Why You Should Reconcile Your Bank Accounts Every Month
Reconciliation is the step where you confirm that the transactions in your books match what actually happened in your bank and credit card accounts. If you want the mechanics of how to do it in QuickBooks Online, I've covered that in my step-by-step guide. This post is about timing.
My answer is always the same: reconcile every month, for every account. Even if your business only has a handful of transactions. Especially if your business only has a handful of transactions, actually, because then it only takes a couple of minutes and there's no reason to skip it.
Here's what monthly reconciliation gets you, and what skipping it costs.
1. You catch problems while they're still small
If you reconcile every month, a missing transaction or bank error affects one month of data, and you can fix it while you still remember the context. If you reconcile once a year, you're trying to figure out what a mystery $342 deposit was from eight months ago. You probably can't. Small problems are easy to fix. Old problems are guesswork.
2. Your financial reports are actually trustworthy
Between reconciliations, your P&L and Balance Sheet are provisional. They're based on transactions you've categorized but haven't verified. If you're making decisions from un-reconciled books (pricing, hiring, whether you can afford an expense), you're making them on numbers you haven't confirmed. Monthly reconciliation means your reports are reliable every month of the year, not just at tax time.
3. You catch fraud while you can still do something about it
Most banks have a limited window to dispute unauthorized charges. Sixty days is common, but some accounts give you less, and some charges have shorter windows than others. If you don't notice a fraudulent charge until you reconcile nine months later, you're past the point where your bank will reverse it. Monthly reconciliation is when most people spot the subscription they forgot to cancel, the duplicate charge, or the random $80 transaction that turns out to be a phishing result. It's a lot cheaper to catch that in week six than month nine.
4. Tax prep is easier, faster, and cheaper
Whether you're doing your own taxes or handing them off to a preparer, clean monthly reconciliations turn year-end into a much smaller task. No scramble in March, no last-minute clean-up bill from your accountant, no ambiguity about what your numbers actually are. If you've ever paid someone to catch up twelve months of books in January, you know what I mean.
5. It keeps the task small enough to stay ahead of
This one is less about bookkeeping and more about how we actually are with ourselves. Reconciliation that takes an hour a month is a manageable task. Reconciliation that's six months behind is a weekend. Reconciliation that's a year behind is a project that most people keep putting off because it feels too big to start. Monthly keeps the work small, and small work is the kind of work that actually gets done.
If you're already behind
No shame, no judgment. You're not the only one, and catching up is its own kind of work. My step-by-step guide to reconciling in QBO covers what to do when you're playing catch-up. If it's more than six months of backlog, or if you just want someone else to do it, book a free call and we can talk about a clean-up!