Step 6: Establishing Your Bookkeeping Workflows: Sourcing, Coding, and Reconciliations

How It Connects to the Previous Step

With accounts payable and receivable in place, your business now has a structured cash flow system. But numbers alone don’t drive success—you need financial reporting to interpret them and this step ensures you’re making informed decisions.

What It Is & Why It Matters

Financial statements provide a clear picture of your business’s health by analyzing revenue, expenses, profitability, and overall performance. Without it, you’re operating blindly, making it difficult to plan for growth, secure funding, or prevent financial issues before they arise.

How to Set It Up

1. Establish Key Financial Reports

• Profit & Loss Statement (P&L) – Shows revenue, costs, and profitability over time.
• Balance Sheet – Summarizes assets, liabilities, and equity to assess financial stability from a single snapshot in time.
• Cash Flow Statement – Tracks how money moves in and out of the business, broken out by operating cash flows, investing cash flows, and financing cash flows.
• Accounts Receivable & Payable Aging Reports – Identifies overdue invoices, which vendors to prioritize and potential cash flow risks.
• Break-Even Analysis – Helps determine the revenue needed to cover expenses.

2. Set Up a Reporting Schedule

• Daily/Weekly – Accounts payable aging, accounts receivable aging, and bank reconciliations should be addressed frequently to ensure all vendors are paid, all cash is collected, and your records and up to date each period.
• Monthly – Income Statement, Balance Sheet, Statement of Cash Flows and General Ledger. These statements combined will provide a clear picture into your business activities and overall performance for a given period.
• Quarterly – Profitability and historical analysis and tax planning with your tax professional. Review your performance in the past quarter compared to historical performance. Layer in relevant market, industry, and economic factors for additional insight.
• Annually – Year-end financial review, tax filing preparation, and strategic goal setting.

3. Process for Data Collection & Report Generation

• Use Accounting Software – Set up automated report generation to reduce manual effort. Once you have set up your accounting tool, customers, offerings, vendors and your chart of accounts as well as synced your bank details, you can look at these reports easily.
• Gather Your Bank Statements – Use your online banking portal to download a copy of your bank statements for the period being reconciled.
• Refresh Your Bank Sync in Your Accounting Software – This should occur on an automatic recurring basis but you can also refresh on demand to ensure all banking activity for the period being reconciled is captured.
• Code and Match Your Bank Activity – Once confirmed against your bank statement, match an item in your bank feed to the outstanding bills or invoices or proper accounts.
• Reconcile Your Bank Activity – Once all items are coded and matched against the corresponding transactions in the bank statement, mark that item as reconciled.
• Adjust Balances – Record any adjustments required to bring the cash balance in your accounting system in line with the bank statement. Adjustments could include items like bank fees, interest, deposits in transit or outstanding checks.
• Create Dashboards for Quick Insights – Use tools like QuickBooks, Xero, or Google Sheets to visualize trends. You can favorite these reports for easier access and customized dashboards to put them front and center.
• Set Alerts for Financial Red Flags – Automate notifications for overdue invoices, low cash reserves, or budget overruns. This will assist in preventing cash management issues and reacting quickly to new problems.

Risks of Getting It Wrong

Without proper financial reporting, businesses can miss critical warning signs, leading to cash shortages, overspending, or unprofitable operations. With inaccurate or late financial reporting, businesses are subject to misallocating their time and money into the wrong areas and further drain resources as lack of insight also makes it difficult to secure loans, attract investors, or plan for growth.

ADC & Co. specializes in providing timely and accurate financial statements for businesses and if you are looking for a trusted partner in this area, set up a call a Discovery Call today!

Common Mistakes to Avoid

• Ignoring Cash Flow Reports – Profits on paper don’t always mean you have cash available. Not enforcing payment terms and letting your receivables age makes it difficult to meet your obligations and requires extra time to address.
• Failing to Compare Budget vs. Actual Performance – Can lead to overspending and missed profit targets. This step also helps with setting accurate and reasonable budgets in future periods.
• Not Reviewing Reports Regularly – Waiting until tax season to check financials often results in surprises. Seeing this information is good, but knowing the patterns and recent trends can further empower decision makers.
• Focusing Only on Revenue Instead of Profitability – Growth without profitability can strain finances, know where to place your time and money.

How It Connects to the Next Step

Now that financial statement reporting is in place, the next step is to set up a payroll process to meet the specific needs of your business.