Bank reconciliations are the first piece in the jigsaw puzzle of your total financial picture. Matching and verifying transactions on your bank statement with your company records is an important way to be certain that everything is in order in your accounts. Too many small businesses manage their cash based on the balance the bank is showing that day, but a reconciled cash balance will include deposits and checks in transit, which is a much more accurate picture of available funds.
Why is it important to reconcile your cash balance? Sure, you could just assume that the ending account balance on your bank statement is correct and that financial institutions never make errors. However, I am aware of at least one instance in which a former disgruntled employee cashed multiple paychecks several times. The bank did not catch the error, and the employer was left wondering why cash was short that month. In a small business, that sort of cash crunch can have a ripple effect. Fortunately, we provide monthly reconciliation services for this client, and the disgruntled employee was caught quickly before it really got out of hand.
Reconciling doesn’t have to be a time-consuming chore. Accounting software products normally have features built right in to make the process of tracking outstanding checks and deposits pain-free. Many cash balances can be reconciled within an hour, especially if the accounting for the period was relatively free of errors. Don’t worry if you did make an error here or there; small (and large) discrepancies will be flushed out during the reconciliation process. By the time the reconciliation is complete, you will have a better view of your overall finances.
If you routinely reconcile your account and get a sense of satisfaction out of a job well done, that is great! If you think bank reconciliations are akin to having teeth pulled, then there are a number of professional service providers who may be able to help you. So give it a try! If you get stuck or have questions along the way, we’d love to hear from you.