Small business owners are always looking for ways to make their lives easier, especially when it comes to the financial management side of their business. However, one area of financial management that deserves more attention from small business owners is bank reconciliations as it’s a task that is often put off or done inconsistently or incompletely. This can present many challenges for a small business owner when it comes to protecting their financial footing.
In an age where everything is digital and more and more tasks are being automated, many solutions exist for small business owners to take control of their bank reconciliations and make them a regular habit, but this critical task can still fall by the wayside. In this article, we’ll examine why bank reconciliations are important and why they should be a consistent best practice for small businesses, as well as how to resolve any issues with your bank reconciliations.
Why bank reconcilliations are important
Reconciling your business’s bank account(s) is important for a number of reasons which could threaten a business’s financial stability and tax planning situation. Regular bank reconciliations allow you to:
- Detect and remedy administrative issues – Bank reconciliations allow you to capture a true picture of your business’s cash flow, detect issues and errors with transactions entered by yourself or your team, identify bounced checks from you or your customers/vendors, and avoid bank fees.
- Catch fraud early – Small businesses are especially susceptible to internal fraud for a myriad of reasons, but regular reconciliations can help you nip it in the bud. You can easily see whether checks have been manipulated or duplicated, if there were unauthorized transactions, and identify missing deposits.
- Provide accurate accounting records for tax planning – Provide accurate accounting records for tax planning – Missing expenses can affect your performance metrics, sales tax obligations, and personal tax obligations. Misreporting your sales tax, for example, can incur a costly fee or audit from your state. Your personal taxes could be affected if dividends or shareholder transactions are inaccurately recorded. You don’t want to find out you have a reconciliation issue via IRS audit.
The cost of these issues can add up quickly and cause debilitating circumstances for your business. Thorough and consistent bank reconciliations are your best line of defense against any potential fraud or tax issues.
How to resolve issues with bank reconciliations
When you’re dealing with a significant number of transactions and hefty discrepancies in your bank reconciliation, potentially across several years, cleaning up those issues can take significant time and energy. While the temptation may be to make a one-time plug to balance your accounts, this can create critical challenges in your accounting records that can snowball into bigger issues in other areas such as your taxes.
The financial and tax implications at stake mean bank reconciliations should be a high priority for any business owner, and they should not be left up to chance. Now is the time to invest in a process to ensure your reconciliations are performed thoroughly and consistently. Your CPA can take this burden off your shoulders and provide you peace of mind that your bank reconciliations are accurate and up to date. Contact us to learn more about how we can help with bank reconciliations and other solutions for your small business.
Treasury Circular 230 Disclosure
Unless expressly stated otherwise, any federal tax advice contained in this communication is not intended or written to be used, and cannot be used or relied upon, for the purpose of avoiding penalties under the Internal Revenue Code, or for promoting, marketing, or recommending any transaction or matter addressed herein.