One thing I've noticed as a bookkeeper is that a lot of small business owners don't bother with reconciling their essential accounts every month. To reconcile an account is to go through and check the numbers and transactions to make sure that the ending balance on the statement matches the amount in the account. It's simple in theory, but in practice there are a lot of nuances to it.
I can understand why they don't do it often. Reconciling your essential accounts can take a lot of time depending on the nature of your business. And it can seem like a lot of effort better spent elsewhere. But it really is something that you shouldn't neglect, as it can save you a lot of headaches and money later on.
So, I'm going to give you a few reasons why you should reconcile your essential accounts every month for your small business.
Reason #1: Avoid Unexpected Surprises
The first benefit of reconciling monthly is that you can avoid many unexpected and unpleasant surprises. By this I mean things like an uncleared check lingering in limbo, or hidden fees from overlooking some fine print, or unpaid bills that you swore you had paid. These things are typically small enough that they can escape your attention for a while, at least until it takes a lot more effort to fix.
Reason #2: Spot Missing Money
The second benefit of reconciling monthly is that you can spot missing money or unaccounted for transactions before they leave a big impact. Sometimes the explanation behind it is innocent, such as using the wrong account when you make a purchase or a bank error. But other times it can be due to something more sinister—like an employee abusing the company credit card or the information having been stolen at some point.
Reason #3: Accuracy of Financial Reports
The third benefit of reconciling monthly is that you can ensure the accuracy of your financial reports. The importance of financial reports cannot be understated, as the decisions that determine the direction you steer your business in is based on information from them. You don't want to make a decision based on faulty information, do you?
Reconciling your accounts will let you catch unexpected things before they drastically affect your cash flow and standing with vendors. It can help you sort out where any missing money has gone and if there are any mistakes or fraudulent activity that has to be dealt with before it really gets out of hand. It can also help you make informed decisions when it comes to steering the direction of your business.
So, while it can be time-consuming, you really should make some time every month to reconcile your accounts. Or you can hire someone else to do it. In which case, just Contact Us and we at From Red To Black LLC will be happy to take on the burden for you.
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