Managing cash flow is no easy task. Especially when you are trying to run a growing business. There are so many things to think about, such as managing staff and running the operations. And not to mention the ongoing business development.
So how do you keep your cash flow tight and in the black?
Well my number one way is to reconcile it monthly. Consistently. Every single month.
Seems like such a simple task, yet so many business owners get behind on this and are left wondering why they don’t have any money in the bank. So here are a couple of reasons why you don’t have as much cash as you think you should in the bank.
In this day and age too many people have too much time on their hands. These people are hacking into anything that has a digital pulse. Not reconciling your bank account and credit card accounts puts you at a higher risk for being hacked and it going undetected.
Now don’t get me wrong the banks and financial institutions have gotten very savvy at detecting suspicious activity due to analysis of your historical transactions or proximity to where each transaction occurs. But I am most certain that occasionally something slips through the cracks. Just turn on the news and you can hear about it.
That’s why it is your duty to practice due diligence in reconciling and making sure what came out of your account were true authorized transactions.
Now let’s be honest – because you have poor cash flow practices you also have a large amount of bank charges each month. And those $36 NSF fees can add up pretty rapidly. And not to mention the fees for your account being overdrawn. To avoid paying these fees you need to do two things: (1) stop writing checks and charging expenses when you know the cash is not there and (2) reconcile your cash regularly.
Reconciling your cash helps decrease these fees because it makes you aware of the transactions that have cleared and the ones that have not. Especially when a debit card is involved. We have all done it at some point in our lives on our personal accounts. You have forgotten to write down a transaction or lost a receipt and two weeks later you’re trying to figure out what store that was you went to. And for the life of you, you can’t remember so you contact the fraud department only to realize another two weeks later what it was and have to call the bank back and say “my bad.”
I know I’m not the only one.
Well it happens for business too. You don’t all of a sudden magically remember everything because it’s a business expense. In fact, you forget more often because the volume of transactions are more and so is your list of daily things to do.
Reconciling your bank account forces you to keep track of every transaction that flows through your account so that you can catch these unrecorded transactions before it’s too late.
One Good Thing
Now the things I have stated above are negative results of not reconciling your bank account monthly. But I also have a good reasons why.
Many times business owners will write checks to vendors and for one reason or another the payment is never mailed. Maybe they paid online after they wrote the check and the payment downloaded with the bank feeds. Or maybe a check was written for one amount and then a second one was written for an amount that was 3 cents more and you forgot to void the first payment.
I could go on with this list but they all lead to the one good thing – uncleared payments as a result of duplication. This means you actually have more cash than you think. But because you are not reconciling regularly or you don’t know the best practice for clearing out those pesky uncleared transactions, you have no clue what your true cash balance is.
Take the time to reconcile your cash monthly. Schedule a set day to get it done at the beginning of each month so that you can truly know what you’re working with when it comes to cash flow. And if your business is growing so rapidly that you no longer have the time to do it yourself, then seek professional help.
What bad experiences have you had as a result of not reconciling your bank account regularly? What were your lessons learned?