Bookkeeping – Sequoia Business Solutions

If you already have a system to keep all your bank and loan and credit card statements organized, I have to applaud you. If you’re like most, non-accountant small business owners though, your statements are probably dispersed between your desk, the glove box in your car, your kitchen table, and that file folder you created when you first started.

Believe it or not, the fact that your financial information isn’t organized is adding to your stress. It may be a low-grade worry that cringes every time you think about trying to get things together for your tax person at the end of the year. Or it may be something that keeps you up at night because you really don’t have a solid grasp on what’s going on with your finances.

As a consultant, here is the process I go through when I get a small business organized.

Order Supplies. Unless you have a paperless office, I suggest that you start with a two-inch (2″), three-ring binder and a set of monthly tabs (Jan-Dec). (You can always get a wider binder if you need more room.)

Create a Checklist. Next, you’ll want to setup a worksheet with your accounts listed down the left and the months listed across the top. This typically looks best in a landscape orientation. You’re welcome to download and customize the basic Excel spreadsheet I designed for this.

Reconcile Your Accounts. If you don’t know how to reconcile your accounts or you don’t think it’s necessary, please visit my walk-through post. Once you’re done reconciling the account, staple the reconciliation report(s) to the front of the statement, and file them in the appropriate month, based on the statement ending date. For example, your bank statement that ends June 30, 2018 and your credit card statement that ends June 18, 2018 will both be filed under the June tab in your binder. (Yes, you also need to reconcile your credit cards.)

Run Your Financial Reports. Once all your accounts are reconciled for the month, go ahead and run the basic financial statements:

Profit & Loss Report (also known as an Income Statement)
Balance Sheet
Statement of Cash Flows

File these statements in front of all your account statements and their reconciliation reports.

Review Your Financial Reports. Take a look at your financial statements and choose at least a few numbers to keep a close watch on. These are called Key Performance Indicators (KPIs) and they can form the basis for business goals. For example, if you’re in a manufacturing industry, depending on your field, you might want your gross profit (total income minus cost of goods sold) to be about 40-60% of your total income:

Income: $10,000 (100% of Income)

Cost of Goods Sold: $4,000 (40% of Income)

Gross Profit: $6,000 (60% of Income)

You also might want to keep an eye on discretionary expense accounts like “office supplies” and “meals”.

Relax.Once you get used to the process, this might only take you an hour a month to complete. The payoffs are well-worth the time investment. First of all, you’ll have a much better idea about how you’re doing, financially. Next, you’ll be ready to do your taxes… early! Also, you will have all your account statements in one place if anyone ever needs to see them (banks, loan officers, auditors, etc.). And finally, you’ll eliminate the stress associated with being financially disorganized.

That’s it! If you need help, it’s literally what I do for a living. Drop me a line and I’ll get in contact with you as soon as possible.

With online access to bank and credit card accounts, I am seeing a massive departure from the standard business practice of reconciling accounts on a monthly basis. It’s an easy trap to fall into and the fees (bank fees) can be extraordinary.

If you have business checks or if you have costs that automatically come out of the account you use for business, you need to setup a bookkeeping system. No matter how good you think your memory is, the fact is that at some point you’re going to forget about the check you wrote for supplies or (yikes!) rent or the EFT you setup to pay your insurance it’s going to clear the bank on the worst possible day.

Like the day you land an awesome contract and purchase a bunch of supplies to get it done (because your online bank balance says there’s enough in there) and there’s a whopping $1,000 left in the account. All it takes is a few lagging transactions to eat up that buffer and land you in the hole. I’ve seen this happen hundreds of times, and it always results in overdraft fees and non-sufficient funds (NSF) fees.

The bank might work with the business owner once or twice if this happens infrequently, but at a certain point the bank stops refunding the fees and the owner has to eat the costs for the bank to cover the account.

Talk about taking all the fun out of “making a living”.

The solution to this maddening cycle is to keep a check register. If you want to go old-school, then pull this sucker out of your box of checks:

It’s fairly self-explanatory. Enter the date, the check number (of EFT for Electronic Funds Transfer), the payee (the name of the person you paid or paid you), the amount of the payment or deposit, and the ending bank balance. If you’re somewhat computer savvy and want to kick it up a notch, use Excel or Numbers, or Google Sheets to keep track of your transactions. You’re welcome to download and customize the basic Excel spreadsheet I designed for this.

If you find you can’t keep up with the number of transactions going in and out of your account(s) and you keep missing things, I would recommend setting up a bookkeeping system in QuickBooks or Quicken that can automatically link to your online bank account to be sure you’ve entered everything.

Regardless of what system you use to keep track of your transactions, you will want to compare what you’ve recorded with what appears on your bank statement at least once a month. The easiest way I’ve found to do this is to layout the record of what I’ve recorded (the check register) side-by-side with the monthly bank statement.

Start with the oldest transaction you recorded and see if it appears on the bank statement. If it does, then highlight it on the bank statement and in the check register. If it doesn’t appear on the bank statement, then circle it in the check register. Likewise, if it doesn’t appear in the check register, then circle it on the bank statement. When you’re done with this step, you’ll have something that looks like this:

Next, you’ll want to add any transactions that cleared the bank that aren’t in your register. In other words, you’ll want to enter the transactions that are circled on the bank statement in your check register.

Then you can highlight it in the register:

Enter Missing Transaction from Bank Statement in the Register and Highlight

and on the bank statement:

2018-07-29 Bank Reconciliation e.g. 2 zoom 2 — Highlight the Missing Transaction that’s Now Entered in the Register

To check your work, take the bank statement ending balance, subtract any circled payments in your register, and add any circled deposits. These are known as “outstanding” or “uncleared” checks and deposits:

2018-07-29 Bank Reconciliation e.g. 2 zoom 3 — Circled and Not Highlighted Means it’s an Uncleared Transaction

Reconciliation Report

Bank statement ending balance: $8,340.00

Uncleared checks: $800.00

Uncleared Deposits: $0.00

If the register balance you calculate matches your actual register balance (see highlighted below), then you’re done! You’ve reconciled your account “to the penny” as bookkeepers and accountants are fond of saying.

2018-07-29 Bank Reconciliation e.g. 2 zoom 4 — Resulting Check Register Showing the Balance that Matches the Calculated Balance

If it doesn’t match, you will need to go back through your transactions to be sure everything actually matched-up. Here are a couple tips about resolving bank reconciliation differences:

If you’re lucky, you might be off by just one transaction (e.g. you’re off by $35.49, which happens to be the same amount as the gas you bought on the 18th).
If you’re off by a number that’s divisible by 9, then one of the numbers in your register might be mistakenly transposed (e.g. 89 instead of 98 or 54 instead of 45).

That’s it! If you need help, it’s literally what I do for a living. Drop me a line and I’ll get in contact with you as soon as possible.

Category: Bookkeeping

How to Organize Your Statements

How to Reconcile Your Accounts and Why