The Lie: My Balance Sheet Accounts Can Go a Month Without Being Completely Reconciled

By David Lund

It is the worst lie financial leaders can tell themselves. Nothing is more important than the health of your books. If your books are not caught up and if your account reconciliations are not clean and up to date, nothing else you do in your financial world matters. Period. Full stop.

It’s paramount as a financial professional that you never ever let a month go by where you have not completely reconciled the books. You can’t do a clean close without having your accounts reconciled. Preparing the month end statements and not having the bank reconciliations done is like having dinner without the main course. Every month you must complete the cycle and ensure the accounts are clean from the previous month.

Nothing is more important to the financial health of your business than having a clean set of books. As the hotel’s financial leader, it’s your responsibility and everything else you do takes a backseat. It’s a lie that you can let it go for a month because you’re short staffed. You can easily tell yourself that the second time and before you know it, you have got three, four, five, six months, a whole year where the account reconciliations haven’t been completely done. What kind of financial professional are you?

That was a pretty good rant! But seriously….

As the financial leader, you have lots of things that need to be taken care of. These things in your world grab your attention because if they are not completed, then alarm bells go off. Things like paying your sales tax, making payroll, producing the month end financials on schedule, submitting the owner’s commentary… get the picture. Your reconciliations are different. They hide out most of the time and unless there is a scheduled review or audit no one will know that they are not done and completely updated. No one will know but you….

You may pay a heavy price for this lie. Not having a clean set of books is like ignoring the knocking sound in your car’s engine. It’s not going away; it’s not going to fix itself and it will only get worse – never better. When you finally deal with it because the car won’t start is when you learn that the knock is now a scream and you’re told it means an expensive and extensive repair. Your books are the same! Plus, they have the ability to move and grow like a virus if you don’t have a regular monthly process to ensure that all your accounts are done and clean.

The virus is real and it’s an aggressive form. Once it starts with one account it will quickly spread. The way numbers move around your balance sheet is the perfect breeding ground for this devastation. Left alone and it’s like a little devil wheedling its destruction and devastation from one area to another.

What it really means when your accounts are not clean is that you don’t know whether or not your income is correct. Month after month you produce the profit and loss statement and that month’s door closes. The crap you can’t reconcile stays behind on the balance sheet. Month after month this dung takes on its own world. The longer it’s free to mess with your accounts the deeper you go. Depending upon the size of your business and balance sheet, you can have a full-blown financial juggernaut in a very short period of time.

Usually, when this happens heads roll sooner or later. It can be a costly error to let your books go unbalanced. I know as I have been there to let it happen and see it happen. I have also been there to clean up someone else’s mess far more often than I care to remember.

What to do to make sure this does not happen to you:

  1. Make sure you have one rule that never gets broken. We do not let even one month go by where our balance sheet accounts are not completely reconciled. No matter what the reason is. No matter what it takes.
  2. All account reconciliations have a standard template and they are laid out to clearly identify all items separately. Each item in all account reconciliations requires complete backup documentation indicating where it came from and why it’s parked where it is.
  3. Each item on each balance sheet reconciliation must have a direction, its unique story of how it will be cleared and whether it’s a timing issue or a reconciling item. That means it will either be netted against another balance sheet item or it’s destined to hit your P&L at some point.
  4. Set a cutoff date and ensure you review and sign off on each and every account reconciliation each and every month. Miss this one and you open the door for others to “go to sleep at the switch.”
  5. Do not let operational issues or staffing challenges impact your monthly requirement to have a completely clean balance sheet. Preach this standard to everyone who works for your cause.
  6. Repeat the first 5 points every month for the rest of your career – never stop – never take your eye off the ball – this part is never complete.

What to do if you inherit one of these balance sheet messes:

  1. Communicate the extent of the unreconciled items as best you can to your functional and dotted line reports. You don’t need to blame anyone, but you do need to be the first one to deliver the bad news. Never let anyone else do this for you. I have another story about that one.
  2. Start by putting the accounts one by one in either the clean column or the unreconciled column.
  3. Reconcile the dirty accounts and if certain items inside these accounts are unreconcilable move that amount to your single separate “cleanup account.” Go back and dig for the answers; it’s the only way.
  4. Once all accounts are clean, then deal with the balance of the cleanup account. You may want to wait for a few monthly cycles to pass before you write off the cleanup account because you will come across items that belong with these unreconciled items. Like a memory game, you will recognize that you have seen this one before. Don’t be in a rush to process this cleanup if it’s a credit; it will probably come back to bite you if you do, especially if it’s a credit.
  5. Be super vigilant about what goes on your balance sheet going forward. Part of its purpose is to allow you the ability to match by accruing, deferring and clearing items that need to eventually hit the P&L. Don’t put something on your balance sheet unless you know where it’s going and when. A great example is something like movie tickets for a package. Don’t run these through AP clearing. Set the package up to book the ticket revenue to sundry income and book the tickets to miscellaneous expenses. Count the tickets and compare the number of packages sold. Don’t be so anal about needing to use your balance sheet.
  6. Get some help and clean up your mess as soon as you possibly can. Not everyone can clean up a mess like this. Not unlike Ben Affleck in the movie “The Accountant” there are people who are experts at uncovering and following the trail and they don’t have his “friends or issues.”

I hope this helps and if you’re staring down a mess on your balance sheet send me a note because I know someone who can really help you get it cleaned up and it’s not going to be me.