How to Decide the Best Frequency for Reconciling Your Business Records

Your business has many moving parts. One of those is the records you keep, including financial transactions. Credits, debits, bank statements, and monthly or quarterly reports come to mind. With all the details and the fast-paced nature of running a company, it’s easy for mix-ups to happen. Reconciling your records on a regular basis helps catch and correct those errors.

But how often should you do it? This question stumps many businesses, especially as operations grow in size or complexity. You don’t want to overdo it since you’ll drive your employees crazy. On the other hand, underdoing it can lead to messes you could’ve avoided. Here’s how to best decide the ideal frequency for your company.

Uncle Sam’s Deadlines

Your business must file taxes. For some companies, it’s a monthly chore; for others, it’s quarterly. You might see a rare small operation file annually, but it’s usually a solopreneur with a side hustle. Their business doesn’t generate enough income yet to push them into the next tax bracket. Even so, it would be best for them to pay estimated quarterly taxes so they don’t face possible IRS penalties.

How often you perform reconciliations can coincide with your tax filing deadlines. You must go through your records and reconcile them before you file anyway. So, why not sync both activities to make everything simple? For one, it uncomplicates the decision. Second, you accomplish two important tasks at once.

A caveat is you could potentially make the process more time-consuming the longer you wait. Reconciling monthly might seem like it’s frequent enough. Yet, if your operations are large or complex, monthly may not suffice. The same principle applies to a quarterly schedule. Your team will have more details to go through, increasing the chance they’ll have to backtrack and triple-check.

Business Complexity and Size

Size and complexity can influence how often you need to reconcile your company’s records. Typically, larger and more complex operations will require a more frequent schedule. Bigger companies have more going on when it comes to volume. Complex operations also increase the number of details and moving parts.

Say you’re a medium-sized business with an above-average number of product lines and departments. Those divisions are also spread out amongst different states with various tax laws. In addition, there are distinct compliance requirements for companies operating in each state. You’ve got to reconcile records for each jurisdiction and the feds.

In this scenario, you’d probably want to implement a monthly reconciliation schedule at the bare minimum. Weekly or daily might be better. But what if you’re a small operation with one location and a lower volume? Daily and weekly reconciliations might be overkill. However, a quarterly schedule would be just right.

Industry Regulations

Some industries are more regulated than others. More stipulations from municipal, state, and federal governments usually mean paperwork requirements go up. You must complete multiple reports on time, which means your house always has to be in order.

A way to ensure this is to reconcile your records more frequently. When you reconcile daily or weekly in a highly regulated industry, you won’t be caught off guard. A frequent schedule also ensures you can quickly catch errors and suspicious activities. You won’t be left scrambling at the last hour, potentially creating additional mistakes that could land you in hot water.

The last thing you want to do is fall out of compliance. You also don’t want to have to explain to regulators why your reports were false or misleading. When your team reconciles the books against bank statements every day, they can promptly identify questionable items. It’s easier to remember and track a transaction that occurred a few days ago versus months in arrears.

Adoption of Automated Tools

If you have accounting software with automated reconciliation tools, it can make the process less tedious. You’ll still need human brainpower to manage your reconciliations. But if your company implements automation, these tools can support a more frequent schedule. Automation helps streamline the procedure, removing the tedious aspect from your team’s list of responsibilities.

Of course, there are additional considerations like budget. Can your business afford to integrate new software into your internal processes? There are more than the initial costs of acquiring the software and ongoing expenses for subscriptions. You have to consider training, upskilling, and learning curves. Would automated tools cause disruptions and could you overcome them?

These are a few of the questions you’ll want to ask when considering software with automation capabilities. Also, evaluate the functions of various tools. A larger, complex business won’t get as much use out of a basic platform. However, the same software could be highly beneficial to a smaller operation with fewer divisions. Don’t view automation as a replacement for your team and think about how it can enhance their efforts instead.

Determining Your Best Frequency

How often your company reconciles its records plays a critical part in its success. Still, there is no magic schedule every business can use as a benchmark. Several factors come into play, including the size and complexity of your operations. The one thing you can’t do is ignore the compliance requirements for your industry and jurisdiction(s).

Whether you reconcile every day or every quarter doesn’t matter as much as what frequency best supports your business. Consider what processes you have now and how well they’re working. If there are opportunities to streamline efficiency and accuracy, evaluate what changes will be advantageous. Then you can drill down into the details, ensuring your team can smoothly implement your new initiatives.