For your small business to continue to grow and thrive, it's important to keep track of money coming and going. If cash flow becomes a problem, you'll want to know immediately so that you can seek a solution quickly and keep your business moving forward successfully.

Balancing a checkbook can play an important role in this money management process by keeping track of expenses and the balance of accounts so that you can quickly tell how much money the business has available.

This article will walk you through the process of balancing a checkbook so that you improve your small business accounting processes. Here's what you need to know about balancing your business checkbook.

Does My Small Business Need a Checkbook?

Yes, your small business needs a checkbook. However, that checkbook might look a bit different from the one you use from a personal finance standpoint to manage your bank account. A business checkbook serves as a detailed, accurate record of the money flowing in and out of your business's checking account.

Even if you classify your business as extremely small, it's still wise to open a separate checking account for your business. This can help you track the expenses that pertain directly to your business and thus help you when it comes to paying taxes and monitoring the success of your business. Your checkbook will track the movement of this account, and for many small businesses, it will serve as one of the primary sources of financial recordkeeping.

How to Balance a Checkbook

Balancing your checkbook, which can also be referred to as reconciling your account, is the process of tracking and adding up the money that gets taken out or added and ensuring that the total you calculate matches what the bank or credit union says. This can help you keep an eye out for any errors, monitor your expenses, and ensure that you have a solid understanding of the financial state of your small business.

The following sections will show you how to go about doing that.

Start with Your Current Balance

You'll want to begin by recording your current bank account balance. You can find your current balance in a few places. You can look at your most recent statement from your financial institution, assuming you have not made any more transactions since the account statement was issued. If your bank has online banking, you can also log into your account to check your current balance. Finally, you can directly contact your bank and request the information.

Once you have your current balance, record it on the first line of your business checkbook. This will serve as your starting point, from which you can monitor the balance rising and falling in response to the transactions you make.

Record All Transactions

Once you have your current balance, you will need to record pending transactions as you make them. The number of transactions you make within a given period will vary depending on the period in which you are looking and how your business's cash flow works.

You will find transactions in different places. However, it's important to note that you will have two types of transactions: withdrawals and deposits.

Withdrawals denote the times when you take money out of the account, such as to pay a vendor. To find the records of your withdrawal transactions, look in places like:

  • ATM withdrawals records
  • Receipts from purchases or bill payments
  • Debit card purchases
  • Records of money transfers to make payments

Deposits record when you put money back into the account. You will find various deposits from:

  • Receipts and records of deposits you make at the bank through cash or checks
  • Records of any direct deposits made into your account

As you track withdrawals and deposits, you should hold receipts for your transactions and note in your checkbook the source of deposits or the reason for withdrawals. For example, record the check number on your checkbook balance sheet, the amount, and the reason you filled out the check. These details will help you gain a better understanding of where the money goes throughout the accounting period.

You can then use Skynova's accounting software to help you maintain copies of your receipts and records, make journal entries that note the flow of money, and help you better manage your business's financial health.

Calculate Your New Balance

Now, armed with the information about deposits and withdrawals, you'll want to record the items in your checkbook and calculate your new ending balance. Each time you include a new withdrawal or deposit in the checkbook, add or subtract the appropriate amount from the previous balance.

Consider a business that has a starting balance of $12,000. If the business owner needed to make a payment of $600 to hire a contractor to create a new ad, subtracting will allow the business to record a withdrawal of $600. The new balance will be $12,000 – $600 = $11,400.

Next, the business owner gets two new customers at $800 each, thanks to the new ad. Once these new customers pay, the business owner can calculate the new balance: $11,400 + $800 + $800 = $13,000.

The following day, the business has to make a rental payment for the business location. The rent is $2,000. Now, the balance is $13,000 – $2,000. The new balance is $11,000.

The business owner will continue to record each withdrawal and deposit to track their current balance and how much money they have in their account. This running balance lets them know the precise dollar amount in their account. They can record their balances for a given accounting period, such as at the end of the month, as they keep an eye on their business growth.

Benefits of Balancing a Checkbook

As you begin to keep careful track of your checkbook, you'll find that it presents your business with a variety of benefits. Here are just some of the main advantages you'll experience.

Stay on Top of Your Current Balance

As a small business owner, you want to make sure you always remain on top of your balance. Understanding how much money flows in and out of your bank account will help you find opportunities for business growth and make sure that your business stays in the black.

Failing to properly monitor your balance could result in missed opportunities for investments since you didn't realize you had the funds to pursue them. You may also fail to notice decreasing funds available, resulting in not appropriately adjusting the business's strategies in time.

Support for Any Bank Errors That May Arise

Although banks offer a high degree of accuracy, bank errors do occur. You don't want to lose out on funds because you failed to catch an error in the bank's records before it caused a tremendous problem.

By balancing your checkbook and monitoring your expenses closely, you'll know how much money should be in your account at a given time, and you can double-check what the bank says on your monthly bank statement. If the balances don't line up, you'll know which transactions you need to correct or contest, making it significantly easier to protect your business funds.

Avoid Overdrafting

Overdraft fees can cause tremendous problems for businesses. No one wants to realize that their business funds have dwindled to the point of overdrawing on their account and then learn that they have incurred significant overdraft bank fees. Always knowing how much money is in your business checking account can help you breathe easier and protect you from this problem.

Assist with Budgeting and Savings Goals

As a small business owner, you want to grow your business so that you can bring in a comfortable amount of revenue and achieve your professional goals. Budgeting properly so that you know how much money you have to put toward different investments while also building your savings account plays a critical role in business growth.

Balancing your checkbook allows you to properly allocate your funds toward the needs of your business rather than simply estimating. You'll always know your available balance.

Let Skynova Help You Manage Your Small Business Bookkeeping

When it comes to small business accounting, Skynova makes it easy for businesses to track their expenses and maintain their business checkbook. Our accounting software simplifies the process of tracking expenses and offers business templates that help with everything from creating estimates to invoicing clients. Skynova helps small business owners confidently manage their accounts.

If you have a small business and want to better understand and manage the accounting aspects involved, get started with Skynova. Explore what our capabilities can do for you and your business.

Notice to the Reader

The content within this article is meant to be used as general accounting guidelines and may not apply to your specific situation. Always consult with a professional accountant to ensure you're meeting accounting standards.