As a small business owner, your bookkeeping efforts are crucial for future success. Your financial performance could be phenomenal, but if you don’t have the figures accounted for in your books, there’s no way you’ll be able to effectively track and manage it. And you’ll have hell to pay when tax season rolls around. To help keep your books updated, you’ll need to do a bank reconciliation regularly. What is a bank reconciliation? Based on the name, you’d be excused if you thought it was what happens when a small business and bank get into a fight over how the bank borrowed the business’s sweater for a party and never returned it. Then, after the business and bank take a little time away from each other to cool down, they both apologize and decide to remain friends. But it’s not that kind of “reconciliation.” A bank reconciliation is when you go through your business ledger and make sure it lines up with your bank statement. In the course of a typical month, your business will be tracking all income and expenses while the bank will also track all the activity in and out of your accounts. Thus, the account balances should line up between your ledger and bank account. You likely receive a statement from your bank each month. In other cases, the statements are sent out quarterly or on some other schedule. To reconcile these bank statements for your business, you’ll compare your ledger to your statement. Anytime you discover discrepancies in the transactions, you’ll need to identify what caused the issue. Creating a record of the action you took in order to bring the transaction into alignment is crucial so that your ending balances will match on both your ledger and the bank statement and so your accountant understands the details of the discrepancy. To successfully carry out a bank reconciliation, you’ll need to ensure your business ledger is updated regularly. First of all, it’s a best practice to keep your books up-to-speed. But it’s also crucial in the framework of bank reconciliations because it’s impossible to compare 2 things with precision if they aren’t aligned correctly. Like any other bookkeeping practice, the more often you reconcile your statements, the better. If your business does a lot of daily transactions, you’ll need to do bank reconciliations more often so that you don’t get swamped. For example, restaurants really need to stay on top of it or they can run into issues. For businesses that have a more limited number of transactions each week, you wouldn't need to do a reconciliation as often. But even if you owned an art gallery that only sells 1 painting a week on average, you’d still want to implement a regular schedule for reconciliations in order to keep your records updated and make sure money doesn’t go untracked.