For small business owners, accounting is not easy, and trying to reconcile bank or credit statements in accounting software like Xero or QuickBooks is even harder. You might be worried about what to do when discrepancies pop up, how to fix them, whether you’re overlooking something important, how to run reconciliation reports out of your software, and how often you should do it.
Simply put, you want a clear, step-by-step guide on how to run and review a reconciliation report that’s simple to understand without all the accounting jargon. Well today, you’re in luck. In this article, we’ll explain what a reconciliation report is, why it’s so important for your business, how to run one, who can and should run one for you, and how often you should run one for your business.
A reconciliation report is a tool that compares your accounting records, such as a profit and loss statement, with your bank or credit card statements to ensure the numbers agree. The purpose of this report is to help you identify discrepancies, such as missing transactions or errors, that could affect the accuracy of your financial data. If the amounts on both reports do not match, your financial statements could be overstating or understating your figures. These reports are crucial because they help you catch and correct errors before they impact your financial reporting.
The key components of a reconciliation report include:
Having accurate reconciliation reports is critical to your company’s success. When your business has accurate reports that match your bank and credit card statements, you gain a reliable snapshot of your financial performance, enabling you to make informed decisions. However, when those same reports are inaccurate, you run the risk of making decisions based on inaccurate or incomplete financial data which could jeopardize growth and stability for you.
A good rule of thumb is to run reconciliation reports as often as possible, preferably once a month. By running these reports regularly, you can identify and correct errors and discrepancies before they snowball into bigger issues that might require an accountant or bookkeeper to step in and clean up your accounts.
Think of it this way: Wouldn’t it be easier to spot and reconcile an error in January than to discover it six months later? If you’re not reviewing your records often, you might miss what’s going in and out of your business’s bank account and hitting your credit card. Reconciling these statements against your reports will help you quickly identify errors, employee theft, and fraud as they occur, rather than months down the road. Even worse, issues like this could lead to financial reports that are incorrect, a poor outlook on your cash flow, and unexpected financial surprises that could eat into your profits.
Reconciliation reports should be run by individuals with an accounting or finance background such as an accountant or bookkeeper. Although, if you’re a business owner that is knowledgeable enough of your accounting software, understand what these reconciliation reports are and how they work, there’s no reason why you can’t do these yourself. That said, even if you feel confident in your abilities to reconcile your accounts on your own, it’s always recommended to have a professional double and triple check your numbers. This is especially true if you come across a discrepancy or you’re unsure how to categorize a specific transaction, it pays to work with a professional that can make the uncertainty in your numbers as clear as possible for you.
However, before running these reports, there are a few things you should prepare before proceeding:
Some issues you might run into are things like missing transactions on any of your statements, unrecorded bank and credit card fees, and correcting issues between your financial records and reconciliation reports. These challenges can definitely be time consuming for you, which is why it’s important to have a clear process in place to ensure your reconciliation process is as accurate and efficient as possible.
If your accounts are not reconciled, you’re unfortunately opening the door to serious financial problems in your business. Poorly reconciled accounts can lead to poor decision-making because you might think your business is doing better than it actually is. Lenders and investors will be misled, as they won’t have an accurate picture of your business’s performance if the numbers don’t match what’s happening beneath the surface.
Poor financial records could ultimately result in significant financial losses and even legal consequences if you’re not careful. That’s why it’s crucial to stay on top of all the money coming in and going out of your business. Your financial information is the lifeblood of your business—protect it with accurate and reliable reconciliation reports that provide a true picture of your financial performance.
At the end of the day, the financial health of your business matters most. Accurately reconciled accounts help you sleep better at night, knowing you have a clear view of your financial health. It pays dividends to either invest in the time to learn and understand how the accounting and reporting side of your business works or partner with a team of professionals that can be your right-hand advisor. When you have the right support at your fingertips, you won’t have to worry about financial discrepancies allowing you to put all your focus into other, more important, areas of your business.
Don’t let poor financial information ruin your bottom line. If you’re unsure where to start or need expert assistance, reach out to DiMercurio Advisors. Our team can help you implement effective reconciliation processes, so you can focus all your efforts on making your business grow.