Many entrepreneurs do not know what the most important things to learn when they start their business says Edmonton bookkeeping. But learning how to do a lot of their business finances can be very important.
The reason why, is because while 50% of entrepreneurs in Canada fail within five years. The second most common reason why businesses fail. Is because they run out of money in their business, and are forced to close the doors.
However, this is avoidable if entrepreneurs learn how to do a bank reconciliation. What this is, is a report that shows a business owner how much money they have to utilize in their business. Once pending transactions have cleared their bank account.
A business owner should get into the habit of looking at their bank reconciliation prior to making any financial decision. Whether that decision is running payroll or paying bills. Or if an entrepreneur is making a decision whether they should pay themselves a salary or dividends, or if they should make an asset purchase.
The reason why an entrepreneur should look at their bank reconciliation to make those decisions. Is to verify that they have the money in their business to make those decisions.
If they do not have the money to make those decisions, then they can use that information to generate more revenue for their business. Or even engage in some collection calls to bring that money into their business.
In order to do a bank reconciliation says Edmonton bookkeeping. A business owner must start with their most recent bank statement. And compare it to the last bank reconciliation that was done in their business.
Once they have these documents says Edmonton bookkeeping. The next thing that an entrepreneur needs to do, is verify that the bank statement starting balance matches the final balance of the bank reconciliation.
This will ensure that there have been no accounting errors in between bank reconciliations that would cause the amounts to not be accurate. If these amounts do not match however. The likely reason, is because an entrepreneur has created a transaction for a future date.
By fixing the date on that transaction. They will bring the bank account balance and reconciliation into alignment. So that they know when they do the bank reconciliation. That is most likely going to be accurate.
The next thing that an entrepreneur is going to do. Is to eliminate would ever transactions have actually cleared their bank account to date. This way, what is left over is all list of all of the transactions that are still pending.
By looking at these pending transactions. A business owner can verify the ones that are accurate and are still pending. And which ones are errors, that can be fixed.
So that an entrepreneur can end up with a final total amount on their bank reconciliation. Representing how much money they have to utilize in their business.
By looking at their bank reconciliation prior to making any financial decisions. Can help entrepreneurs see if they have the money in their business to make those decisions. And if not, help them formulate a plan on what they are going to do in order to bring that money into their business.
If you need Edmonton bookkeeping, take your time
Even though many entrepreneurs have heard that doing bank reconciliations is so important says Edmonton bookkeeping. They still might not know the best way to go about doing this in their business.
They might think that they do not have the time to do this, and would much rather open up their bank account to see how much money they have in their bank account in that moment. And then use that information to make financial decisions.
However, this would be a huge mistake says Edmonton bookkeeping. Simply because the second most common reason why entrepreneurs fail. Is because they run out of money in their business. And spending money without understanding how much they actually have to utilize. Can be a large contributing factor to running out of money in their business.
Business owners should check their statement balance first when they are doing a bank reconciliation. And check it against the balance of the bank reconciliation.
What this does, is it ensures that all previous transactions were accounted for. And there are no obvious errors before an entrepreneur starts the process.
By ensuring all transactions are booked in the accounting data file, and then matching the accounting transactions against the statement to see which ones have cleared. Can help an entrepreneur understand which transactions are true, and which ones are errors that need to be fixed.
Business owners need to understand that checks can never be outstanding for more than six months says Edmonton bookkeeping. Simply because checks that have been uncashed for that amount of time or what is called stale dated and on cashable.
Therefore, any time an entrepreneur sees an uncleared check longer than six months outstanding. Even if it is not a mistake. It now becomes unusable.
And a business owner either has to fix the mistake. Or contact the business that has that check, and verify if they have received it. And we issue a new one.
Another thing that business owners need to understand when it comes to doing bank reconciliations. Is that electronic payments should never show as uncleared transactions.
The reason why this is. Is because by the nature of electronic transactions. They show up as already having cleared the entrepreneurs bank account. So if they ever show up as uncleared. That is definitely an error. Which is typically a duplicate transaction.
It is very important for entrepreneurs to understand that if they have any uncleared transactions that are deposits such as checks, or electronic fund transfers.
This will make it look as though an entrepreneurs revenue is overstated. And it will make an entrepreneur at think that they have more money in their business then they do.
Which is why it is extremely important that business owners want to remove any pending transactions that are not accurate. So that they know exactly how much money they have to utilize in their business.