Bank account reconciliation: What is it and how to do it
For small business owners, bank account reconciliation might sound like just another task on your endless to-do list. But this crucial practice can save you from headaches down the road and help you make better business decisions.
What is bank account reconciliation?
Bank reconciliation is like balancing your checkbook but for your entire business. It's the process of comparing your internal financial records against your bank statements to ensure everything matches up. Reconciling your business accounts helps catch any discrepancies between what you've recorded and what's actually happening with your money.
Why is bank account reconciliation important?
Reconciling your accounts probably isn't the most exciting part of running a business. But it's one of the most important things you can do to maintain your financial health. Here's why:
Catching errors early helps you avoid overdraft fees and bounced checks that can harm your business relationships and bottom line.
Regular reconciliation makes it easier to spot unauthorized charges or fraudulent activity before they become major problems.
Having accurate books gives you a clear picture of your cash flow, helping you make informed decisions about spending and growth.
Come tax time, you'll thank yourself for maintaining clean records that make filing easier and help maximize your deductions.
How to reconcile your bank account
While the process might seem daunting at first, breaking reconciliation down into manageable steps makes it much more approachable:
Gather your documents: you'll need your bank statement and internal financial records for the period you're reconciling.
Compare the opening balances to ensure you're starting from the right point.
Mark off all matching transactions between your records and bank statements.
Note any bank fees or interest earned that might not be in your books yet.
Identify any outstanding checks or deposits that haven't cleared.
Adjust your books for any errors or missing transactions you find.
Calculate the final reconciled balance — it should match your bank statement when you account for any outstanding items.
Common reconciliation challenges and how to solve them
Even seasoned business owners run into roadblocks during reconciliation. Here are some common challenges we see:
Missing receipts or documentation can make it hard to verify transactions. We recommend scanning receipts immediately and storing them digitally to avoid this issue.
That check you wrote on Friday might not clear until Tuesday, while the Square payment you received instantly shows up in your account. These timing differences are normal, but they can make reconciliation tricky. We recommend keeping a running list of pending items to easily track what hasn't cleared yet.
Multiple transaction types, from ACH payments to Venmo to credit card transactions, can complicate the reconciliation process. Using accounting software that can automatically categorize these different payment types helps keep reconciliation manageable and ensures nothing falls through the cracks.
Manual data entry errors can throw off your entire reconciliation. Double-check your entries and consider using accounting software to reduce mistakes.
When to get professional help
While many small business owners start by handling their own reconciliation, there are times when bringing in a professional makes sense. Consider getting help if:
You're spending hours each month on reconciliation and could better use that time growing your business.
You consistently find unexplained discrepancies between your records and bank statements.
Your transaction volume has increased significantly as your business has grown.
You're not confident in your accounting skills and worry about making mistakes.
Keep your books balanced and your business growing
Regular bank account reconciliation is more than just good bookkeeping. It's a fundamental practice that helps protect and grow your business. While it takes time and attention to detail, the benefits far outweigh the effort involved.
Need help with your accounting? Explore our accounting services for small businesses.