Why reconciling bank and credit card statements every month is
essential for your business.
One essential procedure to have in place for every small business is monthly reconciliation of
both bank and credit card statements. If your business currently does not have a system in
place to reconcile the bank then now is the time to start. Monthly settlement of these accounts will allow for early
intervention on many items, such as fraud, overspending, bounced checks, payments lost in the
mail, and incorrect transaction entry.
Procrastination is never good when it comes to business, especially procrastination of financial
matters. We forget over time. Receipts get lost or pushed further down in our inbox. What could
be a small amount and easily fixable in a month, can compound and turn into a much larger
issue by the end of the year. Setting aside time for reconciling each month will keep the task
manageable, allowing you to be more efficient and avoid unnecessary headaches down the
road.
Maintain Accuracy
Accurately tracking income and expenses is vital for a business of any size. Whether you have
50 transactions a month or 5,000– accuracy matters. Reconciling your bank and credit card
statement each month will allow you to confirm that all transactions have been entered into your
bookkeeping system correctly. This designates time to catch errors and solve them quickly.
If you see a transaction on your statement, yet have no record of it, you can start the process of
investigating it. Missing details will be much easier to rectify within a month of them happening
than if you wait until the end of the year.
Validate your data entry and verify that the dollar amounts are the same in your internal system
as they are on the statements. Check for items that may have accidentally been miskeyed or
transposed numbers. Also, confirm that each entry is classified correctly. Marketing expense or
office supplies? Make sure the details are accounted for each, and every transaction is recorded
accurately.
Fraud/Checks and Balances
One of the top reasons you should be reconciling each month is due to fraud. No one wants to
deal with it, but the early discovery of fraudulent activity will be much easier to manage than if it
has been happening for a while. It could be an external threat or internal issue that is the source
of the problem.
Fraud from an external source typically happens when a company credit card number has been
compromised. The sooner the errant charge is caught and reported, and the card canceled, the
better.
Internal misuse of company funds can be a more significant issue to bear. In a small business,
there tends to be a considerable amount of trust among employees. Overall, this is an excellent
thing for teamwork. However, a small business that doesn’t have proper checks and balances in
place is a prime target for an employee to take advantage of your trusting nature. Consider the
statement reconciliation as somewhat of a mini internal audit each month. Are expense reports
being filled out and submitted accurately? Is someone making potentially questionable charges
on the company credit card? Quick intervention of this behavior will help protect your company.
Other possible internal fraud to look for could be missing deposits, cash withdrawal, and
unauthorized checks.
Understanding The Big Picture
One of the best benefits to come from reconciling monthly is that the dreaded “tax time” will
be much simpler! However, tracking income and expenses is about more than preparing for
taxes.
Accurate monthly bookkeeping will allow for more manageable report generation when needed.
Taking this time each month will give you a better idea of the big picture for your business–
covering everything from cash management to growing sales numbers. Being informed about
your accounts will also assist you in avoiding overdraft fees or the embarrassment from
bounced checks.
Prioritizing the time to reconcile monthly might seem excessive if your business doesn’t have
numerous transactions. Still, trust that putting proper procedures in place now, before the
process becomes overwhelming, will help your business tremendously in the long run. Give
your financials the time and attention they deserve. Proper bookkeeping will help avoid
frustrations, assist you in making more informed decisions about your company, and allow
peace of mind that you are in control of your business’s financial situation.