Successful entrepreneurs know that cash flow can make or break a business. There is a saying: “revenue is vanity, profit is sanity, but cash is king.” This saying summarizes how imperative it is to have a good handle on the cash flow of a business. A common surprise as accountants is seeing businesses that do hundreds of thousands of dollars in revenue each year miss one crucial step in cash flow management: performing monthly bank reconciliations.

If good cash flow management does not exist then business owners don’t know what they can afford or when they can afford it. This leads to missed opportunities and lost revenue. We encourage all our clients to reconcile their bank accounts at least monthly. The first step to getting on track with this is having a separate business bank account to track income and expenses. This may seem like a simple first step, but for sole proprietors it is not a requirement that a separate bank account exists. Once the monthly statement is received, business owners can begin the reconciliation process.

If you are set up in QuickBooks, Xero or other accounting software this should be as simple as marking transactions that have already been entered as clearing the bank. If accounting software is not being used, this is the time to summarize in Excel or a similar format the transactions that have taken place and compare to your check register. Reconciling accomplishes several important goals:

Helps Eliminate Errors

Reconciling each month will help discover data entry errors. If transactions are not being automatically imported to accounting software then it can be easy to transpose numbers when entering checks paid or deposits received. Reconciling will catch these errors. Reconciling will also ensure there are no missing transactions. Our fear as accountants is that clients could be missing tax deductions due to poor bookkeeping.


Creates Accurate Financial Statements

Reconciling your bank and credit card statements monthly confirms that all transactions have been entered, they are accurate, and that the financial statements are a true reflection of how the business is doing. Having confidence in the financial statements allows business owners to capture opportunities as they present themselves. They know at all times whether they can make a capital expenditure, which months of the year they are most profitable and have the ability to budget for futures years.


Makes Tax Time Effortless

Keeping monthly tabs on your bank, credit card and loan accounts makes tax time a lot easier on business owners. Business clients with clean, reconciled books helps eliminate the back and forth and reduces tax preparation fees. Most importantly, when business books are clean we can focus on tax planning to make sure business owners are being as tax efficient as possible.

If reconciling seems like a daunting task, reach out to your tax or accounting software professional. Taking the short amount of time to learn will save plenty of headaches down the road.