It’s easy to dismiss reconciling your books as just a formality. However, it’s one of the most critical parts of bookkeeping for any business. Verifying that your own internal financial records match your bank statements and other external records can help you prevent future problems. But did you know it supports smarter planning, too?
Reconciliation: Not Just a Pre-Tax Cleanup
If you currently see reconciling your books as something you do right before tax season, you’re not alone. It’s understandable to want to put off something this tedious. But when you fail to reconcile your books monthly, you’re cheating yourself out of a simple yet effective early warning system.
Failing to reconcile your books each month means that errors are likely piling up. Each miscategorized expense, duplicate charge, and missed deposit may not make much of a difference on its own, but over time, the numbers in your books are further removed from reality.
When your books aren’t accurate, that means countless business decisions (including pricing, spending, and hiring) are based on faulty data. Regular reconciliation helps you make sure you have the most up-to-date information to guide your company through the year. It also saves you from the stress of scrambling to fix your books before tax day.
What Can Reconciled Books Show You?
When you stop thinking about reconciling your books as a tax-season chore and start treating it like a year-round priority, you’ll be much more in tune with your company’s financial health. Reconciling your books can reveal some critical issues.
Upcoming Shortages
Nearly every business owner encounters slow periods from time to time. If you don’t regularly look at your books and account balances, you won’t know if an upcoming slow season is set to coincide with low balances.
Regularly reconciling your books won’t make money magically appear in your accounts, but it can give you the opportunity to plan ahead and ensure your company keeps running smoothly.
Where You’re Missing Money
If you don’t carefully monitor your accounts receivable, you might not notice when certain clients aren’t paying until money gets tight. Reconciling your books every month will show you where you’re missing money and enable you to develop a collection strategy.
Your Future Cash Flow
You might not be able to see into your business’s future, but cash flow forecasting helps you get close. Reconciling your books each month gives you an idea of when customer payments come in and when your company pays its bills, and those data points are the building blocks of a great cash flow forecast.
Slow Leaks
Occasional major expenditures usually aren’t to blame for cash flow issues and shrinking margins. It’s the small daily expenses that add up over time. Part of reconciling your books is reviewing statements in detail. When you’re combing through all business transactions each month, spotting hidden money leaks gets a lot easier.
The Next Stage: Interpreting Your Books
Cleaning up your books will often give you instant insight. But unless you’re a financial professional, you might be missing some of what your financial data is trying to tell you. Checking in with a business advisor each quarter can transform your clean books into forward-looking insight.
If you’re looking for even more in-depth interpretation, consider working with a fractional CFO. These professionals work with you on a flexible basis, so your company can benefit from experienced financial leadership for a fraction of the cost of a full-time CFO.
Looking for Bookkeeping Support?
Your company’s books are more than just catalogs of transactions. They tell your company’s story, and if you listen closely enough, they might just help you avert a crisis before it starts.
Zabel & Munson is committed to helping business owners like you understand what their companies’ financials are trying to say. We offer fully personalized strategy development to keep your company growing.
Whether you’re looking for bookkeeping support, fractional CFO services, or business growth coaching, our team is here to help you succeed. Get in touch today to schedule your complimentary consultation.