A business bank statement is more than a record of all the transactions your business makes each month: It’s a valuable tool that can help you manage your business finances and keep spending in check. Let’s dive into the typical business bank statement and its benefits so that you know how to read and use it to your benefit.
What is a business bank statement?
A business bank statement summarizes all your transactions for a set period (usually one month or 30 days). Your bank statement gives you a bird’s eye view of financial transactions coming and going out of your business checking account or savings account.
By looking at the information in your business bank statements, you can better track your financial history and make smarter decisions regarding planning and creating a budget, which we’ll break down later.
What’s in a bank statement?
Not all business bank statements look the same, but there are a few requirements every financial institution has to include on theirs. You can expect the following on your account statement, whether you’re looking at electronic statements or paper statements.
Information about the bank
You’ll see the bank name and contact information, usually toward the top of the statement. The contact info could include a branch mailing address, customer service phone number, and email address.
Information about the account holders
Bank statements will have your company’s name (or your name if you’re the account holder) and your address and account number. This identifying information lets you know you’re looking at the correct bank statement and makes it an official record for accounting purposes.
Transaction information
A business bank statement includes details for every transaction, including checks paid, service charges, deposits, and withdrawals. These transactions will be numbered, so they’re specifically tailored to your spending frequency: For example, if you only made 50 transactions last month, your last transaction will be numbered 50.
Paper statements vs. electronic statements
You can access your statements every statement period — and, to make things easier, banks automatically send one each month, whether paper or electronic.
A paper statement will be mailed to your address on file, and an electronic statement will be sent to the email on file. An electronic statement, also known as an e-statement, is a file you securely view online.
While you can log in at any time to see your e-statements, you may need to go through typical online security measures, like one- or two-factor authentications, since you’ll also have access to your accounts.
By tracking which device you’re logging in on, these security measures verify your identity and reduce the risk of fraud and theft.
What does a business bank statement look like?
Business bank statements are loaded with helpful information for small business owners split into the account summary and the account details. Let’s look at a bank statement example to illustrate the different parts you should be familiar with.
Account summary
The statement below shows a summary of transaction activity from July 3, 2018, to August 2, 2018. The summary lists the beginning balance, total withdrawals, deposits, and ending balance — giving you a snapshot of spending habits and income for the month.
In this example, the business didn’t have any deposits or credits. The statement shows that it started with an opening balance of $280,692.25 and finished with $271,024.36 after spending $9,667.89 on business expenses.
Use this information to gauge whether this is a healthy spend for your business. Is $9,667.89 beyond your means? Did you spend less than you anticipated? Or is just where you expect it to be?
Account activity details
The bottom half of the bank statement will show activity details, where the transactions are listed in chronological order. Your business bank statement shows the transaction’s date, description, and how much was debited or credited for each one.
While you might feel tempted to gloss over these transactions, having them laid out in front of you is an essential tool: You can easily find errors and unauthorized transactions that may point to theft or being charged accidentally.
When you find discrepancies like this, you can report them to the bank to open a case or receive a refund.
Benefits of tracking your business bank statements
As a small business owner, you need to know what you’re spending money on vs. how much you have in your bank account. But you won’t get this information from standard financial documents like the income statement and balance sheet.
That’s where the business bank statement comes in: Business bank statements are helpful for everything from managing finances to qualifying for a small business loan.
Benefit #1: Gain insights into financial health
You can compare cash inflows vs. outflows, cash balance, and how many cash buffer days you have. Tracking this information over time helps identify when a problem pattern is emerging.
Let’s look at a simplified example to see how this works.
The owner of Red’s Pizza notices that the ending balance on their November bank statement seems lower than usual. So, Red, the owner, gets out their previous bank statements for the last six months. Sure enough, the cash balance started decreasing over the summer.
In July, the ending balance was $12,100, similar to the ending balances in May and June. But in August, there’s a drop that happens again in September and October.
Red then looks into the transaction details and notices that the costs for tomato sauce and flour have increased. As a result, the business spent $200 more a month on ingredients without increasing revenue.
To help get cash flow under control, Red decides to raise the price of the pizzas, helping to increase revenues and enabling Red to deposit more money into the business bank account.
If Red had kept a closer eye on the business bank statements for Red’s Pizza, he might have noticed the increase in costs earlier — giving him more time to course-correct and prevent a drop in the cash balance.
Benefit #2: Find discrepancies and rule out fraud
U.S. businesses lose an average of $300,000 every year due to invoice fraud.
While your business bank statements alone can’t protect your company from fraud — you’ll need more tools such as robust accounts payable and accounts receivable systems — they are a good starting point for spotting issues. You can easily compare your bank statements with your financial records to identify discrepancies.
For example, you might notice a charge from a name you don’t recognize. Contact your financial institution to correct errors and dive deeper into your accounting books to ensure any inconsistencies aren’t a red flag for fraud.
Benefit #3: Apply for a business loan
Imagine what you could do with a business loan. You could pay off outstanding debts, invest in resources, or hire more employees. But no matter where you go, lenders will ask for your business bank statements.
Lenders use this information to verify that your company manages its finances responsibly and ensure you won’t have trouble repaying the debt. They will also use the statement to ascertain your average monthly balance, average total deposits, and average total withdrawals.
Without business bank statements, getting a competitive business loan is impossible: You might only qualify for high-interest financing, which will, in turn, increase your business costs and reduce cash flow.
Benefit #4: Plan ahead
Because it’s a record of your financial transactions, you can use past business bank statements to estimate monthly revenue and spending better and use business forecasting to make informed long-term plans.
But one thing to remember when using bank statements for planning ahead: A business bank statement isn’t the same as your transaction history.
Where transaction history shows you all the past transactions that occurred in that account, the bank statement is a monthly snapshot of activity. As a result, a bank statement might miss some recent or pending transactions.
Take control of your business finances with an all-in-one solution
While business bank statements are not a granular view of your business’s overall finances, they are a helpful tool that lets you see past performance so you can gain a clearer picture of your incoming and outgoing transactions — allowing you to prevent fraud, apply for loans, and plan for the future.
But analyzing every monthly statement is time-consuming because records need to be gathered for every transaction. That’s where software that simplifies payments comes in: BILL provides an all-inclusive solution via automated accounts payable and accounts receivable software.
It helps you navigate every aspect of your income and spending without the hours of manual labor spent tracking and recording financial transactions. Learn more about the benefits of automating your finances with BILL.
