Learning how to do bank reconciliations can be one of the more important tasks an entrepreneur can learn says Edmonton bookkeeping. In fact, it is very important that business owners learn how to do this right away in their business. So that they can avoid making critical errors in their business.
According to industry Canada, 15% of Canadian entrepreneurs fail in their first year of business. And 50% of all Canadian entrepreneurs fail within five years. Industry Canada looked at the reasons why these businesses were failing. And discovered that 29% of them, ran out of money in their business.
This is the second most common reason why Canadian entrepreneurs are failing. Which is why learning how to do bank reconciliations is so important.
The reason why learning how to do bank reconciliations can help entrepreneurs avoid running out of money. Is because this will help entrepreneurs understand how much money they have in their business.
And then using that information says Edmonton bookkeeping. Can help them decide if they can spend that money on things like payroll, or paying bills. And if they cannot, they can make decisions on how they are going to rectify the situation.
Such as if they are going to engage in some revenue-generating activities. Such as increase their marketing, do more sales calls. Or do some collection calls. To bring the money that they are owed into their business.
All of those things not only can help entrepreneurs grow their business. But it can help them avoid making financial decisions that cause their business to run out of money in the first place says Edmonton bookkeeping.
Therefore, learning how to do a bank reconciliation is one of the most important things that entrepreneurs should learn early on in their business.
What a reconciliation is however, is a statement that entrepreneurs can create by comparing their bank balance to their register balance in their accounting software. In order to see how much money they have to utilize.
If business owners are looking at their bank statement alone. In order to determine if they have the money in their business to spend. They might end up over spending money.
Because the amount of money that is represented in their bank account. Is not all of the money that is free for them to use.
If an entrepreneur has any transactions that they have created, but have not yet cleared their bank account. The bank statement that they look at. Will not represent these amounts.
For example, a business owner might have ten thousand dollars in their bank account. But have five thousand dollars of electronic fund transfers pending. As well as a five thousand dollars in checks that are waiting to clear.
If they simply look at their bank statement in order to make financial decisions. They might see their bank balance of ten thousand dollars as being money that they can spend.
When actually, all of that money has been spoken for. And the business owner should not spend that money. Or else they will calls all of their other payments to bounce, and create more problems for them in the long run.
Therefore, business owners should understand how important bank reconciliations are. That can help them understand how much money they actually have to spend in their business.
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One of the most important things that entrepreneurs should learn early on in their business says Edmonton bookkeeping. Is a reconciliation, because that will help them understand how much money they have to utilize in their business.
Since financial transactions that an entrepreneur might have in their business often take several days to clear. A reconciliation will show an entrepreneur how much money they have to utilize. Once all transactions have actually cleared their bank account.
For example, an entrepreneur may have written several checks, may have several credit card or debit transactions waiting to clear, or have electronic fund transfers pending. Which can all impact how much their final balance of their bank account will be.
In order to do a bank reconciliation. Edmonton bookkeeping says one of the first things that a business owner needs to do. Is look at their starting bank balance. To match to the ending statement balance of their previous bank reconciliation.
Doing this, an entrepreneur will ensure that there are no errors that are causing these two amounts to not match. A typical error that causes this to not be correct. Is if an entrepreneur has made a mistake and booked a future transaction as already cleared.
An example of this, is if an entrepreneur is working on a reconciliation on February 28. But has booked a March 5 transaction is cleared. They are starting bank balance will not match their previous balance of their bank reconciliation.
This is the first way they can fix mistakes. But also, by verifying the two amounts match. They are ensuring that when they complete their bank reconciliation. The amounts will be able to balance at the end.
The next step in doing a bank reconciliation. Is to look at all of the transactions that have already cleared the bank account. By looking at these amounts, a business owner can see all of the transactions that are laughed that have not cleared yet.
What they should be doing when they see the rest of the transactions that have not cleared. Is looking at how long they have been uncleared for. In order to determine if they are likely to be wrong.
Example, any electronic transactions should not be outstanding for any amount of time says Edmonton bookkeeping. Because entrepreneurs will be notified that they have these electronic transactions. Because they have cleared their bank account already.
Therefore, if they are pending. It is often because there is a mistake. And that mistake is usually that it is been entered into their accounting software twice.
By fixing these mistakes that have been entered twice. Entrepreneurs can end up with more accurate representation of how much money they have to utilize in their business. So that they can avoid spending more money than they have.
The sooner an entrepreneur learns how to do a bank reconciliation. The sooner they will be able to help themselves avoid the problem of running out of money in their business.