Why it Pays to do Regular Bank Reconciliations
In our Xero Bank Reconciliations and Journal Entries Course, you’ll learn how to carry out each step in the reconciliation process, in particular how to set up bank feeds. Bank feeds are an important function that allows transactions on your linked bank account or credit card to automatically show up in Xero, so you (or your bookkeeper) don’t have to spend time entering the details from scratch.
Even though bank feeds can dramatically reduce the amount of time spent coding transactions in your accounting software, if your business has a lot of transactions each month, it’s a good idea to perform weekly — or even twice weekly — reconciliations. You’ll not only further reduce the potential for errors, but it’ll also help to give you a clearer picture of your finances.
Improved cashflow management
Even though internet banking allows you to look at how much money you have in the bank, this is an imprecise way of managing your cashflow. By reconciling your accounts on a weekly basis, you’ll be able to see what money’s gone out of your account, and what’s due to be coming in. If you have staff, this will eliminate a lot of the stress of wondering whether you’ll have enough money in the bank to make payroll, because you’ll know in advance if there’ll be any cash shortfalls.
With weekly bank reconciliations, you’ll also find that your financial reports are greatly improved. This will enable you to make more correct sales forecasts, and to plan for machinery or equipment upgrades with a greater sense of accuracy. It’ll also help you to identify late paying clients and peak business cycles, so you can better manage your business operations — limit credit to late payers, hire more staff, etc. This type of financial information is the lifeblood of every successful business, so it has to be accurate.
If you’re hiring a bookkeeper to manage this for you, it’s worthwhile discussing whether they will perform this work once a week, or a couple of times each week. If your bookkeeper is contracted to perform a certain number of hours each week, they may decide to perform a few tasks a few times a week, so they’re more available to their other clients during the week. This is a bonus to the business owner, because it improves the accuracy of your reporting even further.
Weekly bank reconciliations is an important task for all businesses, not just large ones. Our Xero Bank Reconciliations and Journal Entries Course covers how to reconcile a bank account, plus much much more. Alternatively, to take it back a step, you can learn about invoicing, credits and reporting in our Xero Day-to-Day Transactions Course.
Or if you want to see why incorporating bank feeds might be useful for your business, read here.