Before agencies can set next year’s goals, they need confidence in this year’s numbers. Year-end planning can help agencies get an accurate picture of their financial performance by resolving accounting discrepancies, receivables, out-of-balance accounts, budgets and strategic priorities.

That's why a successful year-end close starts long before December.

An accurate year-end financial close helps agency leaders understand profitability, identify trends in their book of business, evaluate producer performance and make informed decisions about opportunities ahead. To help agencies prepare for a successful year-end close, we spoke with Maureen Boeing about the reports, processes and accounting practices that deserve your team’s attention.

As agencies approach year-end, what are the common accounting mistakes you see? How can firms avoid them?

It is critical to make sure you have balanced your accounts — bank accounts, accounts receivable, direct bill receivables or cash on account, premium payables, producer and/or broker payables, as well as government tax payables.

It’s also important to maintain accurate balances in any other withholding or payroll accounts. Better to work on those now before the year-end comes, or you have to scurry at the first of the year trying to figure things out. I highly recommend making sure these accounts are in balance monthly.

Problems don’t solve themselves in the accounting world, and incorrect workflows can often make them worse. Identifying out-of-balance issues restores accurate balances; following workflows correctly each time can prevent those issues in the first place.

Which financial reports or metrics should agencies review? What insights do they provide for next year's planning?

At year end, agencies often review a book of business report to identify new business during the year, as well as lost business. Epic has a pre-built retention report, but it is based on the correct use of Line Status on policies, as well as updating the report to include any unique line statuses your agency or brokerage may use. (Applied support can help with updating that report.)

In addition, I find that agencies pour over production reports to analyze where the past year’s income came from. When accounting workflows are followed carefully each month, these reports should match the income reported on the income statement. You can use this report to analyze where your income came from this past year.

Is it particular carriers/lines of business/producers? Is it new business or renewals?

Producer commission reports are also used by agencies to plan for salaries or draws and/or to evaluate producer commission levels for the coming year.  

How should agencies evaluate accounts receivable, commission income and outstanding payables at year-end to ensure accurate financial reporting?

Agencies should have validating reports that validate the numbers reported on their income statement and balance sheet.

But it goes beyond just balancing. You need to understand your accounts receivable report. Do you have a lot of past due amounts? Do you have a negative balance at year end (possibly due to an early payment from a client or refunds due to client)?

Management and accounting staff need to review the balancing reports to work through them. Contact clients who are overdue. Return premiums to clients who are owed money back. (This is not something that should wait until year end.)

As to commission income, it’s important to compare income received year-to-date against what was expected. Epic’s Book of Business report that includes the billed premium field and either estimated or annualized premium fields can be exported to Excel where you can add a calculation to compare billed to expected.

Several things come into play to get accurate (or close) amounts:

• Which field is your agency using: estimated or annualized?
• Is it at the policy or line level?
• Are those fields kept accurate throughout the policy term either by policy download or manual updating?
• Are your transaction codes appropriately updating the billed premium field?

Any disconnect with these answers can cause the billed vs. estimated/annualized report to not be worthwhile to an agency. 

Looking to the new year, what accounting best practices should agencies implement now to strengthen cash flow, profitability and financial visibility?

Consider running the balancing reports multiple times a month to find mistakes quickly rather than just at month’s end. Whether you implement new workflows or take a more focused approach to existing ones, it’s never too late to improve financial reporting. The beginning of a new year is a great time to start fresh with a clean income statement, and accurate month-end reporting puts your agency in a good position at year end.