It's the middle of February and you just realized that you need to gather your business information to send over to your accountant for tax preparation. You open your bookkeeping software, that you know isn't up-to-date, and scramble to sync bank transactions, create paid invoices, and post expenses that were paid for nearly 10 months ago. You continue to tell your accountant it's coming, it's on it's way, and just before the filing deadline you send over your records. Yikes!!
Sound familiar? You're not alone, I see this scenario all to often. Many small business owners are faced with this scenario year after year. You suspect your accounting software is carrying a lot of the grunt work just to find out it still requires attention and manual entry to keep current, and most importantly, accurate.
I am a strong advocate of accurate financial information. I'm sure you can understand why. Accurate financial information is a requirement for smart decision making. Accurate reports allow you, the business owner and decision maker, to know your lead revenue sources, manage your expenses, and know what is profitable and what isn't. You can also properly plan for tax time, hint hint, no surprises.
So what can you do to achieve 100% accuracy and not end up in the year-end financial shuffle?Reconcile! Being sure your checkbook is reconciled is the first step towards reporting accuracy and year-end sanity. Everyone knows small business owners are "crunched" for time, I'm preaching to the choir I know, but I promise a standard checkbook reconciliation should take no more than 15 minutes, a month!
So here are my top 5 reasons why you need to start reconciling your books!
1. Financial reports and your analysis will be based on accurate information
First and foremost, reason number one, your financial reports and subsequent analysis will be based on accurate information. This one is rather obvious, but clearly your financial reports are only going to present the data that is entered into the system. Reconciling is a fool proof way of verifying that the transactions entered into your accounting system should be entered. As a business owner and decision maker you will quickly see why accurate information is extremely important. And that leads me to my second reason...
2. Your business decisions will be more effective
As a decision maker you are responsible for steering the ship. You are responsible for making smart financial, fundamental, personnel, and growth decisions. Many of which can make or break the future success of the business. Have you ever tried to make a decision based on profits when you have duplicated deposits and unrecorded expenses? Talk about nearly impossible.
3. You will keep from falling behind with your record keeping
Like I mentioned earlier about the year-end financial shuffle, I see too many business owners showing up in March thinking their books are accurate. However, they quickly realize that just syncing their bank transactions throughout the year didn't keep their books up-to-date. Now they get to spend the next week trying to reconcile transactions from months ago. Doesn't that sound like fun!
4. Tax planning becomes a breeze throughout the year
My next reason is a culmination of my first three points, this one has to do with tax time. Nobody likes financial surprises, especially when they could have been avoided. Many business owners find out in April that they not only owe additional income tax, but they also owe penalties and interest for underpaid or even unpaid quarterly estimates.
Now this clearly depends on your business type, but many small businesses setup as a sole proprietorship or a limited liability company, all require some level of effective tax planning. Unfortunately in April, just prior to the tax filing deadline, there isn't much your accountant can do to alleviate the pain. So make for a stress free tax time, reconcile. Trust me, it will save you and your business a lot of time and money!
5. It only takes 15 minutes a month (on average)
Lastly, what rounds out the top of my list? It only takes about 15 minutes on average, a month, to completely reconcile your checkbook. That's right, only 15 minutes! Now this case may vary but for a standard small business that contains one, maybe two deposits per day (bank deposit and maybe a credit card batch deposit), this is not a difficult task.
So how did these five reasons make the list? They all encompass one general idea and goal, business growth and advancement. A growing business is a healthy business, and it's very difficult to continue to grow and advance your business if it is unhealthy, both financially and fundamentally.
I have seen too many businesses struggle with cash management mainly due to the fact they very infrequently reconciled their checkbook(s). Once the decision makers implemented a frequent reconciliation schedule followed by checkbook register and cash requirements report analysis, they found their business began to improve both in terms of cash management and profitability. So why not take into account these five reasons to reconcile?
So that is it, plain and simple, reconcile! It will help you and your business, guaranteed.