How do you balance bank and cash flow statements?

Do this regularly, like once a month. It's easier to catch mistakes when things are fresh in your mind. Use tools or software if you can. They can help make this process faster and more accurate. If you're ever unsure, ask for help. A bookkeeper or accountant can be your best friend here. Remember, keeping track of your money is like making sure your bucket of water stays full. By balancing your bank and cash flow statements, you'll always know how much water (or money) you have!

I remember an instance early in my real estate career where this distinction nearly cost me a valuable deal. A prospective investor scrutinized my bank statement, noticing a large deposit. Believing it was a significant sale, he was almost ready to partner up. However, upon reviewing my cash flow statement, he realized it was a short-term loan. The cash flow statement gave a fuller picture, highlighting the loan's offset by a property upgrade, poised to increase rental income. That nuance, missed on the bank statement, was crucial. We eventually partnered, but it was a stark reminder: Bank statements show you 'how much'. Cash flow statements tell you 'from where' and 'why'.

Every week my bookkeeper/accountant would prepare what we called a "dashboard" for me. Included would be: Current bank balances Aged accounts payable Aged accounts receivable and other information related to orders in process, including projected revenue and ship dates of all the orders. All of this information allowed me to see where we were at and where we were going financially. This was an effective way to keep up on finances.

I knew years ago that some things must be kept separately for tax purposes. Business and Personal could not be one and the same. Therefore, there are my personal assets and my business assets; so this meant separate TX ID numbers, separate bank accounts as well as separate credit cards.

Bank statements and cash flow statements are not the same thing. From my perspective, bank statements provide a detailed record of transactions in your bank account, encompassing deposits, withdrawals, fees, and interest. On the other hand, cash flow statements offer a broader view of cash movement in and out of your business, including sales, expenses, investments, and loans. While bank statements reflect your precise cash balance, cash flow statements provide a comprehensive picture of your cash position and performance.

Don't wait for month end. In big companies, I tell them to reconcile daily which gives you peace of mind at month end and reporting is very fast.

If you use Xero for your bookkeeping, it's important to take the extra step of comparing the transactions you've reconciled with an actual bank statement. Xero, unlike QuickBooks Online, doesn't have a true bank reconciliation feature. You match all of the transactions that are imported from your bank, but you don't have the extra step of comparing to a bank statement and ensuring the uncleared transactions are all accounted for. If all of the transactions weren't imported correctly, or duplicates were imported, the account may appear reconciled in Xero but still not match your actual bank statement.

You have to utilize a software that's connected to your banks operating account and reserves. Also someone has to go into that account frequently to catch any errors. It's important to have a controller, book keeper, or CFO. Fraud protection is essential in this day and age. Business owners should also invest in cash management services offered by their institutions. Positive pay ach and zero balance accounts. Those products will help with accuracy and real time updated balances.

There are several different software packages available on the open market to do exactly this. One of the most widely used is "Quick Books". However, many commercial banks will offer similar services via online access for a modest fee schedule.

In today's world where everything is digital and electronic including payments an enterprise should reconcile and look at its bank as often as possible. Many enterprises do a daily or weekly bank rec. All banks allow cutomers to pull down activity at an time, not just month end. If there is an payment error the enterprise will see it right away. Also then an updated cash forecast could happen weekly if needed.

Of course you have to add in the cash flows, but I’m very old school, if there is money left after disbursement of bills then you’re making money. If you go in the negative, you’re losing money! Very simple to me. 45 years of running business, I think I have it downpat!

In my early property management days, I mistook robust bank balances as healthy cash flow. One tight month prompted a deeper dive. Preparing a cash flow statement was enlightening: while rentals brought cash, property upgrades drained it, and loan repayments hit harder than expected. This wasn't just about bank balances, but understanding cash 'movements'. That insight reshaped my investment approach, ensuring liquidity amidst unexpected costs.

The statement of cash flows is perhaps the most important financial statement. It’s like a movie for the year that shows your cash inflows and outflows. Net income is great, but cash flows from your business pay the bills!

About a decade ago, a troubling pattern emerged in my property investments. Despite high occupancy, cash seemed scarce. Diving into cash flow analysis, I discovered our payment terms allowed renters too much leeway, causing cash flow dips. Simultaneously, our inventory turnover was sluggish, tying up funds. By renegotiating rent payment terms and streamlining property upgrades for faster turnovers, I turned the tide. Analysis wasn’t just eye-opening; it was business-saving.

Cash if the lifeblood of a business and it's essential to understand the key drivers of cash flow. The cash flow statement is a tool to uncover issues, identify strengths, evaluate liquidity and predict future cash surpluses/deficits.

In my early investing days, I felt blindsided by unexpected cash flow hitches, despite a healthy bank balance. I decided to diligently reconcile bank and cash flow statements monthly. Once, spotting a stark discrepancy between a forecasted influx and actual numbers, I traced it to a major tenant's payment delay. By addressing this swiftly, I avoided a potential crisis. Automating this process later gave me back hours, but the lesson was clear: regular reviews are non-negotiable.

I recommend that business owners examine their cash position weekly in conjunction with evaluation of the A/R aging, A/P aging (and what bills will be paid) and other known, upcoming liabilities like payroll or sales tax remittance. Once that practice becomes a routine discipline, then I recommend implementing a cash flow forecasting tool so that the owner is getting more tuned into how actions (or lack of actions) are impacting cash.

When in doubt, hire an expert! Especially if you are a startup, there are plenty of qualified Fractional CFOs out there who can help you with this. It will be money well spent!

While tedious, the importance of these tasks can’t be underscored enough. Good financial management doesn’t happen by accident. Most seasoned business people know that once you take your eyes off the financials, trouble is likely around the corner.

In certain key accounting roles, it may be a good idea to require mandatory vacation of at least one, preferably two, consecutive weeks per year. If someone is doing something that they shouldn’t be doing or committing fraud, it’s much more likely that someone will pick up on it while the person is on vacation. That bookkeeper or AR clerk that everyone trusts and never takes more than a couple days of vacation is very high risk! Also it helps with morale! ?? ???

During my tenure in real estate, I prided myself on my intuition, but the numbers never lie. One bustling summer, amidst several lucrative deals, I overlooked a minor discrepancy in my cash flow trends, confident in my bank statement. But a closer look revealed a string of inefficient payments affecting my liquidity. I quickly overhauled my system, integrating automated tools to sync every transaction. This tiny shift not only safeguarded my operations but amplified my profits. Remember, the devil, and the dollars, are in the details.

Financial is important, however do not let the accounts LIMOT your overall growth potential. Colin Powell once stated. "focus on those that make the beans, not those that count the beans"