Reading your bank statement like an owner, not an accountant
Most owners check their bank statement for one number, the balance. Here is how to read it like an owner, in one hour a month, with a worked example.
Our connection: the Tallokin team builds ProfitMind, which is mentioned in this article.
At the end of October, the owner of our Lekki agency opens his banking app and smiles. The balance is up by ₦3.66 million on the month. A good month, he thinks.
It was a decent month. However, it was not a ₦3.66 million month, and the statement could have told him so in under an hour.
This is the same illustrative agency as in our articles on which clients are costing you money and why a busy agency can run out of cash. The business, the names and the figures are an example.
The balance is the least useful line on the page
The balance tells you where you ended up. It does not tell you how you got there, and how you got there is the part you can change.
An accountant reads a statement to make sure every line is recorded correctly. That is important work, but it happens weeks later and it answers a different question. An owner reads the same statement to answer three questions, now:
- Who actually paid me, and was it what I expected?
- Where did the money go?
- What is leaking that nobody has noticed?
What the statement looks like
Here is the agency’s October statement. A real one runs to several pages, so a few small lines are grouped, but every naira in this article is in it. Every Nigerian business owner will recognise the style; the last column is the one we have added.
| Date | Narration | Debit (₦) | Credit (₦) | Balance (₦) | What it really is |
|---|---|---|---|---|---|
| 01 Oct | OPENING BALANCE | 3,212,000 | |||
| 01 Oct | NIP Transfer to [LANDLORD] Office rent Oct 0000XXXX | 1,200,000 | 2,012,000 | Place: rent | |
| 02 Oct | NIP CR/MOB/[LAW FIRM]/GTB/Oct retainer | 1,500,000 | 3,512,000 | Client income: law firm | |
| 03 Oct | MOBILE BILLS PYMT/ [POWER COMPANY]/ PREPAID 0451XXXXXX | 180,000 | 3,332,000 | Place: power | |
| 05 Oct | CIP CR/ [OWNER]/Loan to business | 2,000,000 | 5,332,000 | Not income: the owner’s own money | |
| 08 Oct | NIP CR/[CONSUMER BRAND]/ZIB/INV 0712 | 4,000,000 | 9,332,000 | Client income: consumer brand | |
| 09 Oct | POINT OF SALE PURCHASE TRANSACTION POS@<XXXX0001> [FUEL STATION] LEKKI | 85,000 | 9,247,000 | Place: diesel | |
| 10 Oct | MOBILE TRF TO GTB/ Design work /[FREELANCER] | 450,000 | 8,797,000 | Client work: freelancer | |
| 12 Oct | WEB PURCHASE USD [SOFTWARE CO] CARD ***7 | 26,400 | 8,770,600 | Tools: software, paid in dollars | |
| 14 Oct | Transfer from [CLIENT C] | 2,900,000 | 11,670,600 | Client income: client C | |
| 15 Oct | SMS ALERT CHARGES | 1,200 | 11,669,400 | Bank charges | |
| 16 Oct | MOBILE BILLS PYMT/ [INTERNET PROVIDER]/ Monthly plan | 95,000 | 11,574,400 | Place: internet | |
| 17 Oct | NIP Transfer to [PHOTOGRAPHER] Shoot 0000XXXX | 350,000 | 11,224,400 | Client work: shoot | |
| 19 Oct | WEB PURCHASE USD SUBSCRIPTIONS (6) CARD ***7 | 183,600 | 11,040,800 | Tools: software, paid in dollars | |
| 20 Oct | NIP CR/MOB/[CLIENT D]/UBA/Retainer Oct | 2,600,000 | 13,640,800 | Client income: client D | |
| 22 Oct | MOBILE TRF TO UBA/ Brochures /[PRINTER] | 110,000 | 13,530,800 | Client work: printing | |
| 23 Oct | POINT OF SALE PURCHASE TRANSACTION POS@<XXXX0002> [FUEL STATION] LEKKI | 200,000 | 13,330,800 | Place: diesel | |
| 25 Oct | NIP Transfer to SALARY BATCH OCT (9 STAFF) | 6,420,000 | 6,910,800 | People: salaries | |
| 31 Oct | COMMISSION MOBILE TRF AND FGN STAMP DUTY (OCT) | 40,300 | 6,870,500 | Bank charges and levies | |
| 31 Oct | CLOSING BALANCE | 9,341,500 | 13,000,000 | 6,870,500 |
The balance went from ₦3,212,000 to ₦6,870,500, up ₦3.66 million. That is the number the owner saw. The narrations are short, cryptic and written for the bank, not for you, which is why the last column matters, and only you can fill it in.
Pass 1: money in, client by client
Go through every credit and write the client’s name next to it. Then look for anything that is not client income: a loan from yourself, a refund, money moved from your savings account. These swell the balance without being earnings.
In the statement above, the five credits add up to ₦13 million. But one of them, ₦2 million on 5 October, was the owner lending his own money to the business. The other four, from the law firm, the consumer brand and clients C and D, come to ₦11 million. That is the real client income.
Then compare each client’s payment with what you invoiced. A client who paid less than the invoice, or paid nothing this month, should be on your phone list by Monday.
Pass 2: money out, in five buckets
Do not try to categorise every debit perfectly. Five buckets are enough to see the shape of the business. Sorted into them, the thirteen debits in the statement above look like this:
| Bucket | What goes in it | October |
|---|---|---|
| People | Salaries, pension, health cover | ₦6,420,000 |
| Place | Rent, power, diesel, internet | ₦1,760,000 |
| Client work and tools | Freelancers, shoots, travel, software | ₦1,120,000 |
| Bank charges and levies | SMS alerts, transfer fees, card charges, government levies | ₦41,500 |
| Total out | ₦9,341,500 |
So the month really looked like this: ₦11 million in from clients, ₦9.34 million out, leaving about ₦1.66 million. The other ₦2 million of the increase was the owner’s own loan, which the business will one day have to pay back.
That is still a healthy month. But a ₦1.66 million month calls for different decisions than a ₦3.66 million one.
Pass 3: the leaks
This is where the hour pays for itself. Look for:
- Subscriptions nobody uses. In October, the agency paid ₦85,000 for three software tools that nobody had opened since June.
- Small charges that repeat. SMS alerts, card maintenance fees, transfer fees. Each one is small. Added up over a year, they rarely are.
- Payments in dollars. The naira price of a dollar subscription moves every month, even when the dollar price does not.
- Anything paid twice. It happens more often than owners think, especially with suppliers who send reminders.
As a matter of fact, the ₦41,500 in bank charges was the first time the owner had ever added them up. That is about ₦500,000 a year he had never seen as one figure.
Your one-hour monthly routine
- Download last month’s statement from your internet banking, as Excel or CSV if your bank offers it.
- Add one column headed “What it really is”.
- Credits first: name the client, or mark it “not income”.
- Debits next: put each one in one of the five buckets.
- Total each bucket and compare with last month. A bucket that jumps is a question to answer.
- Write down three actions: a client to call, a cost to cut, a charge to query with your bank.
Let the tagging do itself
The first few months by hand are worth doing, because you learn your own business. After that, the tagging is the slow part.
ProfitMind imports your bank statement, as a CSV or a scanned PDF, and sorts it by client and service for you, so the hour goes on decisions instead of data entry.
Your next step: download last month’s statement today, and do Pass 1 only, money in, client by client. It takes fifteen minutes and it will already tell you something.