What you can learn about your business finances from the Trial Balance

Entrepreneurs wear many hats, from business leader to head number cruncher. Successful business means successful management of the finances and those figures won’t look after themselves. But when you lead a fast-growing business, there aren’t enough hours in the day to become a finance pro as well.

That’s why we’ve put together a series of guides, to help MDs and CEOs understand key financial reports. In this blog, we’ll look at the Trial Balance and what it can tell you about the financial health of your business.

We hope it’s helpful!


The Trial Balance and the warning flags it reveals

A Trial Balance is a powerful report. It tells you the balance of all your general ledger accounts at any point in time. The total of accounts with positive (debit) balances should equal the total of accounts with negative (credit) balances – if not then the difference needs to be investigated.

The Trial Balance also gives you an idea as to whether your finance team is running as tight a ship as it could. When you review your Trial Balance, look out for sums of money in a Suspense Account.

The Suspense Account is a holding area for transactions, while the finance team investigate what they are. It’s a temporary allocation and accountants often put things here when they are unsure about what the transaction is.


Why transactions get dumped in the Suspense Account – and why it matters

Usually, transactions that end up in the Suspense Account are for invoices that come in which the finance team are unaware of. They don’t want to forget about the invoice, so they put it onto the system and park it in Suspense.

As businesses grow, people are given the authority to spend a budget. While this does reduce bottlenecks around spending decisions, it increases the scope for error and miscommunication. Which is why it’s so important to have proper processes in place.

A simple purchase order number would allow the finance team to understand what the invoice relates to. Rather than allocate the transaction to the Suspense Account, they could account for it properly. This would also speed up payment of the invoice and maintain positive business relationships.


What to do if you see transactions in the Suspense Account

Ask your finance team what it is. Have their investigations shed any light on the transaction? If so, can it be properly allocated?

You’ll also want to ask how long it has been there. The answer, hopefully, is ‘not long’! Transactions that sit in the Suspense Account for a long while could indicate a general lack of organisation in the team. If they are not investigated, identified and properly allocated it has a knock-on effect. Transactions hidden in a Suspense Account are easily overlooked, and may have an impact on your Profit and Loss account or another critical performance measure for your business, such as work in progress.


Use your Trial Balance to keep on top of your finances

We appreciate that not everyone is an accountant. As vital as good accounting is for a growing business, as MD or CEO you may not have the skills or the inclination to micromanage the finance team.

Part of running a successful business is having the right people in the right roles. If your finance team isn’t performing at its best, you’ll be short-changed when it comes to building the business you imagine.

If you have plans to grow and you’re concerned that the finance team you have in place could use some support, call us on 0117 244 1891. We’d be happy to help you recruit the finance professional that will take your business where you’d like it to go.