5 Ways Reconciliations Help Your Business Make More Money
I always request to have access to a prospective client’s QuickBooks Online or Xero account (if available) for the purpose of understanding their bookkeeping needs. One thing I often notice is that most do not reconcile their bank or credit card accounts.
When I asked about their reconciliation process, the business owners stated that they did not know they should reconcile their bank and credit card accounts. Some didn’t even know what a reconciliation is.
Other business owners were not aware of the benefits of bank and credit card reconciliations. Therefore, they referred to reconciliations as “another annoying task”.
Well, I can tell you a big benefit to reconciling your bank and credit card accounts:
bank and credit card reconciliations can improve cash flow, which helps your business make more money.
Here's how reconciliations help your business make more money:
1. Catch and Fix Costly Bank and Credit Card Errors
Yes, the banks and credit card institutions do make mistakes!
For example, one of my clients wrote a check for $80 and discovered that the bank had processed it for $280.
Another client bought lunch for his employees. The total on the receipt was $40. The bank processed that lunch for $400.
These types of errors happen all the time! Because those businesses reconciled their bank and credit card accounts, they were able to get their hard earned money back.
2. Identify Uncashed Checks or Verify Payment of Bills
You write a check to pay a bill before it is due. In return, you are slapped with a surprise late fee. Waitaminute! You paid that bill on time, right? Maybe not.
The same can happen when you pay a bill electronically. That company’s system might have a glitch or posting delay…or maybe your connection speed is slow. To you your bill was paid on time, yet you receive a late fee.
Reconciling your bank and credit card accounts can help you track outstanding checks that have not been cashed or electronic payments that have not been processed.
3. Discover Money Owed to Your Business
Reconciliations can assist with identifying the customers or clients that owe your business money. In fact, you might be surprised who learn who has not paid you for your service and for how long.
Did your business receive credit for that item it returned? Are you still waiting for the bank to return money to your business account for an erroneous bank error? Reconciliations can also confirm those questions.
4. Identify Unnecessary Expenses
All businesses have necessary and routine expenses. For example, a wireless bill is paid each month for cell phones and Wi-Fi service. If your business requires office or studio space, you’ll be paying rent monthly.
However what about the expenses that are unnecessary?
Does your business still need to pay for magazine subscriptions for the lobby…when your office space no longer has a lobby?
Oh! And this is a good one!
Is your business still sending direct deposits to an employee that quit 3 months ago? …yes, that does happen.
Reconciling your bank and credit card accounts will catch these unnecessary expenses.
5. Identify Patterns In Your Business
Reconciling your bank and credit card accounts can also identify cash flow patterns in your business.
For example, you can start to predict when your business will receive cash from customers or clients each month. You can also spot those that pay sporadically.
Because you are aware of your cash inflow, your business can better prepare itself for the expenses due for the month. And rather than paying as soon as you have money, your business can create its own pattern for paying bills.
Hopefully you feel inspired to reconcile your accounts. This monthly practice can do wonders for your business.