Financial management starts off with efficient analysis of revenue, expenses, assets and liabilities. Periodic review of financial statements should include a comparison with past performance, future budgets and industry standards.
The well-run firm always displays good control over expenses. Compensation expenses (half to two-thirds of all expenses in the average firm) are thoroughly reviewed. Better firms run "meaner and leaner" and have fewer employees but pay them each above-average salaries because they hire only the best.
Profit center accounting, which provides the source of revenue, expenses and profit, should be done by line of business as well as within lines (such as small commercial accounts), whenever possible. Most agency management systems will produce profit center reports.
Direct expenses should be charged to each line of business. Allocations for indirect expenses (especially for owner compensation and bonuses, computer and accounting expenses, etc.) can be based on time used or percentage of total revenue.
Collection practices in well-run agencies are streamlined, enabling the firm to earn more investment income. Putting smaller commercial accounts on direct bill eliminates the costs of invoicing and collecting on small accounts. A stringent collection policy should be in place, with no deviations such as advancing premiums on behalf of clients allowed.
Smart agencies utilize capital expenditures to invest in better people as well as computers, office equipment and marketing. This allows the owners to build future value rather than reaping short-term gains through bonuses or taking out as much profit as possible.