Does your bank account tell you what’s going on in your business?

Do all of the reports from which you manage your business, including aged debtors and creditors (we’ll come back to these in later blogs), never quite seem up to date? The underlying issue could be hiding in your bank reconciliation process.

Wait a moment! You’re the business owner, the ideas person, you don’t do finances, right? We understand. But without keeping an eye on the finances, your business might not be as profitable as you think.

In this blog we will explain why, if your bank accounts aren’t reconciled properly, it could be a sign that your finance team isn’t performing as it should. Here is what to look out for, and what you can do to make a difference.

What your bank reconciliation says about your profits

If your business accounts are not regularly reconciled with your bank account, you could have less funds than you think. This gives you a false picture of the company’s profitability, and could be a substantial problem if you get to the end of the month and can’t pay your staff or suppliers.

Knowing what’s come in and what’s gone out, and reviewing this regularly, is crucial. Up-to-date insight allows you to confidently make business decisions, forecast finances, hire staff, and invest in materials.

In fact the bank reconciliation process is the foundation of the reports that you rely on to run your business. If the bank account isn’t reconciled effectively then profit and loss accounts, balance sheets, aged debtors and aged creditors reports may not be correct. Payments to suppliers may have been missed, and monies received from customers may not be properly recorded.

Are your finance team as effective as possible?

A bank reconciliation that’s not up to date is a sign that the finance team is not in control. Often, businesses grow organically and staff take on additional jobs that are perhaps beyond their comfort zone or skill. As a result, the ship doesn’t run as tightly as it could.

If your finance team aren’t in control of the numbers then you’re not fully in control of the business. Knowledge is power and without the full facts, you are left in the dark.

Be honest, is your finance team a group of specialists? Or are they also the head of customer services, chief people officer and operations manager? Mucking in and learning on the go is part of being a high-growth business. But there comes a time when an expert pair of hands is needed.

On a more serious note, accounts that are not regularly reconciled could be hiding costly errors. In the very worst-case scenario, it could be hiding deliberate misstatement.

Ask to see the bank reconciliation: what to look out for

First things first, don’t panic! It is much more likely that the finance team is a little out of their depth than anything serious, like fraud.

The easiest way to put your mind at ease is to ask to see the bank reconciliation. If you haven’t ever done this, or haven’t done it in a long time, do it as soon as possible. And ask to see it regularly – at least once a month.

The main thing to look out for is the age of the items on the reconciliation statement. Reconciliations should be done at least monthly; older items that aren’t being followed up suggest that something has gone awry.


How to understand business finances as MD or CEO

As an entrepreneur, you’re probably more comfortable with business development than spreadsheets. If you’re unsure what to look for, our guide, Why your business isn’t as profitable as you think, explains how to analyse a bank reconciliation report. The guide also points out the red flags that indicate your finance team isn’t coping and what a healthy reconciliation report looks like. Download the guide and see how your business measures up – and if making changes impact your profits.

Photo by Christopher Bill on Unsplash