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It is always important to have your financial house in order, however, in these tough economic times, it is even more critical.  Here are three best practices which we believe agencies often overlook:


Most agencies prepare an annual budget and compare their actual results to it.  However, many agencies do not reforecast during the year.  It is important to forecast throughout the year – ideally at least once a quarter.  We recommend reforecasting after significant events such as receipt of contingent commissions or upon significant declines in revenues.  This allows Management to understand the impact and proactively address any issues.

Cash Flow Planning:

Cash is king so agencies need to keep their eyes on it.  Once you’ve completed a reforecast, you should take it to the next level and prepare a cash flow projection.  When you identify cash short falls in advance, you have more options to deal with it:  adjust producer draws, reduce staff, or obtain a loan while the agency could still be approved for one.  Identify a cash flow too late and your agency may not survive.

Balance Sheet Review & Account Reconciliations:

Agencies focus on their income statements.  However, your income statement is only as good as your accounting records.  To ensure accurate financial records, agencies should complete account reconciliations for all balance sheet accounts on a monthly basis.  The account reconciliation details what comprises the ending balance of the account.  The Accounting Manager should then perform a thorough review to understand significant fluctuations and challenge assets and liabilities (i.e., are there old receivables balances which may be uncollectible, are any liabilities understated, etc…?)

We often find that agencies are either not performing monthly account reconciliations or the reconciliations are not properly prepared.  So how does any agency owner (who is typically not an accountant) assess the accuracy of financial records?  If you have an audit, ask your auditors for a candid assessment of your accounting staff and the adequacy of their reconciliations.  If you don’t have an audit, consider hiring a local CPA to review your accounting records and balance sheet account reconciliations.  There are many high quality local CPAs who could perform these services at a very reasonable rate.

Posted 8:35 AM

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