Reconciliation is a crucial part of bookkeeping that identifies and explains the differences between the entries in your accounting system and the transactions listed on your bank statement. For businesses, reconciling the books every month is the easiest way to verify cash flow, catch errors, and prevent fraud. Below are five reasons you should have your books reconciled each month. 

Verify Your Cash Flow

Many small businesses typically have lower amounts of capital on hand at any given time, so owners and managers must be vigilantly aware of the company’s exact cash flow position. Prioritizing monthly bank reconciliations is vital in having an accurate financial picture of your business so that you can make wise decisions to remain financially stable. 

Catch Errors In Time To Correct Without Financial Damage

Monthly reconciliations help business owners to catch any errors that may exist before a financial problem arises. Transposed numbers, misread receipts, and forgotten or mistyped entries in the check register are all common accounting errors that are easily corrected when caught in time. The last thing you want is to make financial decisions for your business based on incorrect financial data, which could quickly undermine cash flow. 

Fraud Prevention

Monthly reconciliation of your books will help you keep your company safe from fraud. Company credit card numbers and financial accounts can be compromised by fraudulent charges that, if left unnoticed, can wreak havoc on your bank account. Unfortunately, fraud can also occur in-house, as employees may knowingly or inadvertently commit fraud. The sooner a fraudulent charge or action is detected, the faster you can rectify the situation. 

Avoid Surprises And Navigate With Confidence

When bank statements are reconciled monthly, any checks that haven’t cleared can be detected, investigated, and resolved. By keeping your finger on the pulse of your bank account’s transactions, you can avoid surprises or at least deal with any issues effectively and efficiently. Sometimes, vendors may hold checks or payments for weeks, which could hit at an inopportune time. Monthly reconciliations put you in a proactive rather than a reactive financial position. 

A Monthly Reconciliation Process Should Be Standard Practice

Your monthly reconciliation process is your best tool for identifying problems and accurately understanding your company’s financial position. Your bookkeeper should be reconciling your books monthly as standard practice. Make sure you take the time to understand the report every month to make the best financial decisions for your company.