5 Financial Errors You Can Avoid
As a Small Business Owner, we are all afraid of making the wrong decision or choice, of pursuing the wrong strategy, of investing in the wrong product/market, or, and most of all, in making an accounting error.
One of the best, and “easiest” ways to avoid or detect issues with your books is to do a monthly bank reconciliation.
We all know that reconciling our bank accounts is something we are supposed to do.
But, do you do them?
Be honest now it’s just us…. 😉
“But it takes so long and it seems like a waste of time”
“I don’t have time for that, I can barely keep up as it is”
I get it, I do.
There are lots of things that I feel the same way about.
The good news is that there is usually a positive reason to do these things.
Doing a Bank Reconciliation each month will actually help save time and money later on.
I recently had a client who found that their bank account had not been reconciled for over 6 months!!
Obviously, it took some time to get through that many reconciliations which cost the owner money they could have spent or invested elsewhere.
We also found several errors and mistakes.
We were able to fix many of them, but due to the time lapse some could not be fixed and the amount of the error had to be absorbed by the business and therefore the business owner.
Money that, again, could have been spent on other parts of the business.
Bank Reconciliations are about comparing the transactions that you captured against what the bank posted to your account.
By doing a reconciliation you can identify:
1. Odd or Fraudulent Transactions
Because you have diligently recorded every transaction for the month 😉 it is easy to identify the odd transactions that are not expected. Now sometimes these are just transactions we simply forgot to record, but many times they are not and are actually fraudulent charges. Because you reconcile each month you can address these in a timely manner and get the money back into your account.
Mistakes happen. A 6 looks like an 8, an 8 looks like a 0, numbers get reversed (19 instead of 91), and if you deal with handwritten checks it is almost guaranteed that some errors will pop up. Once again, the good news is that since you keep up with your reconciliations you can address these quickly and have them fixed right away.
You realize that you are paying the same vendor multiple times per month - get all their bills on the same cycle
The same vendors are being paid by check & multiple credit cards - get them on 1 type of payment
Setup Automatic Payments
4. Duplicate Entries
I once had a new bookkeeper that would often create and post a transaction even though there was a ‘Memorized Transaction’ that would be posted automatically. This resulted in duplicate transactions. While many would be discovered in the normal course of business (i.e. duplicate bills), some were not found until we did our reconciliation (i.e. posting an automatic payment). If these duplicate transactions had sat on the books our balances would not have been accurate and we would have either more or less money than we thought, which when you watch every dollar can have a big impact on the business.
5. Fees & canceled services
Last month you canceled your service with xyz company, but when you are reconciling you see that they charged you again this month. Now, if you only reconcile every few months you may have missed the window to get this charge (and probably others) reversed.
A year ago you got a great introductory rate on a new credit card. While reconciling you notice a Service Fee for $99 - turns out there is an annual fee for the card!! Again, because you are on top of these things you can immediately call and get that fee reversed for another year - cause you are awesome like that!
Need a reminder to get these things done?
Check out our new DIY Memberships