The secrets hidden in your trial balance and what they reveal about your business finances.

Last updated 5th April 2023

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

Entrepreneurs wear many hats, from business leader, head of operations, HR and even occasionally head number cruncher.

Successful business means successful management of your money. 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 have put together a series of guides, to help busy and ambitious 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 you find it helpful!


The Trial Balance and the financial 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 must be investigated.

The Trial Balance also gives you an idea as to whether your finance team has the time and ability to keep on top of their key activities. Activities such as recording and allocating transactions.

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 is a temporary allocation and accountants often put things here when they are unsure 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 business grows, team members are often given the authority to spend a budget. This reduces bottlenecks and enables spending decisions to be made without hassling you every day for permission. It also increases the scope for error and miscommunication. Which is why it’s so important to have proper processes in place.

Something as simple as a purchase order system will fix it. A PO number allows the finance team to understand what the invoice relates to. Rather than allocate the transaction to the Suspense Account, they can account for it properly. This speeds up payment of the invoice and maintains positive business relationships. Setting up systems like this is quick and easy if you know how. For many growing businesses, this isn’t a priority, until it becomes urgent.


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 indicate overwork, or a lack of processes in the team. If transactions are not investigated, identified and properly allocated in good time it has a knock-on effect. Transactions hidden in a Suspense Account are easily overlooked. They can 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 (nor do they want to be!). 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 your finance team.

Part of running a successful business is having the right people in the right roles with enough support to do their work. 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 your finance team could use some support, we can help. Call us on 020 8191 2124 or contact us here. We’d be happy to help you recruit the finance professional that will take your business where you’d like it to go.