Tag: finance

  • If you’re not reconciling every month, your books are lying to you

    If you’re not reconciling every month, your books are lying to you

    Sarah thought she was on top of her game. Her financial advisory practice was thriving, client assets under management were climbing, and she’d finally hired that associate she’d been putting off for months. But when her CPA called in March with a bombshell about her year-end financials, her confidence crumbled faster than a house of cards.

    “Your books show $47,000 more in revenue than what hit your accounts,” he said, his voice carrying that particular blend of concern and frustration that accountants reserve for moments like these. “We need to figure out where this discrepancy came from.”

    Sarah’s stomach dropped. She’d been diligent about entering transactions, tracking client fees, and monitoring expenses. How could her books be so far off?

    The answer was deceptively simple: she hadn’t reconciled her accounts in eight months.

    The Silent Killer of Financial Accuracy

    Here’s the uncomfortable truth most financial advisors don’t want to face – your bookkeeping software doesn’t talk to your bank. Those automated feeds? They’re helpful, but they’re not foolproof. Duplicate transactions slip through. Bank fees get miscategorized. That $2,500 client payment you recorded? It might have bounced, but your books don’t know that yet.

    Without monthly reconciliation, these small discrepancies compound like interest, creating a financial picture that’s increasingly divorced from reality. You’re making business decisions based on phantom numbers, and that’s a recipe for disaster in our industry where precision isn’t just preferred – it’s required by regulators.

    First—What Does “Reconciling” Actually Mean?

    Reconciling is the process of comparing your accounting records against your actual bank and credit card statements. You’re verifying that what’s in your books matches what’s in reality.

    It’s not just about spotting duplicate transactions or catching a typo. It’s about making sure the cash in your accounting system is the same cash your bank says you have. That means you’ve accounted for every deposit, expense, refund, fee, and transfer—accurately and completely.

    When done right, it’s the financial version of checking your mirrors before changing lanes.

    What Happens When You Don’t Reconcile?

    Let’s be blunt: bad data leads to bad decisions. And unreconciled books are filled with bad data.

    Here’s what happens when you skip monthly reconciliation:

    • Cash flow looks stronger than it is. Uncleared checks, duplicate deposits, or missed fees distort your balance.
    • Expenses are understated. Especially if you rely on credit cards or auto-drafted payments. Those don’t always get captured correctly.
    • You overpay (or underpay) taxes. That opens the door to penalties or audits.
    • Your reports lie. P&Ls, balance sheets, budgets—everything you base decisions on becomes suspect.
    • You lose credibility. Lenders, partners, and even your CPA will start to question the numbers.

    I’ve seen owners run profitable businesses on paper while bleeding cash in real life—all because they weren’t reconciling.

    The Real-World Fix: Build a Monthly Close Process

    Reconciling doesn’t have to be a heavy lift. But it does need to be part of your monthly close routine. Here’s what a clean, real-world process looks like:

    1. Download your statements. Don’t rely solely on the bank feed. Pull your official bank and credit card statements.
    2. Categorize and match transactions. Use your accounting software’s reconciliation tool (e.g., FreshBooks “Reconcile” function) to compare and match line by line.
    3. Investigate discrepancies. Any unmatched transaction needs attention. Is it a timing issue? A duplicate? A missing entry?
    4. Clear uncleared transactions. Old outstanding checks or deposits that never hit? Deal with them. Don’t let them linger for months.
    5. Reconcile petty cash, PayPal, and merchant processors. If it touches money, it needs reconciliation.

    Bonus: Always reconcile before running reports or doing your monthly financial review. Otherwise, the data’s garbage.

    Tools That Actually Help

    Don’t overcomplicate this. You don’t need expensive apps or flashy dashboards. What you need is consistency and clarity.

    • FreshBooks has a solid built-in reconciliation feature. Use it.
    • Bank Rules save time but need to be reviewed regularly.
    • Reconciliation Reports—save a PDF copy each month as part of your documentation trail. If you’re ever audited, this becomes gold.
    • Checklist in Notion, Google Sheets, or your task manager. Build a simple workflow you follow every month.

    This isn’t sexy work—but it’s foundational. Skip it and everything else cracks eventually.

    Final Thought

    You wouldn’t sign a contract without reading it. Don’t trust your books without reconciling them.

    If you’re behind, start fresh this month. Reconcile one account. Then the next. Get back to baseline and make it part of your monthly rhythm. It’s not optional. It’s not “nice to have.” It’s non-negotiable.

    Too busy to dig through your books every month? If you’re ready to hand off your bookkeeping to someone who actually understands business, get in touch. You run your business—I’ll keep the numbers honest.

  • Income-Related Bookkeeping Mistakes Advisors Can’t Afford to Make

    Income-Related Bookkeeping Mistakes Advisors Can’t Afford to Make

    If you’re like most advisors, your clients come first, which often means your back office comes last.😞

    But bookkeeping, especially how you record income, is one of those areas where “later” can turn into a compliance problem, billing error, or credibility issue fast.

    Here are four common income-booking mistakes often seen in advisory firms—and how to avoid them:

    1. Misclassifying Advisory Fees vs. Commissions

    Advisory fees and commissions should be tracked and disclosed differently. Yet many advisors lump them together in one income line—or worse, mislabel them entirely. That might seem harmless until you’re asked to produce accurate breakdowns during an audit or valuation.

    Fix: Create clear income categories (advisory, commissions, planning fees, etc.) and code transactions accordingly. Automate wherever possible.

    2. Failing to Track Fee Splits Properly

    If you share revenue with another advisor, entity, or platform, how you record revenue matters. Many firms record gross income but forget to document splits clearly, creating confusion in P&Ls and inconsistencies with CRM or custodial records.

    Fix: Book gross income and track splits as separate line items or classes, so you can report both revenue and actual take-home income cleanly.

    3. Skipping Revenue Recognition for Accrual-Based Firms

    If you’re accrual-based but still recording income when the cash hits the bank, you’re not only misrepresenting performance, you’re also making year-end financials harder to reconcile. It can also distort key ratios used for practice valuation.

    Fix: Recognize income when earned, not received. Use invoicing tools or journal entries to align with proper timing.

    4. Inconsistent Entries Across Platforms

    Revenue data often lives in multiple places—custodians, CRMs, spreadsheets, and your bookkeeping software. If those don’t match, you’re asking for problems during compliance reviews or due diligence.

    Fix: Reconcile regularly and ensure your income records align with source documents. Don’t rely solely on downloaded CSVs—verify and standardize.

    Why It Matters

    FINRA’s 2022 exam findings noted that nearly 30% of firms had recordkeeping deficiencies, many tied to income reporting. The SEC expects accurate financial records, especially when calculating AUM fees or disclosing compensation.

    Sloppy bookkeeping might not seem urgent… until a regulator, buyer, or CPA starts asking questions.

    A Final Thought

    Your books should be an asset, not a liability. Clean income records build trust, reduce stress, and let you scale with confidence.

    If your books are messy or your income categories feel more guesswork than system, let’s talk. I help service-based businesses (including advisory firms) clean up and streamline their back-office systems so they can grow without surprises.