Nearly every business that struggles with reconciling their bank accounts each month struggles because they don’t record their business transactions within their accounting software on a timely basis.
Because they don’t bank reconcile, they don’t correct transaction recording discrepancies, leading to inaccurate financial statements. As a result, they have difficulty telling which parts of their business are losing their money, resulting in tighter cash flow and lower profits.
Just as a doctor has many ways to establish a patient’s health, those advising business owners have several ways to assess the health of a business. If you are ever called upon to assess the health of a business, and you are restricted to only one question and cannot look at any financial statements, the best question to ask is, “When was the last time you reconciled your bank statements?”
A business owner who says last month is a business owner who has prioritized timely and accurate financial transaction recording.
A business owner who says it has been more than two months or even worse doesn’t know the answer is a business owner who isn’t likely to be invoicing their customers for work performed, resulting in high past due receivables and no clue as to how much they owe.
Business owners who rely on their business to make them money know that every time they receive or make a payment, it needs to be recorded within the week. Without recording these transactions, they lose the ability to generate an accurate P&L Statement and Balance Sheet. They know from experience that without an accurate and timely P&L Statement, they never know if they are making profits or suffering losses. These owners learned this business-killing practice the hard way and now ensure that every transaction is recorded within a week and that all bank statements are reconciled during the week they are received.