How Insurance Brokerages Should Review Their Financials at the Start of the Year

For many insurance brokerage owners, the start of a new year brings a familiar mix of motivation and unease.

On paper, last year may have looked successful. Revenue was up, policies renewed, and producers stayed busy. But when you look at your bank balance, things feel less certain. Cash does not always seem to line up with reported profit. Trust accounts feel stressful rather than reassuring. And there is often a lingering sense that you should understand your numbers better than you do.

This disconnect is common in insurance brokerages. Large dollar amounts move through your accounts every month, yet much of that money is not yours. Commissions arrive on different schedules, while adjustments and chargebacks show up after the fact. Meanwhile, payroll, technology, and operating costs continue without pause.

A start-of-year financial review is not about perfection. It is about gaining clarity before small issues become ongoing stress. When done well, it helps you understand what actually happened last year and gives you confidence heading into the months ahead.

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Why A Start Of Year Review Matters For Insurance Brokerages

Many insurance brokerage owners view year-end bookkeeping as something to finish and move past. Once the books are closed, attention quickly shifts back to renewals, sales, and team management.

The problem is that unresolved financial issues do not disappear just because the calendar changes. Small reconciliation gaps, unclear revenue reporting, or poorly understood compensation costs tend to compound quietly. By the time they show up as cash pressure or compliance risk, they are much harder to untangle.

Certain insurance brokerages, such as P&C agencies, also have an additional responsibility for premium handling. Trust accounts and fiduciary obligations are not just accounting details. They are areas where mistakes create real exposure and sleepless nights.

A start-of-year review allows you to clean up loose ends, reduce risk, and start the year with financial information you can actually rely on.

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Gather The Right Reports Before You Start

Before diving into analysis, it is important to make sure you are reviewing the right information.

At a minimum, you should have:

• A Profit and Loss statement for the full prior year
• A Balance Sheet as of year-end and the most recent month
• A cash summary or Statement of Cash Flows, if available
• Accounts receivable aging
• Carrier payable summaries
• Producer commission reports
• Production reports from your agency management system
  
  

Looking at last year alongside current data helps you spot trends rather than isolated issues. This context is what turns bookkeeping into insight.

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Start With Cash And Premium Handling

For insurance brokerages, cash review should always begin with premium handling.

Many states require or strongly recommend separate premium trust accounts. Even when not strictly mandated, separating operating cash from premium funds is widely considered best practice.

At the start of the year, confirm that your accounts are structured correctly and are being used consistently. Then take the time to fully reconcile your premium trust activity.

A solid review includes three elements:

• The premium trust bank balance
• The trust balance shown in your accounting system
• The underlying detail showing which clients or policies the funds belong to

When these numbers do not align, it usually points to breakdowns in how premium activity is being tracked and reconciled. Negative client balances often stem from timing issues or misapplied payments. Lingering differences typically reflect posting errors or unreconciled carrier activity. Premium funds covering operating expenses often indicate underlying cash flow pressure. These issues are rarely isolated, and addressing them early prevents small gaps from becoming systemic problems.

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Make Sure Revenue Is Reported The Right Way

One of the most common sources of confusion for insurance brokerage owners is revenue.

Premiums may flow through your accounts, but they are not your income. Your real revenue is commissions and fees earned. When this distinction is not reflected clearly in your financials, profitability can look inflated, and decision-making suffers.

At the start of the year, review how revenue is being recorded and ask a few practical questions:

• Do commission totals align reasonably with carrier statements?
• Are chargebacks and commission adjustments being recorded consistently?
• Are contingent or profit-share commissions tracked separately so that volatility is visible?

Commission income may be overstated or understated, leading owners to make decisions based on numbers that do not reflect reality. Inconsistent handling of chargebacks can create artificial profit spikes that reverse later, making performance harder to interpret. When contingent or profit-share commissions are blended into core revenue, operating margins can appear stronger than they are, masking volatility and concentration risk.

Over time, this lack of clarity erodes confidence. If you sense that something is off, even when reports look positive, then it’s time to dig deeper into the revenue review to surface the issues and restore trust in the numbers.

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Review Balance Sheet Accounts That Quietly Accumulate Risk

The Balance Sheet is often where unresolved issues sit unnoticed.

During your start-of-year review, take time to look closely at:

• Carrier payables
• Premium trust liabilities
• Accounts receivable
• Accrued producer commissions
• Deferred revenue, if applicable
• Suspense or clearing accounts
  
  

Every balance should be explainable. If an account cannot be clearly tied back to real activity, it deserves attention.

Owners often ignore these balances because they do not directly affect profit. Over time, though, they create confusion, slow down monthly closes, and make it harder to understand your cash position with confidence.

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Take A Close Look At Producer Compensation

Producer compensation is typically the highest controllable cost in an insurance brokerage, yet many owners review it only at a high level.

Start by looking at commission expense as a percentage of commission revenue, both overall and by line of business. Then review chargebacks and adjustments to see whether patterns have changed.

It is also worth understanding profitability by producer. This is not about ranking or criticism. It is about visibility. When you know which relationships truly support the business, you make better decisions around hiring, compensation, and growth.

Reconciling producer commission reports to your accounting system regularly reduces surprises and builds internal trust. Doing this at the start of the year sets a strong foundation.

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Review Expenses With Purpose

An expense review does not need to involve scrutinizing every transaction.

Focus on categories that meaningfully affect cash and margins, such as payroll, technology, marketing, occupancy, and professional services. Compare last year to the year before and identify any material changes.

For each meaningful increase, ask whether it represents a one-time investment or a new ongoing cost. Then consider whether it delivered growth, efficiency, or risk reduction.

This approach keeps the review practical and tied to real business decisions.

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Build A Small KPI Snapshot You Can Actually Use

Financial reports become more useful when paired with clear operating metrics.

At the start of the year, establish a short list of KPIs that reflect how your agency operates. These might include organic growth rate, retention rate, commission revenue per employee, operating margin trends, and months of operating expenses covered by cash.

Tracking a small number of meaningful KPIs throughout the year helps you spot issues early rather than reacting after the fact.

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Starting The Year With More Confidence

Running an insurance brokerage means balancing growth, compliance, and people management at the same time. Financial clarity makes that balancing act easier.

A thoughtful start of year review reduces surprises, lowers stress, and gives you confidence in the numbers behind your decisions.

At Bookkeeping for Brokers, we help insurance brokerages build financial systems that reflect how agencies actually operate. Through accurate bookkeeping, clear reporting, and CFO level insight, we help owners understand their numbers before problems surface.

If you want to start the year with cleaner books and a clearer financial picture, we would be glad to help.

‍Book an introductory call with us today.

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