2009 Best Practices Study

2009 Best Practices Study

Profile

Revenues/ Expenses

Financial Stability

Employee Overview

Producer Info

Service Staff Info

Technology

Insurance Carriers

Appendix

65. “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.

FINANCIAL STABILITY

66. 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. 67. 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. 68. 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. 69. Aged Receivables — Measures the length of time that receivables are past due (over 60 days, over 90 days). Receivables aged over 60 days are particular problems since payments to insurance companies are most always due on or before 60 days and the agency must use its own funds to pay the carriers.

EMPLOYEE OVERVIEW

70. Total # of Employees (FTE) — Total number of full-time equivalent employees including agency principals. 71. Revenue per Employee — Net revenues divided by the total number of full-time equivalent employees. 72. Compensation per Employee — Total compensation divided by total number of full-time equivalent employees. 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. Annual Pay per Producer — Includes compensation that shows up on the producer’s W-2 and resulted from the producer’s production responsibilities.

SERVICE STAFF INFORMATION

76. Service-Related Personnel — Non-commissioned personnel who have responsibility, either directly or indirectly, to provide or support service delivery to the agency’s clients. 77. CSR – Customer Service Representative — A subset of 76. Positions with the main responsibility of client service or to provide support in providing client services. Includes Account Executives, Senior CSRs, CSRs, Account Managers, Assistant CSRs. 78. Selling New Business — Includes total account development (i.e., account rounding, upgrading, and cross- selling) and may include soliciting new accounts in the absence of a dedicated producer.

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2009 Best Practices Study | Appendix