Troubleshooting Tool #1 - Review Bank Statements and Credit Card Statements
Updated: Dec 6, 2022
We take a lot of calls from small business owners who many times are under duress with cashflow issues and do not understand why. They are fearful of asking for outside help because they worry the cost of involving others will be too high, but they don’t know what else to do! Each situation is unique and not all require our direct involvement. In most cases, there ARE things YOU CAN DO to figure out what is going on with your finances and in this series, we will give you a list of controls you can implement YOURSELF!
Let’s start with the best control you can implement RIGHT NOW!
Personally Receive and Review Your Bank and Credit Card Statements Monthly.
Remember, you are trying to identify probable causes for cashflow issues. There is nowhere better to start than here! All cash ultimately goes out of your bank account (credit card payments included). If you spend time carefully reviewing both bank and credit card statements, you WILL identify where your money is going and where there are issues to be fixed.
Below are key steps to consider in this process:
Keep your business and personal finances separate. You can’t really start this process without addressing how your books are kept. If you commingle or mix business and personal funds, you open the door for problems, which makes sorting out what’s real or not far more difficult than it should be.
Make sure you receive the bank/credit card statements directly from the original source. If you have a bookkeeper, be sure you have your own copy; not theirs. This may not seem important, but we live in the days where any document can be altered. If your bookkeeper is helping manage your financial processes, it is possible that individual may be the source of your problem, whether deliberate or not. You need actual/original statements to truly assess your situation.
Review your customer deposits. Your bank statement should have the top copy of your manual deposit receipts. Deposits may come in separately or combined for multiple customers, so review against payment remittance advices and deposit slips from your internal records. Do you keep this information? Do the payment amounts look right to you? Do you see any unfamiliar customers?
Review vendor checks and payments. Your bank statement should have copies of the checks included, so you should clearly be able to see or magnify the view on the checks. Did you sign the checks? Are you familiar with the vendors who receive payments? Do the payments look correct or are they too much, too little, too frequent? Are you seeing a number of vendor credits, refunds?
Review payroll checks and related payments. Depending on how this is done, payroll may come out individually or lump sum to a 3rd party payroll service provider. In any case, review your bank statement for employee payments. Compare these payments to payroll records. Do you see any payroll amounts that seem odd or even duplicated?
Review unknown payments. If you find payments or charges you don’t understand in your bank/credit card statement, start asking questions. It may be something you forgot about, but it could be a mistake or fraud that needs to be addressed. Perhaps, there are subscription services you long since quit using, yet monthly fees keep processing. Remember this is YOUR business, so don’t allow any questionable payments to go unchallenged.
Let’s conclude this article with a short story. I was introduced to a client, years ago, who was having cash flow issues. He’d hired someone to be his accounting manager the year before, but he was getting poor or little support from them in figuring out what was wrong and cashflow continued to deteriorate.
He asked us to help assess the situation and ultimately to maintain and support the accounting function for a period of time. It wasn’t long when we determined the client’s former accounting manager had embezzled over $200,000 in just 11 months, part of which was covered by non-payment of payroll taxes during the same time – creating a whole set of other nightmare issues with the IRS and state compliance organizations.
How is it that the client didn’t find this himself? He never reviewed the bank statements. If he had, he would have seen the accounting manager was paying herself her biweekly salary between 4 – 5 times a month! Of course, her actions weren’t so brazen at first, but once the accounting manager knew the client didn’t ask for or review the bank statements, she was quickly comfortable taking more and more risk in her embezzlement scheme.
You can avoid this type of scenario by personally receiving and reviewing your bank and credit card statements monthly and asking questions until you are fully satisfied with the answers. Yes, it may be uncomfortable when you have not done it before, but it’s far less so than what the client above experienced having not done it. He would tell you “JUST DO IT!”
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