Bank Reconciliation Process (SOP) for Startups

Bank reconciliation is matching the transactions in your accounting software against your bank statement for the same period, so the two agree. Where they do not, you find out why: a cheque that has not cleared, a bank charge you have not recorded, a customer receipt that was never entered, or an error. You record the adjustments and produce a bank reconciliation statement (BRS) that explains every difference between the book balance and the bank balance. It is the ultimate detective control, because almost every mistake or fraud eventually shows up as cash that will not tie out.

Reconcile every bank and payment account at least once a month, as part of the month-end close. For high-volume accounts, or during a fundraise or audit, reconcile weekly or even daily. Between formal reconciliations, the founder should glance at the bank feed regularly as a compensating control, so nothing unexpected sits unnoticed for a whole month. Monthly is the floor; the more often you reconcile, the smaller each difference is to investigate.

The common reconciling items are: uncleared cheques you have issued and recorded but the bank has not paid; deposits or receipts in transit; bank charges, fees and interest you have not recorded; unrecorded receipts, such as a customer payment that hit the bank but was never entered; auto-debits and standing instructions; and plain errors, such as a wrong amount, a duplicate or a wrong account. Timing differences clear on their own; unrecorded items and errors need an adjusting entry.

The reconciliation is prepared by the person in finance who does the books, and reviewed by a second person, ideally the founder or the head of finance if a different person prepared it. The preparer should never be the only one who signs off, because the point of the control is a second set of eyes. In a one-person finance team, the founder is the reviewer. The reviewer checks every reconciling item is genuine, questions anything unusual, and signs. That prepared-by and reviewed-by split is exactly what an auditor looks for.

It is a detective control: it does not stop a bad transaction, but it catches it, because money that leaves the account without a matching, approved entry cannot hide once you reconcile. An unauthorised payment, a duplicate transfer, a skimmed receipt or a manipulated entry all surface as a difference that has to be explained. Doing it monthly, with a preparer and a separate reviewer, means no single person controls both the money and the record of the money, which is what makes theft hard to conceal.

Yes, always. The BRS is an audit staple. Auditors independently confirm your closing bank balance with the bank, then trace it to your books through the BRS, and they scrutinise old or unusual reconciling items, such as a cheque outstanding for months. They also expect to see who prepared and who reviewed each reconciliation. Keeping a signed monthly BRS with the supporting bank statement, inside your accounting software, makes this part of the audit quick and clean rather than a scramble.