How Often Should You Reconcile Your Accounts?

As a small business owner, you have to focus on many different aspects of your business.  Proper financial records keeping can be somewhat daunting when juggling so many different priorities in your business, especially if you are not used to it.  An essential aspect to running any business is ensuring you have the most accurate and up to date information to make effective decisions. 

What is Account Reconciliation? 

Account Reconciliation is the process of comparing your financial records with bank statements, credit card statements, amortization schedules etc., to ensure all of your transactions match. 

How does it work?

During this process, you may discover a difference in your internal balance and your bank balance.  It is your job to figure out which transaction(s) are involved and what happened.  Some common issues include:

-Cashing multiple checks at once while creating a single entry for each in your software, possibly resulting in a single entry on the bank statement. 
-Transactions showing up on the bank statement that you did not record – or vice versa.

-Manually entering a transaction that was already imported from your bank feed. 

-Fraudulent transactions

-A previously reconciled transaction that was deleted or changed. 

So, how often would I reconcile?

Before we answer that, ask yourself:

What kind of industry are we in? 
How heavy is our transaction flow?   
On what reoccurring basis do we need reconciled financials for external parties and why?

For example, industries like manufacturing, retail, and e-commerce require daily bookkeeping due in part to how heavy the transaction flow is in those industries. 

However, if you are a small business and you have 100 transactions or less per month you might be fine doing them quarterly.  Many CPA firms will only reconcile their clients’ books once a quarter if they choose to provide bookkeeping services.   

Why Regular Reconciliation is Critical

There are a few critical issues that arise from not reconciling on a regular basis. 

Increased Risk of Fraud – If someone with bad intentions sees an opportunity they may take it.  They also may test you with a small transaction to see if you notice it.  Reconciling regularly ensures nothing slips through the cracks, allowing you to catch and address discrepancies before they become serious problems.  If you’d like a horror story, I have several.   

Lack of Financial Clarity – Without accurate, up-to-date bookkeeping, you won’t have a clear picture of where your business stands financially.  This lack of clarity on your books can lead to poor decision making, forcing you to become more reactive when you could have been proactive.    
 

How We Can Help

This is why I go through our client’s books weekly and conduct a bank reconciliation for each account at the end of each month.  You want to constantly have fresh financial information and know where you stand while also ensuring other parts of your business run smoothly. 

If you have any questions about bookkeeping or reconciliation, feel free to contact us at richard@diamondbackbookkeeping.com.