Why should you reconcile all your accounts? We like to ask our future clients this question to understand if their books are organized before we start their bookkeeping for them. We are amazed at how many clients think all they need to do is to reconcile their bank statements. Reconciling the bank statement is important to do because cash is king. However, you need to reconcile each expense, asset, and liability to get to know how or where your money is going. To cut down on your tax bill/preparer bill, it is better to have each account reconciled and accurate so that the business can find more deductions or credits for their taxes. We are going to explain the benefit of having your bookkeeping clean and accurate.
1) An understanding of the different aspects of the business!
We (as owners) want to have the opportunity to grow. By having all your accounts reconciled, you can perform a cost analysis. You might think the way the business is marketing is the correct way. However, you can perform a cost analysis to see if the benefit exceeds the cost. The business might spend $1,000 a month in marketing, but when you scan the marketing reconciliation you might see the business is only receiving $700 per month in the marketing campaign. If this is the case, the business would want to think of a different strategy. Doing these types of analyses will help you know your business better.
2) Take advantage of tax breaks!
If you are not reconciling every account, your business is missing tax breaks because the tax break might be hiding in the unreconciled accounts. For example, if you as a small business owner are paying for a company truck or the truck is in your name instead of the company name, you are missing a tax deduction on that vehicle. If you are not sure about taxes or not familiar with the tax law, we would recommend you contact a tax professional to receive the most tax deductions/credits. This will save the business thousands of dollars by finding these tax breaks.
3) Keep the business in the black!
As business owners, we need to understand our expenses and revenues. We all want to be in the black and not the red. By reconciling the accounts, the business will gain a better understanding of where the money is going and where the money is coming from. Just reconciling cash will show you how and when cash is coming in and out, but it won’t tell you what bucket (i.e. marketing) you might be overspending. This will help your business grow to understand where or when you can spend money to get the most out of the business money.
If your business isn’t reconciling all the business accounts, we would recommend your business to follow this practice. Everything you earn is from hard work and you don’t want to wastefully spend. You will not know the whole story by only reconciling bank statements. The business needs to reconcile all accounts to take advantage of tax breaks. This will also allow the business to grow and cut unnecessary spending. If you don’t know how to reconcile the books, we would suggest you hire a professional bookkeeper to work on your books. This will save you time and money. You will be able to focus on your business and not be stuck down in the weeds with your books.