My Money Mistakes: Monthly Bank Reconciliation

My money mistakes bank reconciliation

I made lots of Money Mistakes during my years as an entrepreneur. I’m probably making some now! That might surprise some people who know I was a VC, and I’ve been helping entrepreneurs with funding and other issues for a while.

But I was a venture capitalist without an MBA. My one accounting class in college was enough to enable me to do what I needed in terms of financial analysis for early stage companies (which is not much). And it allowed me to set up a very detailed QuickBooks ledger for my a cappella business.

Some of the things you need to know about money as an entrepreneur, however, are practical steps that an accounting class won’t teach you.

Like the need for monthly bank statement reconciliation.

Craziness Makes Mistakes More Likely

When I relaunched my a cappella business in 1998 I was in a frenzy. I was in the midst of a legal battle with my former partner at my first a cappella startup (a topic for another My Money Mistakes post). I was sending out a lot of printed catalogs, building inventory of many hundreds of CD titles. Crazy times.

I used one of my employees to do the bookkeeping, which is a very common thing in small businesses. She said she’d done it in a previous job, and I took her word for it. I spent enough hours in front of the computer categorizing and recategorizing expenses she’d entered in QuickBooks that I thought our electronic accounting was in decent shape.

But I was wrong.

See, there was a missing step that every business needs to do – especially a business with lots of transactions. Which we had: almost daily credit card deposits, checks to dozens of small a cappella groups, plus the normal array of business expenses.

Plus I was investing cash in the business. I was fortunate that at the time, the dot-com boom was generating proceeds I could invest in my business.

Don’t Assume Banks and QuickBooks Agree

What was missing in all of this activity? The monthly reckoning. Or more precisely, monthly reconciliation of QuickBooks and the bank statement.

In theory it’s easy. Somebody sits down with the printed bank statement that comes in the mail (or these days, you print out from an online statement), and checks off all of the corresponding transactions in QuickBooks. In fact, QuickBooks had a process for reconciliation (at least at the time, before everything was electronic).

What happens is you catch mistakes. In the normal course of bookkeeping things are overlooked, mis-categorized, mis-typed, double entered. In a crazy business with lots of activity, lots of mistakes are likely.

I can’t remember the exact circumstance that led me to find the problem. But one day I looked at the most recent bank statement balance, and I looked at the corresponding date in QuickBooks. The difference was more than $30,000. I don’t remember exactly in which direction, but I don’t think it was favorable.

Does Bank Reconciliation Still Matter?

Nowadays, QuickBooks or other business accounting software automatically connects with bank accounts. Does that mean reconciliation isn’t necessary any more?

Not at all. It’s still a good idea to sit down once a month and look at your bank statement, and compare it to your own electronic records. Why?

  • Catch bank fraud. The bad guys want your money, and business checking accounts aren’t as well protected legally as consumer accounts.
  • Catch cash flow issues. Are bills being paid as you want? Are customer deposits flowing in, or are checks bouncing? Are any of your checks in danger of bouncing because of a low balance?
  • Catch bookkeeping errors, or worse, fraud. Lots of bookkeepers lack financial training. And, bookkeepers can misdirect cash if they are dishonest and owners aren’t looking. (That’s another future post)

If you aren’t in the monthly habit of checking your bank statement against your electronic accounting system, it’s time to start. How about now?

I have plenty more Money Mistakes to share. How about you?

Don Gooding

Add comment

Follow us

Get in touch! We love meeting interesting people and making new friends.