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Avoid Risky Business – Review Your Bank Statement Monthly

May 15, 2012 by Ed Becker

A client of ours (before becoming a client) lost $118,000 because they weren’t reviewing monthly statements.  I’m going to tell you this story – one that is all the more heartbreaking because the business (a bakery) was already on the brink – but first, some basics every small business owner should know (but many don’t):

As a business owner, you need to stay involved with your financials each and every month.  How involved?  As a general rule, each month, I recommend reviewing your bank statements and looking for excessive bank charges and possible fraud.  Both of these are on the rise because:

  • banks are looking for additional revenue
  • scammers are looking for new ways to steal

My bakery client didn’t do this, and as you’ll see, they paid the price.

Scams and Bogus Charges

There are many sophisticated credit and debit card scams out there that are stealing from the American public, one small dollar or even cents at a time.  Please review your bank statement monthly to ensure there are not unauthorized card or ACH transactions on your account.  Timely reporting of unauthorized transactions is critical.  If you have unauthorized charges, please notify your bank representative immediately. There are some scams going on where your account will receive a deposit of a few cents, the reason this is happening is that criminals are verifying that your account is valid so that they can try and process some bogus charges.  Be careful and review your statement every month

Business owner review

As a business owner it is your responsibility to review your bank statement, this is a MUST.  Don’t wait for your accountant to do, don’t wait for your bookkeeper to do it and definitely don’t wait for your bank to tell you if something looks out of the norm.  By the time this happens, it is too late and you will suffer the consequences.

A recent client of ours, a bakery was going on with their business and really had no bookkeeping function in place. The owner was not reviewing (actually not even opening) their statements.  Outsource Your Books LLC was brought in by their CPA in order to create financials for tax returns purposes.  The bakery did have some cash flow issues and the bank was not helping their client.  Each day the bank would honor checks even though there was not sufficient funds in the account, a nice courtesy with a catch: the bank was charging $35 for each check.

Over the course of the year, these charges added up to $118,000 in bank fees. We know this is hard to believe and we were shocked as much as the business owner. The business owner immediately contacted the bank.  Could this have been solved in month one if the statement was opened? An absolute “yes” to that question.

Owners should review statements for items such as:

1. Unusual withdrawals and debit card activity
2. Deposit pattern to see if they match normal operations
3. Large items
4. Normal payroll entries
5. Monitor cash balance
6. Transfers in and out of account which could be sign of theft.

Don’t wait, start this process monthly and ask questions. Recovery of funds after an extended period of time is almost impossible.

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