Are you a freelancer or creative solopreneur managing your books yourself? Are you fed up with constantly following up on client invoices and checking your bank account to see if your invoices have been paid?
One of the best things you can do when it comes to managing your books is to build in automation that will help to reconcile your bank statements so that you don’t have to do as much data crunching and tracking!
What is bank reconciliation
Your bookkeeping software and your bank statements need to be kept in sync. Bank reconciliation is where you or your bookkeeper if you have one, need to compare your business bank accounts against your books so that what was expected to go out or come in, in fact did, and that the two sets of records are the same.
How you automate bank reconciliation
TIP 1: Create a separate bank account
The number 1 thing you can do is ensure that you have a separate bank account set up just for your business. This is true, even if you are a freelancer or contractor, and even if your business is “just a side hustle”. You don’t need an entirely new bank, you can just have a separate account off your main personal account if you like.
Why do you need a separate bank account for your business? If there are non-business transactions mixed into your bank account it makes reconciliation and any data management around your accounts difficult to do yourself and also, time consuming for a bookkeeper which you will end up paying for.
TIP 2: Integrate your bank with your bookkeeping software
Next, you are going to want to sync your bank transactions with your bookkeeping software so that all of them can sit within the same tool, allowing the reconciliation of transactions to be much simpler.
TIP 3: Automated billing
The most direct way to automate reconciliation on incoming payments is to set up an online payment system on your client invoices. You can do this by integrating your bookkeeping package to a payment service provider such as Stripe, Integrapay Go Cardless, or PayPal.
Reasons you wouldn’t do this though is if you didn’t want to pay the online payment fees which are around 1.75% – 2.6%.
TIP 4: Bank coding for incoming and outgoing payments
When it comes to expenses or outgoing transactions, these can be trickier to reconcile. If you have regular incoming and outgoing transactions, you can create bank rules within your bookkeeping software to automatically code your transactions to where they belong. Speak to your bookkeeper about your coding and how to get this set up right!
TIP 5: HubDoc for receipts
HubDoc is a document management tool for Xero. It will integrate directly into Xero so that you can easily forward all of your receipts and expenses onto HubDoc for easy storage and syncing to Xero bank transactions. Essentially, through this process and with the help of your bookkeeper you end up with a set of records for the receipt/invoice, the transaction, and the account payable record for your books.
Getting a good financial business system set up from the start can help you to avoid a world of pain when it comes to reconciling your accounts.
Please remember these tips and if you are only going to follow 1, make sure that it is Tip 1!