The agency external accountant plays an integral part in every agency's operations. After reviewing many agencies financials, I've seen the unfortunate results of either choosing the wrong accountant or, more frequently, agency owners, managers, and bookkeepers not communicating effectively with their accountant. This situation is difficult to detect until serious damage is done because the results usually don't become evident until many years have passed.
A little planning up front can help avoid disaster down the road. Here are a few tips to help agencies achieve better results from their accountant:
The first step is to decide what you want your accountant to do. Many agency owners think their accountant is reviewing their financials every year when in reality, they're just taking the information and putting it on the tax return.
I've had many accountants tell me, 'I have no idea what the numbers on an agency's income statement or balance sheet mean. I'm just taking the data provided by the agency and putting it in the right box.' Iv'e even had accountants tell me that they knew the agency's numbers were wrong and that questionable practices existed, but their job wasn't to audit the books. Meanwhile, most of their agency clients thought they were doing more.
If you want tax or financial guidance, make sure your accountant knows it. If all theyr'e doing is completing tax forms, maybe you shouldn't pay their normal hourly rate.
Choose an accountant who has knowledge and experience with insurance agencies, especially if you need financial advice. Insurance agencies are unique and have specific needs. For example, many accountants give tax advice without considering trust requirements. They often recommend that agents 'bonus out' profits to minimize taxes, without considering the damaging effects on the agency,s trust ratio (not to mention the damage caused by draining working capital). I believe such advice can create an E&O exposure for accountants.
Hire an outside, third party when doing an accountant's review or audit. Otherwise, if the accountant is making mistakes with your financials, those same mistakes will probably make their way into the accountant's review or audit. Also, the tax accountant is probably working for the agency owner on an ongoing basis, while a third party isnt. Enron, WorldCom, Tyco, and so many other well-known Fortune 500 firms have proven the importance of this point.
Finally, hire other advisors to help with issues outside your accountant's area of expertise. I've found that accountants who specialize in annual tax returns aren't as good with such general business advice as mergers/acquisitions, retirement, and benefits planning. Many agency owners attempt to kill two birds with one stone by asking their accountant to advise them on other issues. Unfortunately, these owners usually learn the hard way that these issues are best handled by advisors with specific expertise.
The agency accountant is an important cog in your agency machine. A little preparation and ongoing communication can prevent your financials from turning into alphanumeric soup.