If entrepreneurs get into the habit of doing this one thing before making any financial purchases or decisions in their business says Edmonton bookkeeping, that it is learning how to do a proper bank reconciliation. The reason this is so important is that it gives entrepreneurs the tools to understand exactly how much money they have in their bank account in order to make financial decisions. Whether they are paying staff, paying bills, purchasing, and assets, or paying themselves dividends, when entrepreneurs have information about the money that they have available in their business, there able to make better financial decisions. When entrepreneurs are able to make better financial decisions, they can avoid running out of money. The reason this is so important is that out of all of the 50% of entrepreneurs who fail within five years in their business, 29% of those failed entrepreneurs say that the reason why their business failed was that they ran out of money. Having better tools in which to avoid this can mean a significant difference between success and failure.
In order to successfully reconcile their bank account, Edmonton bookkeeping says that entrepreneurs need to first set aside some time on a regular basis. Ideally, this is before they make financial decisions and that they should schedule regular payments such as payroll and disbursement of payments to vendors so that they can get into the habit of reconciling their bank account on a regular basis. Also what setting aside the time will do, is ensure that a business owner has undivided attention uninterrupted time to work on this important task. Once they have time set aside to do this, business owners can ensure that they have bank statements, the previous month’s bank reconciliation, and a list of any checks that they have written in the previous month. Business owners should not belie on using their bank statement in order to come up with a complete list of the checks that they have written in the last month, because it will only take into consideration the checks that have been cashed and not the ones that have been sent out and not cashed. If they rely on this information, they could be misunderstanding how much money they have in their business to work with.
Many entrepreneurs believe that they need some fancy software like QuickBooks online in order to do the bank reconciliation, and well Edmonton bookkeeping says that it is helpful to have QuickBooks online especially because of the automated features of accounting software, it is not necessary and business owners can do a great reconciliation using just an Excel spreadsheet. However, if business owners want to use technology, they should get familiar with that technology so that they are not struggling with it when they go to do their bank reconciliation.
By having all of the tools in place, and of the time set aside, entrepreneurs are going to be able to do bank reconciliation in order to understand how much money they have in their business, every time they need to make a financial decision.
When entrepreneurs get into the habit of regularly doing bank reconciliations in order to make financial decisions, Edmonton bookkeeping says that they can make better decisions, and be more proactive in their business about payments. For example, if a business owner to the bank reconciliation to see if they have enough money to make payroll, and they discover that they do not, business owners can be proactive and go out and generate more income in their business, or engage in Accounts Receivable in order to ensure that they have the money to meet payroll. By being proactive in their business, and using the bank reconciliation as a tool, business owners can avoid making financial decisions that cause their business financial distress.
Once a business owner has all of the information they need from Edmonton Bookkeeping to do bank reconciliation, what they need to do is ensure that they are starting the process error-free. In order to do this, business owners need to take the last bank reconciliation and compare the previous reconciliation ending balance to the current bank statements starting balance. By doing this, entrepreneurs can verify that they are starting the bank reconciliation exactly where it was left off the last time. This continuity is important to ensure that the information in the bank reconciliation is correct. when an entrepreneur does the bank reconciliation and it is not starting from an accurate place, there is no chance that it is going to be able to be correct at the end.
When the business owner is done making the bank reconciliation, they need to also check to ensure that the reconciliation is correct. How an entrepreneur would do this, is check the ending balance to verify it matches the statements and if that is is look at the registered balance in the reconciliation report. It should match the GL for their bank in the business is the balance sheet. If this is the case, an entrepreneur should understand that bank reconciliation is done properly.
Even if they have verified that the reconciliation was done properly, the next step Edmonton bookkeeping says is that when they go to start reconciling the next time on the same business bank account, the entrepreneur should go and verify that the statement starting balance matches the reconciliation ending balance. If there were any additional changes that were made after the last bank reconciliation, it might not match anymore. So even though they verified at the beginning and at the end, the next step when they start next month’s to-do that double-check system once more.
When entrepreneurs can get into the habit of doing proper bank reconciliations on a regular basis, they will be able to have a great tool that they can use in their business to help them make financial decisions both to make great proactive decisions in their business, but also to avoid making decisions that could put their business and financial distress.