When it comes to good accounting there are many factors that can influence a positive outcome for your organisation. One really simple way to make a big difference to your accounts is to keep on top of them – and that all comes down to regular, thorough bookkeeping.
Like most things in life, if you leave it all until the last minute then it becomes rushed and the quality suffers. Or worse – you make mistakes that cost you money!
One simple area of your business that you could really improve is the reconciliation of your accounts. Reconciling the banking in your accounts software like Xero on a regular basis will make life so much easier.
What is daily reconciliation?
Daily reconciliation is reconciling your accounts on a daily basis. By simply putting 5-10 minutes aside each day to update your accounts you’ll have a consistently up-to-date record of accounts that are more able to provide an accurate live view of your accounts.
If you leave it for weeks (or worse) then your bank rec is likely to be more confusing to you as the memory of the spending and invoicing fades. You’ll also have a lot more money listed as owed to you and money that you owe in your system. This makes your accounts factually incorrect more often than not.
Simply put, when you reconcile daily you’re on top of your money.
Why is reconciliation of your accounts important?
One of the key reasons for keeping your accounts up-to-date and on a daily basis is so you can embed a strong and effective debt-chasing culture. Software like Xero will chase unpaid invoices and will even allow you to tailor the emails as they go out over the time of the debt. These emails are reliant on the data in your accounts though, so you’ll need to ensure they’re updated regularly or you’ll chase those good people who paid you on time.
If you turn invoice reminders on but only reconcile weekly, you’re highly likely to chase people who paid you on Wednesday because you only reconcile on a Friday! It’s potentially confusing and probably not the way you want to engage with your clients.
Do you really need to reconcile your accounts daily?
Daily is so much simpler than weekly or monthly but no – you don’t have to do it daily. If you have a large number of transactions then it’s recommended that you do it daily. The task of reconciling 5-10 transactions a day is easier than 50-70 a week!
Daily accounting (something Xero are very keen on) helps you stay on top of your accounts but it also gives you a lot of smaller more manageable tasks on a daily basis rather than a larger more terrifying task once a week/fortnight/month.
If you’re looking after your own bookkeeping then daily is so much easier and far better for your stress levels. Little and often, as they say!
What are the main benefits of reconciling daily?
There are many benefits of daily reconciliation, but here are our main ones:
- Updating your cash flow regularly (at the end of each day) will keep your records up to date and you’re less likely to forget that you spent that £5 on milk for the office.
- Daily reconciliation saves you time in the long run and saves your accountant time, also saving you money.
- Sorting your accounts early will allow your accountant to resolve or put things in place as you come across them, instead of waiting until the last minute.
- If your company has lots of transactions, it’s important to practice daily reconciliation so you can keep on top of receipts instead of playing “hunt the expense” once a month!
- It’s also easier to remember what you brought yesterday than what you spent last month.
It seems like a lot of hassle: surely once a week is fine?
Daily reconciliation may seem like an inconvenient task to add to your daily list but it can save you from becoming overwhelmed and less likely to enter the wrong information if left to the last quarter.
Small and often is better – especially if you’re not a natural bookkeeper – and we find that clients who reconcile daily are also way ahead with their tax and VAT returns, too. Everything is live and correct and rarely more than 48 hours out (allowing for a break at weekends) so we’re able to run reports and give enough supporting information so our clients can make decisions with ease.
The longer you have to pay your taxes, the longer you have to discuss and work out where you are with your VAT return, personal tax, and more. If you’re a last-minute Larry then it’s likely that all of your efforts in the final hour will be simply getting invoices and receipts in, rather than working out what legitimate offsetting and reclaiming you can do.
Do it daily. Trust us, it’s a business and life-changing habit you need.