There are so many things that entrepreneurs need to learn when they are new in business says Edmonton bookkeeping. And learning how to do a bank reconciliation is one of the first things that they should learn.
Doing a bank reconciliation will help entrepreneurs make more informed financial decisions. That can not only help them avoid spending money that they do not have. But also help them be more proactive in their business finances as well.
And this is so important, not only because the failure rate for businesses in Canada is so high according to industry Canada. But because the reasons why the failure rate is so high as well.
Industry Canada did a survey in order to discover how many businesses in Canada were successful. And what they discovered, was the failure rate for entrepreneurs extremely high. 15% of all small businesses that opened a small business in Canada failed in their first year.
30% of entrepreneurs failed in their second year of business ownership. While half of all small businesses in Canada. And it up failing within five years of opening their doors.
And while this is very shocking says Edmonton bookkeeping. The reason why they discovered entrepreneurs were failing was even more shocking.
Three most common reasons why entrepreneurs were failing, is because they could not find the staff or keep staff in their business. They also were unable to find enough customers to sell their products and services to. And business owners also ran out of money in their business.
By learning how to do a bank reconciliation. Edmonton bookkeeping says entrepreneurs can make more informed financial decisions. That can help them avoid running out of money in their business.
But also be proactive in their business, and see ahead of time that they have less money. So that they can engage in some revenue-generating activities in order to bring more money into their business.
The first thing that an entrepreneur needs to understand when it comes to bank reconciliations. Is what the purpose of a bank reconciliation is.
A bank reconciliation is a report that entrepreneurs nor can create. That shows how much money they have in their business to utilize. Once all pending transactions have cleared their bank account.
Pending transactions including checks that they have written, payroll that they have scheduled, electronic fund transfers that they have created for future date. As well as deposits into an ATM, and transactions from debit and credit cards and their debit and credit machine. All can be considered pending transactions.
For example, an entrepreneur might look at their bank account in order to see that they have ten thousand dollars in their account. However, that does not necessarily mean that they have ten thousand dollars to spend.
For example, an entrepreneur might have five thousand dollars waiting to clear for payroll, as well as four thousand dollars in checks that they have written in the past month.
Therefore, a business owner might think that they have ten thousand dollars to spend when they only have one thousand dollars to spend in their business.
If they do not look at a bank reconciliation in order to make that decision. They might end up spending some, most or all of that money. Which would cause payments to bounce, and cause them to run out of money in their business very quickly.
Therefore, learning how to do a bank reconciliation is extremely important. So that they can see how much money they actually have to spend.
Is there a way to improve my Edmonton Bookkeeping?
Business owners have an extremely steep learning curve when it comes to their business finances says Edmonton bookkeeping. Especially because they typically have not had experience running a business before.
Therefore, learning how to do a bank reconciliation is so important. Because this can help entrepreneurs understand how much money they actually have to spend in their business.
How a business owner should do a bank reconciliation says Edmonton bookkeeping. Is to start with their most current bank statement. As well as their last bank reconciliation statement.
The first step once they have these documents in place. Is to ensure that the starting bank balance matches the statement balance of their bank reconciliation.
These totals should match, to verify that no accounting errors have been made since the last bank reconciliation was made. If an error has been made, the error is typically because an entrepreneur has entered a registered balance for future transaction and marked that transaction cleared.
Therefore, all a business owner needs to do is remove or change the date of that future transaction. In order to bring the bank balance and bank reconciliation into alignment.
The next step says Edmonton bookkeeping. Is simply checking off all of the transactions that have cleared the bank account to date.
What a business owner will be left with, is a list of transactions that are pending. However, this does not necessarily mean that these are all valid transactions. They could be mistakes.
And that will be the third step for an entrepreneur. Is verifying each of the pending transactions. To either fix the mistake, or rule out that they are a mistake.
Mistakes could be from entering in incorrect amount into the accounting software. Or entering a transaction twice. Causing it to show as pending when it is not.
However, business owners do not need to worry about verifying every single transaction individually. But instead, look at the date of the transactions that are pending. In order to verify which transactions have been pending for an extremely long time.
This means entrepreneurs need to understand approximately how long each transaction should take to clear. In order to look for ones that are outstanding for longer than they should be.
If an entrepreneur has entered deposits or payments in to a bank machine. These can take anywhere between 1 to 7 days to clear. If they see any deposits or payments to a bank machine that have been outstanding for a month or more.
Edmonton bookkeeping says these are likely errors that need to be fixed. By applying this logic to all of the transactions. Business owners can flag the ones that are more likely to be errors.
And verifying if they are accurate or not. Can ensure that the amount left on their bank reconciliation. Accurately represents how much money on entrepreneur has to spend in their business