If entrepreneurs do not understand how important bank reconciliations are, they may not get into the habit of doing them regularly says Edmonton bookkeeping. However, the second most common reason why entrepreneurs fail, is because they ran out of money. By running a bank reconciliation report prior to making any financial decisions, entrepreneurs can actually avoid this reason for failure in their business and succeed simply by not spending money they do not have.
Many entrepreneurs make the mistake of believing that they can look at their bank balances in order to understand how much money they have in their business. While this might be possible early on in their entrepreneurship, as their business grows, and they get more and more transactions both into and out of their bank account, it becomes more and more difficult to keep track of how much money they actually have, unless they pull a bank reconciliation report first. Because a bank reconciliation is going to show an entrepreneur how much money they have in their business, once all pending transactions have cleared. If an entrepreneur is making financial decisions without taking this into consideration, they may be spending money that they do not have.
The very first thing that entrepreneurs need to understand, is that they need to do a bank reconciliation before any financial decision both big and small. Whether they are purchasing assets in their business, or if they are running payroll or even paying themselves. By verifying they have the funds to make those decisions, can help entrepreneurs avoid running out of money in their business.
Not only is it important that entrepreneurs are running a bank reconciliation report, but business owners also need to check the report for errors. If they are not also verifying the accuracy of the report, they might as well be making financial decisions without consulting any statement, putting their business at risk.
In order to start proper bank reconciliation, Edmonton bookkeeping recommends that entrepreneurs gather all of their information they need first: their bank balance, bank and credit card statements, and a record of all checks written in the previous month. Then, an entrepreneur should check to ensure their current bank statement starts where their previous bank reconciliation ends. If the two do not match, a business owner should avoid starting the reconciliation anyway, because no matter what they do, the report will be incorrect. All an entrepreneur has to do, is re-reconcile the previous month, in order to make the statements match. The reason why they were out, is because additional transactions happened in that month after the reconciliation happened. This easy check can ensure that an entrepreneur is starting the reconciliation correctly in the first place.
By learning how important a bank reconciliation is due a business, can help entrepreneurs develop a great habit of running this prior to any financial decision they make says Edmonton bookkeeping. This must be done consistently, and with due diligence in order to ensure that a business owner has the right tool necessary to make important decisions.
Edmonton Bookkeeping | Well Done Bank Reconciliations
Most entrepreneurs understand how important it is to do a bank reconciliation says Edmonton bookkeeping, and they may actually be in the habit of doing it on a regular basis as well. But they might not be doing is verifying the accuracy of the information once the report is complete. If entrepreneurs are not checking for mistakes, they might as well not be using the reconciliation report at all to make financial decisions, because the information will not help them avoid running out of money in their business.
In order to check for mistakes, entrepreneurs need to understand what the most common mistake on bank reconciliations are. Edmonton bookkeeping says that 50% of their clients end up having uncleared transactions that are incorrect on their bank reconciliation. The reason why, is because entrepreneurs either do not understand that they are mistakes, or they know that there mistakes, but they do not know how to fix it. In order to understand why these might be mistakes, an entrepreneur should understand what an uncleared transaction is.
Uncleared transactions are all transactions that an entrepreneur expecting to go out of their bank account or come into it. Examples of this could be sending out a check, and waiting for a vendor to cash it, or making a bill payment on their credit card, and not having the transaction show as being paid yet. Edmonton bookkeeping says that understanding what uncleared transactions are, can help entrepreneurs understand when they are incorrect on the bank reconciliation.
Different uncleared transactions typically take a different amount of time to clear. Checks, for example, can take several weeks or a month or more to clear, while bank card and credit card transactions may take anywhere between 1 to 5 days, depending on the nature of the transaction and when it was made. Therefore, an entrepreneur should be looking at all uncleared transactions to see if they are pending for longer than is normal for that type of transaction. For example, a credit card transaction that has been waiting to clear for a month.
A common reason why the transaction might not clear is if an entrepreneur has accidentally entered it twice into their accounting software, or made an entry error with the date when entering it. By fixing those mistakes, they can fall off of the report, causing it to be accurate. Because of these types of errors, it is extremely important that entrepreneurs are entering the information into their accounting software very carefully at all times, to minimize errors like this.
By understanding how important the bank reconciliation is, and how to efficiently check for errors, can help entrepreneurs end up with a report that will allow them to make important financial decisions confidently in their business in a way that will allow them to grow their business as well. However, if entrepreneurs find that they are unable to run these reports on a regular basis, or they lack the confidence in their accuracy, they can simply hire and Edmonton bookkeeping company such as always bookkeeping, and get the experts to run the reports on their behalf, so that they never have to worry about poor financial decision in their business again.