Reviewing your financial accounts is a critical step that can tell you more than just how much you have in the bank. If you take the time to analyze the data, your bank statement can tell you about the efficiency and missed opportunities of your business.
How to Review Your Bank Statement
While you probably already know how to reconcile your account, reviewing your bank statement at the end of the year is a bit different. This task will go faster if you use an accounting program, but it’s not necessary to work with specific software to get the benefits of an end of year banking review. Either way, it will come down to your ability to categorize individual purchases.
In order to complete your end of year banking review, you’ll need:
- Bank statements for the year or information from accounting software
Some people like to create a separate spreadsheet for this, but that’s personal preference. More important than having fancy tools is having a quiet atmosphere where you can focus all your attention on the numbers.
Evaluating Financial Efficiency
Finding the right balance of safety net and financial efficiency is different for every business. Start your review by searching each bank statement for red flags, like overdraft fees or negative balances. Even when your bank doesn’t charge you a fee, going into the red for a few days can have a negative effect on your business. Bank policies can change, so the fact that your bank has never charged you in the past doesn’t mean they won’t start.
More important than whether you had overdrafts is the cause of the overdrafts. Did a sluggish sales month stretch you beyond your means? Is spending more than your cash on hand a regular occurrence for the business? Either scenario makes a strong case for obtaining a line of credit to help regulate your cash flows and keep your business running.
Finding Missed Opportunities
During your bank statement review, you may not run into any red flags. Instead, you might notice that your business maintains a hefty average daily balance. Although this is a safe way to avoid bounced checks or overdraft fees, it may not be the most productive use of your funds. Everyone in your company works hard; your money should, too.
Instead of being a positive thing, those high balances represent interest income your business didn’t earn. Even if you earned only a modest rate of interest – like 1 percent – on $10,000, that’s still $100 in free money you don’t get to add to your books.
Once you locate financial trouble spots in your bank statements, you can schedule a visit to speak with your banker or financial consultant to look for ways to improve your company’s financial profile.