There is one universal truth that people from all avenues of the business world can agree on—account reconciliation can be a major bummer.
This is especially true when you’re running your own small business. Whether you’re a brand-new startup or a seasoned entrepreneur, balancing your books is probably the last thing you’ve got on your mind. Besides, taste testing your new selection of craft beer sounds much more fun than investigating your statements with a magnifying glass.
You know how you have #ThirsyThursdays set as a repeating event on your calendar? Well, you need to have the same dedication to your bookkeeping. The more that you do it, the more you’ll be able to build up your tolerance (see what we did there?) Basically, practice makes perfection—as well as protection.
Many small business owners have a straight-up toxic relationship with money as it relates to running their business… and that gives us the case of the sads. But, it doesn’t have to be that way. Reconciling your accounts monthly is high-key brilliant money moves you need to be making. Listen, we can practically hear your eye-roll from this side of the screen, but you will thank us later when your money is all buttoned-up (like a little chihuahua wearing a top hat and tuxedo). Here a few account reconciliation hacks you need to know, so you don’t find yourself in a mess.
WHAT IS ACCOUNT RECONCILIATION ANYWAY?
The very sound of those two little words may make you want to retreat into the fetal position and take a nap for the rest of the day. But that ain’t happening, you hear? We’re not going to reverse your money story if you hide under your weighted blanket (love those). Your money story won’t change overnight, but at least we can introduce a new reality to you when it comes to reconciling accounts. In reality, it’s just a terrifying term that makes business owners want to hide in fear. We promise there’s nothing to be afraid of!
Account reconciliation is simply the act of comparing your bank statements to your bookkeeping records for a specific time period to make sure they match up. Phew, we did it! See? That wasn’t so bad, right? Now that you know there’s nothing to be afraid of let’s take a look at your business accounts—specifically your internal records, as well as any credit or bank statements. Because getting those tangled in a mess is way scarier than anything hiding under your bed.
WHY DO I CARE ABOUT ACCOUNT RECONCILIATION?
This is how it’s going to work. We will give you some hot tips, and then you will apply said hot tips to your business bookkeeping. After you’ve balanced out your books, we will all do a happy dance together and bippity-boppity-boop. The truth of the matter is, money requires specificity, clarity, and focus. Without that clear focus, your business simply can’t move ahead. Knowing your numbers is empowering, people! But getting there can be overwhelming, we totally get that. You’re probably wondering right now, like, what’s the light at the end of the tunnel? What’s the point? What is the freaking end game!?
Account reconciliation is vital because you may have inaccurate bookkeeping and don’t even know it. By comparing your bank statements with your bookkeeping, you’ll able to pinpoint discrepancies (AKA money that’s gone missing). As a business owner, you work way too hard to have money disappear on you. At the same time, you should hold yourself accountable in keeping your books balanced, especially if you don’t have a professional working on your side. It may be tedious work, but it will definitely pay off. Here are a few reasons why:
YOUR ACCOUNT IS ACCURATE
The truth hurts, but it will also set you free. If your books and bank account don’t align, you could be spending money you don’t really have. Along the same lines, you could have money that could go back into your business—just imagine, that indoor exercise bike with unlimited online streaming classes could be all yours. Err, I mean, the offices.
YOUR MONEY IS IN THE FLOW
In the cash flow, that is! Making sure your accounts are balanced gives you an accurate picture of what your cash flow looks like. As a small business owner, cash is king. It protects and provides you with choices in the case of emergencies.
YOUR MONEY IS PROTECTED
We hope you never have to worry about fraud, but regularly performing an account reconciliation will expose deception. For example, you’re working with a new vendor and write a hefty check for ceramic vases for your flower shop. You suddenly realize the check was cashed with a few extra zeros. If you perform a monthly account reconciliation, you’ll discover it sooner than later, making it easier to rectify. It could be something as simple as your business partner forgetting to cash a check you wrote, and now the books are off-balance. You work hard for your money, protect yourself.
YOUR MONEY TALKS
Not only does your money talk, but it’s got a lot to say. Account reconciliation lets your money tell you what’s going on with your business. It tells us when we’re spending too much on expenses or that a client hasn’t paid all of their invoices yet. These situations can kill your bottom line! You can only get the full picture of the health of your business when you know your numbers are balanced. Plus, you and your money can finally get a good night’s sleep when you know exactly how much is coming in and going out.
HOW DO I DO THIS ACCOUNT RECONCILIATION THING?
First and foremost, turn that frown upside down. Reconciling your accounts won’t be the most fun thing you’ve ever done, but it also won’t be the worst. Who knows, maybe you’ll love this process. In fact, once they get over the initial distaste for account reconciliation, many entrepreneurs see the power in it. They finally get clarity around what needs to be done to grow their business rather than just hoping it will all work out. After all, we know you love that entrepreneurial chutzpah for your business, so why not your accounts? It’s time to make money moves to go along with your business savvy.
Reconciling your accounts is merely a game of checks and balances. We’re basically playing Jenga here; each side needs to be equally balanced, so it doesn’t topple, and your friends scream, “Awwwwwww!” (you know that “aww” we’re talking about). Essentially, you’ll be comparing your bank statements with your books, noting indiscretions and hidden money.
Here is what you need before you get started. Grab a copy of your bank and credit card statements (we’ll refer to it generally as “bank statements” here). You’ll also want to get your opening and closing balances for the specific period you’re diving into. Next, pull out your internal records from your accounting app, bookkeeping doc, etc. for the same period (we’ll call it your “books” to keep it easy peasy). Since it’s your first time, we recommend printing out these documents and crossing them off one-by-one with a ruler and pen, or brightly colored highlighter. Okay, let’s get this thing moving.
Here are the steps you need to follow:
1. COMPARE AND CONTRAST
Think about the time period in which you want to go back and look for discrepancies. Last quarter, last year, last month? Pour yourself a cold brew (beer or coffee, as desired), line up the items you’ve printed, and start comparing. Make a list of any transactions in your bank statement that are not supported—let’s say with a receipt.
2. PROPER PAYMENTS ARE IN
Transactions from the ATM or checks should be deducted from your bank statement balance. Sometimes they appear in your bank statement, but they’re missing from your books. Don’t forget to note the ATM service charges, check fees, overdrafts, etc. Everyone is invited to the party.
3. PROPER CREDIT IS IN TOO
You’re finished with deductions, now move onto credits—cha-ching! Find your direct deposits and account credits that show up in your books. Make sure they appear on your bank statement and add them to the balance. Same thing, if it appears on your bank statement and not in your books, add it to that balance.
4. BANK ERRORS, EWW
It happens, and the last thing you want is to give the bank more money. Maybe there is a debit or credit charge that’s incorrect, a wrong deposit record or maybe you really did pull out all that money in Vegas. Bank mistakes are far and few in-between, but you should contact your bank right away if you find mistakes. The correction will show up on your next statement, so the proper amount should be added to deducted accordingly to balance your books.
5. EQUALITY FOR ALL
After all, your hard work is complete- you’ve balanced your bank statements with your bookkeeping- it’s time to celebrate (meatballs and moolah for everyone)! Just kidding, we got one more thing before calling your favorite Italian-Nona-Money-Hype-Woman. After you’ve found all the differences between your bank statement and book, the balances should now be equal. Woot. However, if equality is not the case, it’s time to prepare a bank reconciliation statement to explain the differences between your internal record and bank account.
That wasn’t too bad, was it? As an entrepreneur, you probably don’t want to spend most of your days up to your ears in data, crossed-eyed from looking at your statements. But, this business practice really, really works. Account reconciliation is crucial because it will protect you, promote money growth and bring you well-being equilibrium.
We know you already burn both ends of the candle, so we’re happy to help with all of your account reconciling needs. We understand that when you take a very ambitious small business owner, gas them up with the hustle WITHOUT the necessary business-y tools, they are almost guaranteed to struggle. That’s why we have Italian-Nonas-Money-Hype-Women on hand, ready to manage your moolah and feed you meatballs (in no specific order).