Why is a Monthly Bank Reconciliation Necessary?

November 28, 2022

To grow your business, staying on top of your finances needs to be a priority. Performing monthly bank reconciliations is a great practice to ensure you better understand your cash flow and actual cash position. There are many other advantages to completing a monthly reconciliation that we will dive into deeper inside this blog. 

What is a bank reconciliation? 

A bank reconciliation is a monthly statement that gives you an overview of your bank balances and accounting records. The primary purpose of this task is to uncover any discrepancies between the two balances. 

Throughout this process, you’ll work through each item line by line on both statements to match the balances in your business accounting records to the corresponding information on your bank statement. When discrepancies are found, you’ll need to note these and uncover the cause. While seeing a discrepancy in your reports can be discouraging, be aware that not every difference is cause for concern. Things like bank fees or a delay in money transfers could be the root cause.  

Importance of a Bank Reconciliation 

Helps to verify cashflow and prevent fraud

To continue to scale your business, you must consistently monitor your expenses to ensure you’re not overspending in any area. When you complete a monthly bank reconciliation, you get a comprehensive view of your spending.  This helps you understand what expenses may affect your cash flow and if you need to make any changes. This is a great time to look at any subscriptions you no longer need to be carrying or expenses that you can trim down. Once you’ve verified your cash flow through the reconciliation process, you’ll have a comprehensive view of your financials which will help detect fraud.  

Accurately reporting taxes

For your tax return to be accurate, your bank statement balance and your business balance must be correct. Completing a monthly reconciliation will ensure you stay on top of your finances and allow you to take advantage of the different deductions available at tax time. 

Stay on top of accounts receivable.

You’re busy, and a lot is happening in your day-to-day operations. It’s easy to input a client payment too early or forget to follow up on a missed payment. By performing a monthly bank reconciliation, you ensure that you’re staying on top of your accounts receivable and nothing is getting too far out of control. This is also a great time to take note of any outstanding invoices and follow up where applicable. 

To detect any mistakes

Regardless of how careful you are, mistakes happen. Completing regular bank reconciliations allows you to spot and rectify any errors quickly, irrespective of the cause. Some common errors can include double payments, lost cheques, and simple arithmetic errors. You can avoid some of these areas by automating as much of the reconciliation process as possible.

Who’s responsible for bank reconciliations?

If you are the one performing your bookkeeping, then this responsibility falls in your lap and should be done at regular intervals. Depending on the size and scale of your business, how often you reconcile may be different. Some companies which have money entering and leaving their accounts multiple times every day will reconcile daily. If you have fewer transactions going through your accounts, you may find once a month is sufficient. The most crucial factor is to ensure that you have implemented a regular reconciliation schedule and that you stick to it to ensure your books stay up to date.

If you work with a bookkeeper or finance professional, this is a task they can perform for you. This is an excellent option if you are unfamiliar with the process or feel that you will get tied up with the day-to-day operations of your business.

Having a trusted financial partner on hand can help ensure you maintain a regular cadence of reconciliation and make the best business decisions based on your current financial situation. The experienced team at The Finance Group works with businesses across multiple industries and has extensive experience helping them implement strategic actions to help them scale their businesses. Whether you need a seasoned partner to help manage the ins and outs of your financials or a strategic teammate to help you take your business to the next level, we can help. Reach out to us today!

Alyssa Huizenga
Director, Business Development
[email protected]

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