The Importance of Being Reconciled
For small business owners, I can't stress this enough: it's important to stay on top of all your accounts!
There was a time before the advent of online banking and "apps for that" when basic financial literacy was taught in schools, usually in the context of balancing a checkbook. We were reminded over and over again of the importance of comparing your records with those on your monthly statement.
Smartphones, software, and pop-up/email/text message alerts are all very helpful when it comes to managing your money, but they've also given us a false sense of control. Over-reliance on such tools can even encourage us to sit back and relax because we think "they" have it all handled.
This is not a good thing, not for a business owner trying to keep their business in business (or even when it comes to your personal finances).
Reviewing and reconciling your bank, credit card and any other financial accounts on a regular basis not only keeps you current with where your money is (and how much of it you really have), it also reduces your business risk.
The number one benefit of regular account reconciliation is the ability to catch errors. We are all human or at least rely on human input, and to be human is to err. Just ask John Slaughter, County Manager for Washoe County Nevada, where an error made in 2009 has cost the county $5 million in gaming taxes.
Mistakes, be they internal or external, can cause serious problems with cash flow, and so can not following up on transactions. Knowing your lender didn't cash your payment check before interest starts to accrue can save you a bundle. Keeping an eye on processing time can help you fine tune your cash flow and maximize that very precious commodity.
Keeping up to date on who's getting paid and why is also important. Trim waste and ensure you're not falling behind by regularly reviewing recurring payments and subscriptions and assessing their current value to your business. Many information sources, software packages, etc. have very long shelf lives, but it's not worth paying for out-dated, outmoded and unused resources.
THEFT & FRAUD
Cash is your most liquid asset and, as such, the most vulnerable. Fraud is another big ticket item that regular account reconciliation can catch before it devours your business. From the "invisible" $1.99 subscription charge on the company credit card that nobody authorized to excessive transactions by employees, fraud and embezzlement can seriously damage your business and your bottom line.
If catching errors is the number one financial benefit to regular account reconciliation, being ready for tax time is the number one mental health benefit. I'm not just talking about those big end of year taxes here. Most small businesses will have multiple types of taxes and government payments to make during the year, from employment withholdings to sales tax to unemployment insurance.
If you don't make those payments (be they semi-weekly to quarterly to yearly) at the right time to the right people, you risk unleashing one of the most severe potential devourers of cash: government penalties.
PERSONAL ACCOUNTS MATTER TOO
Last, but not least, as a small business owner it's just as important for you to take care of your personal accounts as it is for your business accounts. Your company's creditworthiness may well rest on the shoulders of your personal credit standing. While it's tempting to let personal concerns fall by the wayside as you focus on driving your business towards greater and greater levels of success, ignoring finances in any and all areas is risky.
So pick a day, once a month, and reconcile all your accounts. Once you set up the process it really won't take that much time, even if you go old school with paper and pen. There are many software programs out there that link to your banking and financial institutions, which can seriously speed things along. And, of course, a good accountant can help make sure your accounts are always in ship-shape.