So you're ready to be your own boss and start your own insurance agency. As you guessed, you have a lot of planning and work ahead of you - even if you're already a licensed agent. If this is your first venture into the entrepreneurial world, check out this basic guide to get the ball rolling on your own agency.
Getting Started: The Blueprint for Building an Independent Insurance Agency
Let's assume you are a licensed insurance agent, if only because that eliminates the first, most obvious step. From there, you'll need to..
- Write a business plan.
- Choose a legal structure.
- Choose and register your agency's name.
- Apply for a tax ID numbers.
- Register your business with the state.
- Get the appropriate business licenses or permits.
- Purchase Errors and Omissions Insurance.
- Select an agency management system.
Take a look at each step below for more details.
Step 1: Write a Business Plan
A solid business plan not only sets your agency on the right path, but it also communicates your value to current and potential stakeholders - such as the insurance carriers who you'd like to appoint you. Your business plan should..
- Introduce the people responsible for the agency and executing the plan.
- Explain how you'll acquire customers and what products and services you'll provide.
- Identify your target market, suppliers, and competitors.
- Describe the advantage your agency has over your competitors.
- Analyze your risks.
- Include an initial budget, cash flow projections, and a production forecast.
This step is the most important part of building your business. You'll use this plan to secure financing and loans, hone in on your market, and choose your business location. To learn more about what goes into creating a business plan, check out "How to Build an Insurance Agency Business Plan."
Step 2: Choose a Legal Structure
How you structure your business will determine the amount of personal liability you take on. There are several structures available:
- Sole Proprietorship.
- Limited Liability Corporation (LLC).
- S Corporation.
Each has its own risks and benefits. For example, a sole proprietorship is the simplest structure, but it also carries greatest personal liability if things go south. Any business debts you incur can
be collected through your personal assets if you don't have adequate commercial funds. (Hint: with appropriate business insurance, this won't be a problem!) On the other hand, LLCs and corporations offer a legal distinction between you and your business entity.
Step 3: Choose and Register Your Agency's Name
Now you get to have a little fun. Some independent agents who are sole proprietors use their own names as their "Doing Business As" name. If that doesn't work for you, then you'll want to create a name that..
- Conveys your agency's benefits.
- Avoids cliché.
- Is easily searchable.
Once you settle on a name, be sure to register it with your state's government.
Step 4: Get a Tax ID Number
The IRS requires all business to have an identification number to file their taxes. If you are a sole proprietor, you may use your social security number. Corporations and partnerships must apply for a Federal Employer Identification Number.
Once you have your tax ID, contact your state insurance commissioner's office. They will have a checklist for registering as a "resident business entity." You must do this in order to pay your state and local taxes.
Though you are a licensed agent, you may need a general business permit or license to operate legally. You can find which permits or licenses you must carry by using the Small Business Administration's Business Licenses and Permits tool.
Step 7: Purchase E&O Insurance
As an insurance professional, you already know how important it is to carry adequate liability coverage. This is especially true if you decide to run your agency as a sole proprietorship. Some states may even require you to have Errors and Omissions Insurance, or Professional Liability Insurance, to register your business.
Whenever you have the opportunity to automate simple tasks, take it. That means you'll want to invest in a quality agency management system. Good software allows you to track prospects and service existing clients. (For more tips on choosing an agency management system, check out "Client Management Software for Small Insurance Agencies.")
But if you want a truly seamless and timesaving experience, look into Insurance Noodle's management system. In addition to keeping all your client data in one organized place, it gives you immediate access to multiple carriers through a single online application, which eliminates a lot of paperwork.