Keeping up with the day-to-day bookkeeping of running a small business — especially an equine business! — can get cumbersome. Many of us put it off. But here’s why reconciling your accounts on a regular basis is so important.
By Pam Saul, Owner of Saul Bookkeeping
Is reconciling your accounts on your monthly list of things to do? Between feeding the horses, teaching lessons and keeping everything at your farm organized, you should also be verifying your checking and saving accounts, plus any credit cards, as well as your PayPal or Venmo account each and every month. While I know everyone is busy and adding one more thing to the list can seem overwhelming, if your answer was no, let me explain why it should be right up there at the top of your priority list, along with feeding the horses.
What is reconciling? This is the process that uses two sets of records—such as your check register and the bank statement—to make sure the account matches from both sides. You are simply matching what transactions you completed in the past 30 days to what was recorded by your bank or credit card company. These transactions are your deposits, wires, checks, debits and ACH transactions you received or sent out on your account. The report from your bank or credit card institution is a record of what transactions they handled for your account in that period. It proves that the check you wrote to the feed store was sent to your bank to pay that vendor and for the correct amount. You will need to use this to make sure all the transactions shown on the report are the same as your records.
When reviewing, look for:
- Matching amounts on your checks, debits or deposits made
- Any additional entries you need to record (bank fees, refunds, debit card, credits)
- Research any unknown entries, such as unknown vendor charges or bank fees, etc.
- Look for missing entries from the prior period
Let’s go over how to handle some of these issues:
An example could be as follows: you wrote a check to your hay guy for $711.00. When it comes through on your bank statement, it shows it was presented and that the bank paid $111.00. But hold on, that’s not the amount that you wrote the check for. You look at a copy of the check and sure enough, it’s for $711.00. Another example could be you wrote a check for $227.70, but the bank paid out $272.70. They simply switched the 2 and 7, and in the process overcharged your account $45.00. In either example, you’ll need to alert the bank to their errors so you can have it corrected in your account.
If you have an amount deducted from your account you don’t recognize, see if the transaction line shows a telephone number to call. You may find that it’s something you purchased under a different vendor name, which happens quite often when a Merchant Service account is used. However, if this is a charge you know you didn’t authorize, call your bank or credit card company immediately and follow their procedures for this issue.
In some cases, the credit card company might freeze your account and issue you a new card. If this happens, you’ll need to contact any vendor that is using the card for a recurring charge and let them know the situation and give them your new card information.
Sometimes you may see a charge from your bank or credit card company. These could be, “Activity charges” or “Service Fees” or some other vague description. Call your company and get details on why this fee was applied. You could have some parameters on your account that you weren’t aware of, such as having to keep a certain minimum balance, where if it falls below that balance, you will incur a monthly fee from your bank. Another possibility is it could also be where you were given a service for a specific period of time, like when you first opened your account, and that free service is now over. Both of these are important to know since it costs you money!
If you see this charge, it means your account balance went below zero and the bank paid a check or other charge on your behalf instead of returning it as unpaid. This charge could be for every transaction they cover and can quickly add up. One option is to have a savings account or other account linked that automatically moves money so that you don’t get charged a per transaction fee.
If you issue a check and your bank refuses to pay it, you’ll get a bounced check fee, plus whatever you thought was paid is now not paid. This means you get a bank charge and you still owe your vendor! If you have this issue too many times, your vendor may not accept any checks from you and require a certified check, direct deposit or credit card payment. The horse world is small, so you don’t want to get a reputation for bouncing checks. And with a little planning, and a linked account, you can keep this from happening.
When reconciling your account, you are also looking for what hasn’t cleared. If a check you wrote to the farrier doesn’t show up on your statement within 90 days, you should contact your farrier to see what the status is on that check. They may have lost the check or held it for some reason. It’s also possible that you will need to cancel the original check and issue a new one. If this becomes a habit with a particular vendor, ask them about paying with a debit or credit card instead.
This is especially important with paychecks. For these, you should follow up within 30 days to see if it was lost or held. Because these are recorded as part of an employee’s W-2 at the end of the year, you want to make sure all the funds are processed properly so that the amount you record on the tax form is actual. You may need to issue another check if it is lost. One way to get around this issue is to use Direct Deposit, which is well worth it just so this issue isn’t even possible.
With everything that can go wrong, it’s really important to reconcile your account every month so you can get ahead of a potential crisis and to make sure your payables are taken care of. Another recommendation is using Online Banking, which can be adapted to your equestrian business easily, so that you can view your transactions throughout the month online and see any issues that you need to quickly fix. One caveat with online banking and bill paying is that the funds may be pulled out of your account when you send the bill pay and not when the vendor presents the check for payment. With this scenario, you won’t know the check hasn’t been cashed until you get a call from your vendor. Check and see how your bank handles this specific service.
Reconciling accounts is just one of the services Saul Bookkeeping offers for small and medium sized businesses — and equestrian ones in particular. Call to book a FREE 30-minute no-obligation consultation to see what Saul Bookkeeping can do to save you time and money!
DISCLAIMER: Saul Bookkeeping and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.