The most important reason why entrepreneurs should get into the habit of running a bank reconciliation prior to making any financial decision is so that they know how much money they have to spend in their business says Edmonton bookkeeping. If business owners think that they know how much money they have to spend simply by looking at their bank statement, they may end up making financial mistakes that could cause them financial hardship, or even run out of money in their business.
What a bank reconciliation is, is a report that tells a business owner how much money they have in their business once all of the pending transactions clear their bank account. A bank statement simply does not tell an entrepreneur how much money they have to use, because while the bank balance may show that they have five thousand dollars if they have five thousand dollars of checks that are waiting to be cast by vendors, they actually do not have any usable money. If they look at their bank statements and think that they have money to spend, without taking into consideration the pending transactions, they could put their business at risk of running out of money.
In order to do bank reconciliation, Edmonton bookkeeping says that entrepreneurs need to get their current bank statement and a list of all of the checks that they have written in the past month. During the bank reconciliation, an entrepreneur will take their bank balance, and subtract all of the pending transactions from that is, in order to end up with the bank reconciliation statement that will show them how much money they have to use in their business. By doing this, business owners will know exactly how much money they have to spend, and will not make financial decisions that will with them at risk.
Not only is it very important for business owners to know how to do this, but actually run a bank reconciliation prior to any financial decision that they need to make in their business. Whether it is running payroll, paying bills, purchasing an asset for their business, or even when they are going to disburse money to themselves. Matter how big or small financial decision is, if business owners get into the habit of running their bank reconciliation, they will always know exactly how much money they have to use in their business.
Once an entrepreneur gets into the habit of running a bank reconciliation on a regular basis, they can start to group together all of their financial transactions, so that they can minimize the number of bank reconciliations they need to do in their business. Since most entrepreneurs pay their staff every second week, if they get into the habit of dispersing all of their payments at the same time, and limit how many bank reconciliations they need to run in their business, saving time, while always finding out how much money they have to use in their business says Edmonton bookkeeping.
Edmonton Bookkeeping | Why Should Entrepreneurs Do Bank Reconciliations
The reason why entrepreneurs need to do bank reconciliations prior to any financial decisions says Edmonton bookkeeping is so they know how much money they have in their business to use. Industry Canada says half of all Canadian entrepreneurs will fail and 29% of those entrepreneurs that failed go on to say that running out of money was the reason why they had problems in business. By doing bank reconciliations prior to any financial transactions, can help entrepreneurs avoid this fate.
Not only is it very important for entrepreneurs to learn how to do bank reconciliation, but if they also do not know how to check this bank reconciliation for errors, they may also be making poor financial decisions. The reason why is because when entrepreneurs have mistakes in their bank reconciliation, such as uncleared balances, it makes the statement look as though an entrepreneur has more money to use than they do. Without checking their financial statement for mistakes and correcting them, business owners continue to put their business at risk of running out of money by not knowing how much money they have to spend.
The reason why any clear charges might appear on their bank reconciliation is because when an entrepreneur makes payments, they will be entered into their accounting software. in between an entrepreneur making that payment and entering it into their accounting software, and when that money comes out of their bank account is considered uncleared. Because different payments might take a different amount of time to clear, that is why they appear on the bank reconciliation. Edmonton bookkeeping says that checks are the longest to clear because it requires the person on the receiving end of the check to receive it and then deposit it into the bank and then have the bank clear it. Therefore, checks commonly can sit uncleared on a bank reconciliation for up to a month or more.
It is very important that as entrepreneurs to see uncleared checks on their bank reconciliation, that they are calling their vendor to make sure two things: that their vendor actually did receive the check, and secondly to deposit the check into their bank. If a check is outstanding for six months, it becomes what is called stale-dated, which means it no longer will be a valid check. Therefore, entrepreneurs always should be getting in touch with their vendors who have checks to ensure that they did receive them and if not a business owner can resend it, or reminding them to please cash that checks so it does not become void on them.
It is extremely important for business owners not only to do bank reconciliations on a regular basis but also to verify the accuracy of the uncleared items. Uncleared items that are they are in error end up making it look like a business owner has more money than they do, which could cause them to spend more money than they have. By doing this, Edmonton bookkeeping says that entrepreneurs can significantly avoid situations that they will spend more money than they have which could cause damage to their business.