Reconcile means to make (one account) consistent with another, especially by allowing for transactions begun but not yet completed. It is a term used in accounting often.
One of the best things bookkeeping will do for any entrepreneur or small business is to reconcile accounts. The reconciliation process is intense and detailed. Any flaw with a system or in payment distribution and/or receipt of payment will be found when an account is being reconciled! There are times when a person handling the budget will feel or think that something is off. A quick glance at the bank or credit card account may not show anything at that time, however, reconciliation will uncover those things that attempt to hide.
I once worked for a company that literally, contracted my services to perform reconciliations. The reconciliations had not been done for over five years, which meant tax returns were an estimate. Needless to say, the books were a mess. I began the task in July of 2010 and by March of 2011, they could no longer afford my services and by July of 2011, the doors to that were closing. I wasn’t surprised although disappointed. It is impossible to continue working, producing, distributing funds, performing services without reconciling! Reconciliations bring everything to a close, or sums up what has been done or wasn’t done. Outstanding checks that a company written may or may not be cashed or deposited. Reconciliation exposes potential hits to cash flow. There isn’t anything more frustrating than thinking one is operating with a certain amount of cash and later realizes that checks posting against one’s account reduce their cash level. It seems unexpected but it really isn’t. The correct term is unprepared! Reconciliations bring about balance and true numbers.
There isn’t a small business that can handle large amounts of money being debited from their account at once. It severely alters the business, by crippling the cash flow; however, without reconciliation that is exactly what will occur. This factor alone is the reason individuals leave banking to use prepaid cards. From fees, ‘unexpected withdrawals’ (we use that loosely), forgetting things that were paid from accounts and the like all work to make banking a challenge. However, it is only a challenge when it isn’t handled professionally and accurately. Even a prepaid card is not without challenges or responsibility required from the user! Yes, the card will stop you when money is no longer available, however, not having money on the prepaid card still doesn’t answer the question as to where the money was spent, how effectively the money was spent or why. There is also the fee cost associated with a prepaid card.
Reconciliation of bank and credit cards is the only one to provide both verifiable and reliable numbers for a business. It prevents business owners from co-mingling their funds with personal accounts as well due to the accountability associated with reconciling of bank statements. All purchases or distribution of funds are revealed as well as the receiving of revenues and allows the owner, entrepreneur and/or partners to really see how profitable a business is and areas for improvement.
My most recent contract assignment with a company who hadn’t performed reconciliation in two years revealed quite a few things about that company and its performance! Due to turnover in their accounting area, several diverse methods of handling their books made their financial records useless! Reconciling their bank accounts proved that they had systems or methods in place that allowed them to overstate their sales by over $80k. They paid for that mistake during tax time. Expenses were understated and there were methods that counted ‘other income’ doubled.
There were several clients underpaid and the business suffered for that as well. Unsatisfied clients refer no one!
Reconciliations are a must! Even if a person is fortunate to record data regularly most people have not a clue about how to perform an accurate reconciliation.
Stop doing things that require a professional! When your time as the entrepreneur isn’t wasted, it allows one o grow their business and remained focused on those items in the business that only the boss can do!
