The advantage of reconciling accounts – Part two

business-decisionDon’t worry, you probably didn’t miss part one of this blog duo-when I finished the last blog post on reconciliation, I realized there was still much left to say!

Reconciling your accounts isn’t really enough, on its own. You also have to take the time to read the reports and draw reasonable conclusions about what you’re seeing. But unless your accounts are accurately reconciled by you, a staff member, or an outside bookkeeper, you won’t be able to read the reports and draw any conclusions from the patterns there.

It’s important to look at both your profit and loss statements (P&L), which are sometimes called income statements, as well as your balance sheets. Think of your business health like your personal health: your P&L is like a record of how much you exercise each day, and your balance sheet is like a big-picture look at your overall health.

You wouldn’t focus only on running every day, ignoring any injuries and illnesses that come up, and consider yourself healthy. That’s a great way to get a long-term injury. In the same way, you wouldn’t want to only check your P&L from month-to-month, because you could miss big-picture trends in your business. And what you don’t see, you can’t adjust for.

Making smart use of your reports after reconciling your accounts is just good business sense.

For example, one of my clients has a bar and grill. His business relies on people having disposable income. When he looked at his numbers recently, he saw his income was less than he’d typically expect.

My client realized that he’d been hit hard by oil industry layoffs. A lot of people currently have less disposable income than they used to. Analyzing his reports also told him that there wasn’t much he could do about it. He wasn’t necessarily doing anything wrong-there have just been fewer people walking through the door.

If he hadn’t been reconciling and reading his reports, however, it would have been a challenge to identify that decline and the reason for it.

Having your accounts reconciled is very important, but what you do as a business owner once you read the reports on your accounts is every bit as important. I encourage my clients to regularly read their reports so they can understand their business’ health and make adjustments quickly.

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