a large amount of investment where there is a covenant, uh, either from a bank or a private equity firm or just lenders in general that require a, a GAAP standard or an annual review or audit. Um, so most agencies can stay in what we call income tax cash or income tax accrual basis, uh, where it's relatively simple accounting and it's the most cost-effective. When you get into GAAP, you have FASB, the Financial, uh, Accounting Standards Board, which regulates, uh, all the standards that you have to comply with.

That could be ASC 606, ASC 842. And when you get into those things, it's very costly, uh, because you have to analyze things a lot deeper than cash comes in or cash goes out. To get to your point of do you have to run two separate books if you move over to GAAP to know your cash inflows or outflows, the answer is no. You can run other reports like the statement of cash flows or even convert your GAAP financials into cash or accrual, uh, in order to get the numbers that you're seeking on a cash basis. And that has to be done anyway, 'cause people don't typically file taxes in a GAAP basis.

That's not like a, a basis that's checked on the tax return. It's either cash or accrual. So you already have to do some type of conversion, at least on an annual basis, from GAAP to cash or accrual. Nice. Okay, cool.

I, I know that was kinda nerdy, but, um, so I was just thinking about when I fought this battle, uh, I was probably like 60% right and 40% wrong in my take on that particular issue. So I'll take, uh, I'm gonna take the W just 'cause it's my podcast and no one will ever call me on it, but I think I was at least partially wrong. So I appreciate that answer. Um, you know, I, I think, you know, Mick, looking at the agencies that you've worked with, uh, so obviously been an agency owner, uh, but have done a substantial amount of work in, I'd say, the segment of the market that the-- making sure-- I mean, your books are, having your books be accurate is important all the time, n- no matter what stage or season of your agency that you're in. But there's definitely a heightened level of importance as you start to grow to a particular size because you're starting to deal...

You know, there was a period of time at Rogue where it was just like, as long as I had more money in the bank account at the end of the month than expenses, like we were winning, we were winning. Which didn't always happen, but it was a victory. Like, there wasn't really even any accounting happening. It was just like, "Okay, the credit cards is 2,200 and we have 2,300 in the bank account. Victory," like, "On to the next month."

Um, but obviously we all, we grow out of that at a certain point. So how do you actually see this, you know, with, with a lot of the agencies that you're, you're working with at, at Premier Strategy Box or Paddy, et cetera? Like, how, how does this... To me, this feels like something we don't talk about enough. Like, how does this impact, how should agency owners be thinking about their accounting?

How does it, uh, impact how they lead? Um, like where does having these accurate financials, understanding your numbers, like where does that come into from a leadership perspective? Um, and, and how can you actually leverage that information to run your agency more efficiently, et cetera? Yeah, that's a, a good point. And to piggyback on some things that Kerry was saying, right?

Like, and I know Kerry and I have had this conversation, a lot of agency owners are just afraid to actually know their numbers, right? And, and you can't make real decisions on where your agency's going, where do I spend money, where do I take money out, how do I prepare my taxes? And for me, that was the biggest thing for me as an agency owner, was having everything categorized so that at the end of the year or the beginning of the following year, I could have real-life conversations with whoever's doing my taxes who isn't in the insurance world, right? Because everyone, most accountants, most tax accountants aren't in the insurance business, so we have to explain a lot. And if we don't know the categorizations of, of what our P&L is saying other than just the summed-up totals, we're at a loss.

And so for me, I think that was the biggest thing that was important for me, and that was what, you know, partnering with PFS meant for me, was just the ability to help agency owners be owners, right? Because there is information that are must-knows. And so again, to me, that's the biggest impact that I see. Yeah. I-- S- Chris, th- this comes as something that I've always been, um, I've always been envious of your ability to stay focused working on the business Instead of getting too deep in the business.

And I know this has been something that you've worked through and it's been a period of time, and it's not like it just happened overnight for you. But I think you do a very good job of being both i- involved in your agency, not, not separated from it, but also continuing to, to, to manage and work on your business. And to me, like coming off of what Mick just said, um, it- that's, that's kinda what I heard is, is, is this, you know, using these numbers, using financials, understanding what your numbers are, it allows you to focus your time working on the business. Is that, is that an accurate... Like is that an accurate representation and, you know, how, how do you actually implement this in your own agency?

Well, I think just to back up to answer that a little bit is first is I used to do it in-house. Um, come to the conclusion that the in-house person wasn't working out. We decided to depart from each other, and it was quick. It was within two weeks, so then I was kind of in a jam, right? Where do, where do you go?

Where do you find somebody? Finding somebody in the insurance space that actually understands, uh, the financial aspects is not that easy. You can find people in other industries, but it doesn't transfer over well. I end up outsourcing to a company, and that company, uh, ended up... Did I lose you guys?

Oh. Nope, you're still there. Um- I just made you the primary person, that's all. No worries. Um, so what ended up happening was, uh, the books got so screwed up, Ryan, that I was fortunate enough to know enough people in the industry and I started calling some friends.

And a good friend of mine says to me, "Call Aaron Stocks." So I picked up the phone, I called Aaron, and we started, and PFS, and we started dissecting. And one of the key aspects that I realized, um, unfortunately was 10 years in, more than that, uh, we weren't reconciling our commissions on a monthly basis per carrier. And yes, I hired a company to do that, but it wasn't getting done. Uh, PFS found over $66,000 in one year of unpaid commissions.

Am I accurate about that, Aaron? 67 if you round up, but yeah. It was, it was a lot of money. Um, how many years did I lose commissions? And we chose to only go back, uh, I think it was, what?

24 months, Aaron? We didn't- Two years, yeah. Yeah, we didn't go back years, which we should have. Um, it was just too costly and, and, and, you know, it's a tall task. But- Yeah ... in order to be able to run a business and to work outside of my agency, you really have to know the numbers.

So how does this play a role? Every single month, uh, I'm fortunate enough to have PFS, uh, be able to do the, the back numbers, and then my front numbers are being done by Carrie as a fractional CFO. And the key aspect behind that is, is that allows me to be able to do what I need to do, which really is, you know, is to try to make, make it rain for the agency. So I, I'm fortunate to partner with the right people in the right organization, and that's how this all came about. So I feel other agencies need this just as I needed this in order to get to that next level.

And do you find, and this is one of the things that blew my mind. Uh, so Chris has shared this story, the reconciliation story with me before, and it blew my mind when he was telling me because I was always u- under the opin- uh, under the impression before owning Rogue Risk and, and, and actually we found a s- a small, I mean, we had, we were brand new, but I think we found like maybe two or three accounts that, that we owed. What's up, guys? Sorry to take you away from the episode, but as you know, we do not run ads on this show, and in exchange for that, I need your help. If you're loving this episode, if you enjoy this podcast, whether you're watching on YouTube or you're listening on your favorite podcast platform, I would love for you to subscribe, share, comment if you're on YouTube, leave a rating or review if you're on Spotify or Apple iTunes, et cetera.

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Let's get back to the episode. After we started working with you, or we were owed commissions on, I mean, it wasn't anything like Chris' number just 'cause we're not nearly been in business or have as many clients. But I was alwa- always under this impression, and, and I've heard this said at conferences and stuff, that just, like, carriers don't miss commissions, right? Like, this is what they do. You know, you always get paid.

Like, like, you know, when's the last time you didn't get a check from Travelers or whatever? And not to knock Travelers, just, just, you know, when, you know, these are the kind of things that you'll hear thrown around different conferences and these kind of ideas get perpetuated through the industry, and then all of a sudden you h- find a situation like Chris where you, you, you don't realize that, that you're down $66,000 that you haven't been paid in a 24-month period just because you haven't been reconciling properly. So is this something that- You know, agencies need to be worried about? Is this something that you find fairly common when you first dig in with a client and you start to do some of this reconciliation for them? Like, d- is this a, is this a common thing that you find, like, you know, kinda, we'll, we'll call it lost revenue that just you're owed but haven't been paid?

Th- there's probably always a percentage, right? Uh, probably not as large as Chris'. His was probably a more unusual example, um, of, of how large something could get if you're not reconciling it. It, it's, it's a tough balance because new agencies, they don't have necessarily producers they have to pay, so reconciling their commissions isn't a huge priority, right? And it also isn't, uh, cheap, right?

I mean, it could, not double, but it could, you know, maybe 30, 40% times your normal bookkeeping fee. That's, that's what it costs to reconcile, so it's not cheap. So you need to find balance between, okay, is it worth reconciling to find missed revenue, or am I gonna start paying producers that I have to reconcile anyway? Um, but as soon as we start reconciling, there, there is typically always some commission that is missed. Um, that could be for a number of reasons, just, you know, user error, maybe the carrier, you know, did something incorrectly.

But, uh, when we reconcile, there's usually always, um, you know, uh... And I could get into a little bit how we find it, but there's usually always something that, uh, is missing. Before you get into how we find it, 'cause I do wanna know that, do you see any, um, like, do you see more of this issue in agency bill, stuff that's premium financed, or direct bill, or is it, it doesn't correlate direct bill, agency bill, et cetera? Just depends on the agency and the state and the carriers that they're using. It could be in both.

Um, definitely, obviously, agency bill can have more user error, 'cause a lotta times there's retained commission that never got retained or something. Yeah. Um, but there, there are same issues, uh, exist in direct bill. Yeah. So, so I would love for you to just dive a little bit deeper into how do you actually go find this stuff?

Like, what does that process look like? Yeah, so, so there's really two steps to verify that you're paid what you're owed. Obviously, the main point of commission reconciliation that most agencies use it for is to pay producers, right? Uh, but, uh, you know, to verify that the commission income is coming into you correctly from, let's say, direct bill, uh, it, it's twofold. One is you need a list of all your carriers to ensure that you're receiving a deposit from those carriers each month.

If you don't receive a deposit that month, whether it's a check or ACH, then you need to go to the carrier site or get the commission statement to see if you were negative or something that, you know, had chargebacks where you're not gonna receive commission. So having a list of all your carriers and commission statements actually reviewed to see if you should have received the check that you never did is step one, and that would be checking your general ledger and making sure you have a deposit from every carrier. So after you do that, you would then reconcile your commissions in your agency management system. So, uh, whatever system you're using, you would reconcile, uh, the commissions, which would then mark off what you've been paid by policy, right? After that, you can produce what's a l- called a leftover report, that's what we call it, which is every policy that was unpaid.

And usually we'll say, you know, give us a 30, 60-day leeway 'cause the carriers take a while to pay. But if it's over 60 days, then we should find out why it wasn't paid. Most of the time on those reports, it's, it was a cancellation that didn't get updated in the AMS or something like that. But sometimes you'll find out, hey, this didn't get paid on. Let's find out why from the carrier, and then you get paid on it.

So that's the process that, that you take. Yeah. That, that, um... I know the first time that Chris told me the story about his particular situation, uh, I, I, I was just blown away. I just, it, I...

Completely naive. You know, just, just something... I just didn't think that that didn't ha- You know, you, you think of all the things that you have to think about as an agency owner, right? Like, how much it takes to actually bring the revenue in, make sure everything's operating properly, and then you're like, "And now I have to worry about getting paid too? Like, actually getting the check?"

Like, ah! You know? Like, it just starts to get overwhelming. So, um, you know, Carrie, when you're, when you're sitting down with an agency owner and you're, you know, and, and obviously they're maybe interested in valuation or they're interested in pro- you know, whatever their particular reason is they started to sit down with you. What are some of the, what are some of the first aspects of the financial statements that you start to dig into, that you, that we really wanna make sure are accurate so we have a good understanding of what's going on in that agency?

I mean, obviously we wanna make sure all, all the numbers are accurate, but, but what are some of those first numbers that, that you dig into to go, "Man, if these are good, then, then we have a good feel for, for where we're at"? So we're not... Let's talk about valuation. That is a very common thing, and that's one of the ways that I get to know agencies really, really well. I ask for five years of financials, and I'm looking for a trend over that five years of their growth rate and revenue, their expense highs or lows.

But what I'm trying to get to is what is a reasonable expectation of the ongoing operation of this agency? What does it take to run this agency? And if, uh, to, to, to piggyback off of what Mick said, if it's not classified the same way year over year, that's going to be a mess. I'm going to have a really hard time seeing trends. So number one, are there trends, and can we actually explain the trends?

If we can't, we need to dig in and get it consistent. The second is, you know, agencies have a tax strategy and an operating strategy, so sometimes there are expenses that are being run through an agency to minimize taxes, and we totally get that. It depends on your tax structure, how much you run those expenses through. But we've got to get to what does it really take to run this agency, and that is something that every agency owner should know. What is a tax strategy in your P&L, and what is your true profitability?

Because at the end of the day, that cash flow and that profitability is what drives the value of your business and should be the thing that drives decisions you're making. So that is a huge part of what we do, is how do we pull out the discretionary funds that you might be running through your business and get to that true north? 'Cause the reality is you might make different decisions about how you spend those discretionary funds in order to grow your business and maximize your value. So those are the two main things that I do when I look at people's financials. And by discretionary funds, y- you mean, oh, and, and I'm sorry, just one sec. You mean like, uh, maybe instead of having a, a vehicle under your personal name, you're running your car through your business- That's right ... your business owns your car, et cetera, your cigar club membership.

Like Chris has got all those go-go clubs that he is part of. Um, you know, that kind of stuff. Another American flag, uh, for the office, that kind of expense. Yes, sir. All those things, yes.

Yeah, okay. Gotcha. So I, I was just gonna give a real example, Carrie, of what you said, "Hey, Chris, I'm looking through your numbers. Why is this $10,000 here? What is this for?"

I said, "Oh, this was, um, one of the agents made an error. Uh, our deductible for our errors and omissions was 25,000, so it was a 43, $4500 claim, so we had an attorney draw up an agreement. We paid the gentleman, um, to keep everybody happy. Uh, we couldn't declare whose real fault it was. It was miscommunication either way."

And Carrie says, "Why do you have it under errors and omissions?" And I was like, "Well, it's part of errors and omissions." And she says, "No, because your errors and omissions, if it cost you $50,000, and let's just say you covered another $30,000 of these small, you know, avoiding errors and omission claims, it shows 80,000. Well, it should show 80,000 every year or a little bit higher because your E&O doesn't usually go down." And I was like, "Great example, Carrie."

So we had to start a separate funnel for that because that should not be classified under errors and omissions, and that was a- Yeah ... a real learning experience that happened to me and, and, you know, my accountant says, "Hey, didn't realize that." And that's why, you know, my accountant's 85 and I'm moving over to PFS because this- Yeah ... would've been caught earlier if we utilized somebody who specifically knew insurance agencies, um, like Agency Point and, and PFS. And Chris, how does, how does catching that, like what ... When you say, like how does that help you? Like what does that, uh, then allow you to do now that you have that broken out properly and you can look at it?

Like is it allowing you to budget better? Is it allowing you to better ... Like what is that allowing you to better understand? Just- A lot of things, but I'm gonna let Carrie answer that because I know- Yeah, yeah ... she's ... Please, go.

So let's, let's just say, let's just say if I didn't dig in and I didn't understand that, and I also ... Let's say I'm a valuation person that values all kinds of different businesses. So to me, 80,000 in an insurance, business insurance account makes sense. And I say, "Okay, it's a reasonable expectation that it's gonna cost $80,000 to insure this business," and I don't correct it. Well, he's now, that's $50,000 that did not drop to the bottom line and did go- not get multiplied by the, by the appropriate multiplier to determine the value of Chris's agency.

So s- Mm ... if I didn't take those one-time expenses out and right-size his P&L, he is going to have a skewed impression of what the potential value of his agency is. And let's not, like that's a unique one, but what about someone who's branding, who's changed their name or has decided to change their logo, a one-time thing you do that will not repeat, and it's in a fund that's pretty large, which is marketing, and can vary greatly? We've got to get to what is an ongoing expense makes sense, and you have to do that in every single account to make sure that you get to what's reasonable because that's what a potential buyer's going to do. And if you don't know it yourself as the seller and you don't catch it, guess who's gonna benefit from dropping that to the bottom line in a sale? It's going to be the buyer, and you just left major money on the table.

So that's in a buying and selling situation, but the other part is what if you don't discern that and you plan for next year and say, "I can't hire a producer"? Well, you can because what you actually are going to budget will be far less w- if you take those one-time expenses out. Gotcha. So, so again, I'm kind of the layman here. Uh, if I'm, if I'm looking at it and I take ...

The, the one-time expenses can be, can skew the valuation because what we're doing is taking what we see in these buckets and projecting them into the future to get a better understanding of what the value should be, and if all those one-time expenses are included in there, then what it looks like is it costs more to run the business than it really does, which ultimately hurts your valuation. So by pulling, by, by doing the work of properly categorizing things and putting them in their proper buckets, even if it means creating a couple more, what it sh- allows you to show is here's the actual baseline amount that it takes to run this business, which gives you the maximum valuation, uh, uh, uh, the ability to project that into the future accurately, which will give you the maximum valuation. Does that, does that sound right? That is correct. That is correct.

Okay, cool. Yes. Oh, that's, that's very interesting. That wasn't so layman, by the way. That- Yeah, that was pretty good.

Yeah, that wasn't so layman, just so you know. Well, it was just, it's in, you know, I'm kinda like a, you guys are the smarties. I'm just the everyman here. So I'm just trying to put it down into, into language that we can understand. So, uh- So Ryan, if there's a, if there's an agent out there that's listening to this and they're like, "But I'm not selling.

I'm not buying. I, I don't ... Why does this matter to me?" There's also the, the reality that if you wanna use the industry benchmarks that are out there and you're not classifying your expenses the same way, you could actually be led down a path to think that I'm doing fantastic or I'm not doing so well if you're comparing yourself to benchmarks that have expenses classified differently than your own. It's important if you wanna use the information in our industry the right way to make sure that you're actually aligning with the way that they're classifying the expenses.

And a- again, that's another part. Like that's how I actually determine which accounts to dig into. If you're way outside the benchmark, most likely you're classifying your expenses differently than the benchmark and we gotta, we gotta figure it out. So in this case, it would actually make sense to really align with the industry so then everyone's speaking the same accounting language essentially. You don't wanna have to try to translate your version of accounting buckets and classifications because it'll just confuse people and possibly make them, you know, a little more hesitant.

Correct. Ah, very, very interesting. Well, think, think about today if your books aren't accurate, um, Ryan. You get 22, 25, I mean, the rate increases are tremendous. How many people at the end of the year are gonna say, "Well, I made a million last year.

I grossed a million. I, I grossed 1.25, 1.25. I grew by 250,000. I grew by 25%." That's simply not true- Yeah ... because of unfortunately the increases is real big.

What is the real truth of your growth? How many clients did you lose? How much premium did you really increase put on the books versus just taking the carrier increases? So what is your true health of that agency, and what is the true health of you, you know, moving forward? What kind of year did you really have?

Yeah. Well, not to go off topic, but that's also why I think these hard market situations are-- should be full throttle growth because so many agencies sit on their numbers 'cause they see revenue increasing just 'cause of rate increase, and they're not necessarily pushing into their accounts where there's so many people whose antenna up from a customer perspective right now that, you know, if, if, if, if you're not tracking both revenue and, like you said, Chris, total accounts gained, you know, y- you know, net, net, uh, netting out, um, the increases in premium, then you could actually have a down year where you technically make more on the top line growth. And- 100% ... that's a scary thought because for the agencies that are, say, you know, working with, with Mick or in Patty or doing some of these other h- high, you know, uh, high-end trainings and really pushing hard and really investing in this time, they're just capturing, capturing, capturing. And it's, you know, when everything starts to settle, it's gonna be a, a, um, like a trampoline effect for those who've put in the work right now. So I know if we didn't-- we're not on here to talk sales, but I can't help but, but bang the drum of now is the time.

There's, there's so much opportunity out there. So, um, you know, I guess, you know, one of the things that I get asked about a lot just 'cause of my time at Rogue and the fact that I, um, have been open about trying a whole bunch of different, um, commission structures and stuff like that, like wh- when we-- One of the-- I get asked a lot of questions about how to compensate people. I am not a compensation expert when it comes in the industry. I just get asked this question quite a bit. Happy to share what I, what I did and what I found worked.

But to me, it seems like if you, if you have a good feel for your numbers again, and, and Mick, I'm gonna toss this one to you 'cause I'm, I'm interested in your take on this. Like, how can we use a, a, an accurate and clean understanding of our numbers to want to, to properly incentivize our team to, to, to, to hit, to, to grow these numbers, to grow our agency? 'Cause, 'cause and you and I have even talked about this, Mick, before. Yeah. Like this, this idea how we-- I feel like there's so many misunderstandings, so many different philosophies, and s- in so many agencies incentive structure on compensation, particularly for producers, is so misaligned to growth. Like how do we start to use this stuff to, uh, to, to build compensation programs that are actually gonna help our agencies grow?

Yeah, that's a great, great question. And yeah, we had a ton of conversation about that, right? And so let's go to the producer model first. If you don't have your commissions reconciled, you really don't know what you're paying your producers. I don't care what model you have.

You could say 35 new, 45 new, 50 new, whatever. If you're not reconciling, you have no idea because odds are you're leaving money on the table or you're throwing money away, one of the two, right? Mm-hmm. So, you know, you and I had this conversation about, and then I'll just throw Ryan under the bus. Yeah.

Yeah. "Mick, why should I put my commission percentages for every line of business with every carrier in my management system?" And I said, "Because if I'm a producer for you, I wanna be able to know what I'm getting paid and how I'm getting paid." So for me, having that structure is critically important. And then when we talk about staff incentives, right?

If you put out a 5% growth target or even a 5% profitability target, how do you know? Like if you're not truly looking at your accounting structure, how do you know where that money's coming from? Because maybe leaders aren't incentivized on percentage of revenue, right? Which they shouldn't be, to be honest with you, because you have operational leaders where, you know, growth from a revenue perspective or new sale perspective might not be a target for them. But cleaning up or shoring up some of your expenses could be.

So if you don't really understand that, and if you don't have it classified right, what are you doing? Yeah. The-- I, I'll tell you, um, the other thing you can do, and, and, and this is just personal experience going through this, and I'm, I'm sure, uh, um, Mick and Chris and whatever, and Carrie, you've dealt with this too. Like I, I would get all these questions from my producers 'cause they constantly would have problems with how much they're being paid 'cause, 'cause they're like gorilla math on their notebook would be- Mm-hmm ... you know, like, "I'm due. You know, I'm due, uh, you know, all this money."

And you're like, "Wait a minute. I don't even have that much money in my bank account. I don't understand." You know, and if you don't have your commissions properly reconciled, you-- You know, once we started doing it the proper way and with the proper percentages- Sure ... we go, "Well, here's how much we've been paid, and here's your percentage of that, and here's how much you get, and that's why you're getting it." And, you know, 'cause it never lines up appropriately and, and, you know, s- and then you, you get people paying you commissions on a monthly basis versus an annual or, you know, if it's a six-month term and there's all these different structures that- I found we were, you know, and just for the agency owners out there that are listening that may not have had this experience yet, I found we were overpaying our producers every single month until we started reconciling, and they were even unhappy with how much they're getting.

And then when I- when we started properly reconciling, they were even more unhappy, except they didn't have an argument, 'cause I literally was like, "Here, I can show you exactly what came in for your accounts. You get paid when we get paid. Like, here it is." And I didn't have that defense before, and it ended up saving me cashflow every month because I was overpaying them all. I mean, ultimately, it would get squared over the course of a year, but on a month-to-month basis, it was really impacting our cashflow because we were overpaying everybody every month 'cause we were just kinda like guessing at, you know, which is crazy to say, but we were kinda guessing at what we should send them.

And, um, it's, you know, scary to think back to that time. I mean, I'm glad we eventually fixed it, but I- I mean, I can't be the only agency owner doing this. Can I, can I sell for you, Ryan? What? Can I s- can I sell for you?

I'd like to be overpaid. Chris, so Chris- This is why everyone loves working for me, I just overpay everybody. Chris, here's literally what I saw with Ryan. I said, "Ryan, you do know you don't get commission on taxes and fees, right?" He's like, "What do you mean?"

I'm like, "Dude, you're paying your producers on money that you don't actually collect revenue on." Oh, Lord have mercy. Oh, hold on. I wanna be, let's be fair here. So some of this s- Uh-oh, Ryan.

I, I ... There are certain tasks which my brain has a hard time slowing down to do. So what I was doing, I know, I ... Just for the record, I do know you don't get paid commission on those. However, what I was not doing, to Mick's point, he's 100% right about this, I was not slowing down long enough to pull out the taxes and fees, and I was just paying based on the top line number because, well, this is just the way that I am.

And you're not the only one. So can I just- You're, you're not the only one. I promise you- Yeah ... there's probably 30% of the people listening, if they're being honest, they're like, "Holy crap." Yep. "You need to go back and look," because I promise- Yes ... you're giving it away.

And it, it, it adds up. I mean, especially, and this is, I think this is why Mick used to bang me over the head with this. We were like a 45 to 47% agency bill agency. So the taxes and fees on that stuff really adds up- Wow ... over time. So you're taking that percentage, I'm paying commission on that over time, and that was when I had to, I had to bite the bullet, and we, I basically, I didn't pull all that commission out, and I didn't wanna not pay them, so I think we did like a ...

We, we, I figured out a percentage where I just kinda ate a percentage of what I had overpaid them, just to make everybody happy. But, like, think about that. I mean, that's a real expense to our bottom line that I had to eat because I wasn't properly reconciling and paying commissions i- in- in the right way, and it's scary to think that I did that for a long time. I mean- So Ryan, you're sitting here talking about this, and all I can think is, it's Ryan Hanley that's doing this. So let's, let's just think about this for a moment, okay?

You are a natural born salesperson. There's no two ways around that. You're a marketing genius, and you sell, and that's the true for a lot of people that run agencies. They are salespeople, relation people. They are not financial people.

It's actually uncomfortable for them to actually look at a spreadsheet, be in numbers, and have to slow their brains down enough to actually think about the crazy details that we're talking about on this podcast. Yes. So the reality is, you're one of the most valuable people as the owner inside the agency. If you spend your time thinking about debits and credits and, and commissions and all of these things, you are not serving your agency well. You're not at- Yeah ... your highest and best, right?

And so, but it's always the owner that does it. The, they are the ones that hold, uh, payroll. They are the ones that actually look at the financials. It's not often that you delegate that until you get to a certain size. Not outsourcing it is one of the most largest expenses inside an agency because of the opportunity cost lost.

There's no two ways around that. I, I think that this is an incredible point. I think this point transcends so many activities in the agency, but this one in particular, and it's why, and, and, you know, it's why when ... I think, I think both Chris and Mick referred me to PFS originally. I think you b- I think I asked both of you, and you both said PFS, and I was like, "If these two guys say yes, then this is where I'm going."

But, like, um, it was one of the biggest, uh, biggest, uh, uh, awakenings for me as an agency owner because, one, I wasn't doing it to begin with. I was passing it off to someone else at E needs 'cause, you know, we had a fairly transparent and open system for the most part. I mean, obviously we had some HR stuff that you couldn't share, but, like, you know, our system was fairly open and would probably make most agency owners, like, hurl at the level of transparency that we had. But, um, but when that ultimately got outsourced, and we just got financials sent to us every month by, by, by Aaron's team, it was like, it, it literally was a game changer because it's, it's not just the time, it's the brain cycles. It's literally the brain power that you have to spend that isn't going towards training a producer or working with an account manager on renewals or whatever r- true revenue generating activity you could be doing.

You're wasting brain power on, on this stuff, versus when you get it in the email at a month end, and you comb through it and you go, "Okay, this looks good. Okay, this is up. Okay, what's up with that?" Maybe ask a few questions. Boom, and now you know where you are and off you go.

It, it is a game changer, and I think that there's so many activities like this, but, but this is one of the key ones. Mm-hmm. One other key- Could not agree more ... key concept that was heard on this podcast is you're a genius, Ryan Hanley. Yeah. Well, I agree.

Yeah, I was gonna ... I blushed, I blushed a little bit. Wow. I got, for those that aren't watching the video- I think you did. I was like, oh ...

I was like, "Oh, that feels kinda good. I don't- Stood up a little bit, you know? Yeah. Yeah, he paid me. It's all good, right?

That's nice. Yeah, that, that felt, that felt really good. Um, so- So okay, so, so we've talked a lot about this whole thing So, uh, kinda the, the, the, the four horsemen of the accounting apocalypse here that I have on the call. Like, you guys all form like Voltron, and Agency Point comes out. So w- what is the idea behind Agency Point?

Um, I know it says Powered by PFS Global. Like, what is the... Like, how does it all work and, and, and what is the, the offering that you guys have, um, that people should know about? Aaron, you wanna- I'll toss that up to whoever wants to take it. I'll take it.

Yeah. Uh, yeah, so, so we decided that, uh, you know, w- w- PFS wanted to make a big push into the insurance space. W- we're already primarily insurance, and I think it's super under-serviced in that industry specifically, right? And so we wanted to do that. We wanted to come out with an, uh, uh, a, a brand for the insurance space.

So we decided Agency Point. So Agency Point is PFS. PFS is Agency Point. Gotcha. Um, and, uh, but it's how, it's how we're going to market to the insurance space, 'cause it's very under-serviced.

Uh, PFS already, you know, has similar names in the industry, so we didn't wanna get it confused. So we chose Agency Point as our way to market to these independent agents. Awesome. Okay. So you're getting, you're getting PFS and all the services, and people, and expertise.

Just, this is like a, a branding and sc- and, and sculpting place so that people can get a very clear, this is for insurance agencies, this division, these individuals focus on it. It just, it gives, uh, uh... It's just a, a more focused c- department inside of PFS as a whole. Is that essentially...? That is correct.

Exactly. Exactly. Yeah. I, I do like the name too. That's cool.

So, um, how do people... You know, so obviously we've talked a lot about it. Um, you know, for anyone listening at home, uh, I, I wanted to talk about this topic in general, but I also, having been a user, and believe in, and obviously very, you know, have not just deep friendships, but also believe in, in the four individuals that are on the call as well, and, and have been a client of PFS, so I, I wanted to, to get this out there. How do people get ahold of you, Aaron? How do they work with you?

And, and maybe just break down real quickly, um, what the sweet spot is for an agency to come work with you. Because I know even though we were a client, we were on the smaller side, and you guys were kind, and you brought us in, and you helped us at a time when we really had a need, and it, it seemed more like charity than anything, because, uh, we were probably a pain in your butt. But, um, I know you do have a, a sweet spot client or, or, or segment of the market that you can really, you know, do your best work for. Maybe describe that, and then, uh, and share a little bit about how people can get ahold of you. Sure.

Absolutely. So, uh, you know, we, we don't say this to discourage people. Uh, like your agency, you were looking to grow, and that, and that's really what we're honing in on. If you're a smaller agency looking to grow to the next level, we would absolutely love to do your accounting. So it's not charity.

It's a, it's a mutual relationship that, uh, will be beneficial for both of us. Um, our, our sweet spot is revenue of s- 750,000 or greater is our sweet spot. Again, if you're smaller than that but you're looking to grow, um, you know, please reach out to us for sure. We could, we could help and get you to 750 and above, uh, using accounting. Um, to get ahold of us, very simply, you can go to myagencypoint.com and get all of our contact information.

You can call us at 909-294-7372 or email us at info, I-N-F-O, @pfsglobal.com. Yeah. Awesome. Sorry. And I will have- PFS on- pfsonline.com Go ahead.

Sorry. PF- yeah, yeah. And I will, uh, I'll have all the links and stuff in the show notes as well, so if you're listening in audio and missed it, you can just go to the show notes page and, um, and, and get linked over and, and connect with everybody. I'll have everyone who's on the call's, uh, LinkedIn in there as well. Guys, I appreciate you coming on.

I think, you know, we could talk about this topic all day. I think that this is one of those things that people gloss over because it's, like, not sexy and fun like sales and marketing, although, you know... And, and I, and I'll be honest with you, I didn't even respect the t- the accounting enough until I started Rogue and really, you know, even as an executive in companies, I mean, you know, you're just handed financials from the d- the accounting department, and you look at them. But until you're the one that's actually responsible for putting them together, responsible ultimately, um, I think you don't have a true appreciation for, uh, w- what this can do. And if you haven't worked with someone like Agency Point and seen what clean financials look like, the work that has to be done, properly categorized expenses, properly categorized income, right?

When you start to see it, all of a sudden, like, this, you kinda discount it, discount it, and then you see it and the light goes on, and you're like, "Wait a minute, I wish I had had this for years." So, um, you know, I, I just, I think this is wonderful. I'm glad that you are focused on the insurance industry. I have always been an advocate for what you've done and, you know, I've referred some people over to you over the years. So, uh, appreciate it, and appreciate all your time and, and sh- and everybody sharing their experience.

Thank you so much. Thanks for having us. Thanks, Ryan. We appreciate it. Yeah.

Thanks, Ryan. We appreciate you, but this was not free, by the way. I don't know what the free stuff was you were talking about at the beginning of the call. That's, that's not how it works. Well, I, I-- Wait, is my check in the mail?

Hold on. I don't understand. You, you said this was, like, a friend thing. I don't understand. What?

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