Decode Your Bank Account: Unlocking the Hidden Financial Health of Your Business

Last updated 8th March 2023

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.

We understand: you’re the business owner, the ideas person, you don’t do finances, right? We get it. But bear with us. Without keeping an eye on your financial health, your business might not be as profitable as you think. And that could be affecting everything.

We know that your bank account is where you’d expect to find up-to-date financial information about your business. And to a certain extent it is.

But there is more detail that you need if you are going to understand how your business is doing.

The financial health of your business starts with your reconciliation report.

It’s the first report on our list and there is one key reason for needing your bank accounts to be reconciled properly.

If your business accounts are not regularly reconciled with your bank account, your funds could be lower than you think. This gives you a false picture of your profitability. This 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. It allows you to forecast finances, hire staff, and invest in materials.

In fact the bank reconciliation process is the basis of all 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 will likely be incorrect. Payments to suppliers may have been missed. Monies received from customers may not be properly recorded.

Are your finance people as effective as possible?

A bank reconciliation that’s not up to date is a sign that the finance team might not have full control of the finances. Often, businesses grow organically and staff take on additional jobs that are perhaps beyond their comfort zone or skill level. As a result, the ship doesn’t run as tightly as it could.  Your finance team are working under more stress than they should.

Without beating around the bush: if your finance team aren’t in control of the numbers then you’re not fully in control of the business.

Knowledge is power. Without the facts, you are in the dark about the financial health of your business.

Can we be frank? 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 – it is what makes many of us thrive.

However, when it comes to finance, there is often a natural limit to the usefulness of our ‘get stuck in’ nature. There comes a time when an expert pair of finance hands is needed. This time is often right when your business starts to feel the pressure of growth.

The key to understanding your accounts centres around reconciling. Accounts that are not regularly reconciled could be hiding costly errors, or causing you to miss potential opportunities. In the very worst-case scenario, they could be hiding deliberate misstatement.

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

First things first, don’t worry! Regardless of the state of your reconciliation report, the chances are the finance team is a little out of their depth rather than anything untoward going on, like fraud.

The first step is to see the bank reconciliation. If you have never done this, or haven’t done it in a long time, do it as soon as possible. Ask to see it regularly – at least once a month. Ensure the team has a plan to reconcile the accounts regularly and ask them to stick to it.

Reconciliations should be done at least monthly; older items that aren’t being followed up suggest that something has gone awry. If your finance team is struggling with keeping on top of the reconciliation report, it could be a sign that they are also struggling with other key aspects of the accounting requirements.

It might be time to talk with us about how your finance team is structured. We might be able to help with finding you a Part Time Finance Director to help you make some sense of the finances.

As an entrepreneur, you’ll be 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 what to look for in 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. Find out how understanding some key financial reports can improve the financial health of your business and impact your profits.

Photo by Christopher Bill on Unsplash