Tax season has a way of making unfinished bookkeeping feel much more urgent.
Maybe you meant to keep up with your books every month, but running the business took priority. A few uncategorized transactions turned into a few hundred. Bank reconciliations got pushed aside. Receipts are scattered between your inbox, desk, and glove compartment.
Now the end of the year is getting closer, and you know your CPA is eventually going to need accurate financial information.
If this sounds familiar, the most important thing is to start addressing it now.
Falling behind on bookkeeping is something many small business owners experience. What matters is having a plan for getting your financial records current, organized, and ready for your CPA.
At Bryant Bookkeeping Co., I provide catch-up bookkeeping and bookkeeping cleanup services for small business owners and real estate investors. Here’s what you should know if your books are behind and tax season is approaching.
First, Figure Out How Far Behind Your Bookkeeping Really Is
Before you can fix the problem, you need to know what you’re working with.
Being “behind on bookkeeping” can mean very different things.
Maybe you haven’t reconciled your accounts for two months.
Maybe transactions are importing into QuickBooks Online, but nobody has been reviewing or categorizing them.
Or maybe you haven’t touched your bookkeeping for most of the year.
Start by determining the last month your books were fully completed and reconciled.
Then look at what has happened since.
Are transactions missing?
Are there uncategorized transactions?
Have your bank and credit card accounts been reconciled?
Are personal and business purchases mixed together?
Do you have financial accounts that haven’t been added to your bookkeeping records?
Knowing the scope of the problem helps determine whether you need basic catch-up bookkeeping or a more involved bookkeeping cleanup.
Catch-Up Bookkeeping and Bookkeeping Cleanup Aren't Exactly the Same
These terms are often used interchangeably, but there can be an important difference.
Catch-up bookkeeping generally means bringing financial records up to date when the bookkeeping simply hasn’t been completed for a period of time.
Bookkeeping cleanup usually involves correcting or reorganizing existing books when transactions have already been entered but something isn’t right.
For example, your QuickBooks account may contain months of transactions, but expenses could be categorized incorrectly. Accounts may not have been reconciled. Duplicate transactions may exist. Personal purchases could be mixed with business activity.
In that situation, simply entering more transactions isn’t enough.
The existing bookkeeping needs attention first.
At Bryant Bookkeeping Co., the amount of work required for catch-up or cleanup depends on how many months need attention and the condition of the existing books.
Gather Your Bank and Credit Card Statements
If your bookkeeping is behind, your financial statements are an important starting point.
Gather statements for every business bank account and credit card used during the period that needs to be addressed.
This is especially important if you have multiple accounts.
Don’t assume that because an account is connected to QuickBooks Online, every transaction is automatically recorded correctly.
Bank feeds are useful tools, but they aren’t a replacement for accurate bookkeeping.
Transactions still need to be reviewed and categorized, and the accounts need to be reconciled against the actual statements.
Having complete statements available makes the catch-up bookkeeping process much smoother.
Find the Receipts and Supporting Documentation You Still Have
You don’t need to panic if every receipt isn’t sitting neatly in a labeled folder.
But this is a good time to gather the documentation you do have. Check your email for digital receipts. Look through business accounts where purchases were made. Review invoices and payment records.
Gather documentation for larger purchases or unusual transactions that may need additional clarification.
The longer you wait, the harder it can become to remember exactly what a transaction was for.
A charge that seems obvious today may look completely unfamiliar several months from now.
Keeping supporting records organized throughout the year can save a lot of time when your books need to be reviewed.
Separate Business and Personal Transactions
Mixing business and personal expenses is one of the easiest ways to make bookkeeping more complicated.
Maybe you accidentally used your personal card for a business purchase.
Or perhaps the business card got used for something personal.
When you’re catching up on bookkeeping, these transactions need to be identified so your business financial records accurately reflect business activity.
This can become especially time-consuming when several months of transactions need to be reviewed at once.
Going forward, keeping business and personal finances separate can make monthly bookkeeping much cleaner and easier to maintain.
Don't Guess at Transactions You Don't Recognize
You’re reviewing transactions from six months ago and see a charge you don’t recognize.
It can be tempting to choose a category that seems reasonable and move on.
That isn’t the best approach.
Incorrect transaction categorization can affect your financial reports and create additional cleanup work later.
If you don’t recognize a transaction, investigate it.
Search your email.
Check receipts.
Look at the merchant.
Review any notes or invoices that might help.
If you’re working with a professional bookkeeper, they may flag transactions that need clarification instead of making assumptions about your business activity.
Accurate bookkeeping is more valuable than fast guessing.
Reconcile Your Accounts
Reconciliation is an important part of maintaining accurate small business books.
During a bank reconciliation, the transactions in your bookkeeping system are compared with the transactions on the actual bank or credit card statement.
This helps identify discrepancies such as missing transactions, duplicates, or incorrect amounts.
If your bookkeeping has been neglected for several months, reconciliation may reveal issues you didn’t know existed.
That’s one reason simply looking at the balance displayed in QuickBooks isn’t enough to determine whether your books are accurate.
A clean set of books should be supported by properly reconciled accounts.
Review Your Profit and Loss Statement
Once your transactions are recorded and accounts are reconciled, your financial reports become much more useful.
Your Profit and Loss Statement is a good place to start.
Review your business income and expenses.
Look for categories that seem unusually high or low.
Pay attention to anything that doesn’t make sense based on what you know happened in the business.
If an expense appears in a category where it clearly doesn’t belong, that may be a sign that additional bookkeeping cleanup is needed.
Your financial reports shouldn’t just exist because your CPA needs them.
They should give you useful information about your business throughout the year.
Don't Forget About Your Balance Sheet
The Profit and Loss Statement tends to get more attention from small business owners, but your Balance Sheet matters too.
A Balance Sheet provides information about your business’s assets, liabilities, and equity at a particular point in time.
If there are old balances, duplicate accounts, unusual negative amounts, or other items that don’t make sense, those may need to be reviewed as part of the bookkeeping cleanup process.
This is another reason professional bookkeeping involves more than simply categorizing bank feed transactions.
Clean books require looking at the financial records as a whole.
Give Your CPA Clean Information
Your bookkeeper and CPA serve different roles, but they can work together.
Your bookkeeper maintains the financial records throughout the year.
Your CPA or tax professional uses that information for tax preparation and may provide tax planning or other accounting services.
When your bookkeeping is accurate and current, your CPA can begin with more organized financial information.
That’s what I mean when I talk about keeping books CPA-ready.
Instead of spending tax season trying to reconstruct an entire year, the goal is to maintain reliable financial records before your CPA needs them.
Don't Wait Until the Last Minute to Ask for Help
If you already know your books are several months behind, waiting until tax season won’t make the problem smaller.
Bookkeeping cleanup takes time.
The amount of time depends on the number of accounts, volume of transactions, condition of the existing books, and how many months need to be reviewed.
There may also be questions that only you can answer.
The earlier you begin, the more time there is to identify missing information and work through questions without the added pressure of an approaching tax deadline.
This is especially important for business owners who have fallen significantly behind or real estate investors managing financial activity across multiple rental properties.
Once You're Caught Up, Stay Caught Up
Getting your bookkeeping current is a big accomplishment.
The next goal is keeping it that way.
Monthly bookkeeping prevents you from having to repeat the same cleanup process next year.
Transactions can be reviewed while they’re still relatively fresh in your memory. Accounts can be reconciled regularly. Financial reports can remain current.
You also get the benefit of seeing what’s happening financially throughout the year instead of discovering it months later.
Consistent small business bookkeeping turns financial recordkeeping into an ongoing business process rather than an annual emergency.
You Can Get Your Books Back on Track
Being behind on your bookkeeping doesn’t mean you have to stay behind.
Start by determining how much work needs to be done. Gather your financial statements and supporting documentation. Identify questionable transactions and make sure your accounts are properly reconciled.
If the project is larger than you have the time or experience to handle yourself, getting professional bookkeeping help can make the process much more manageable.
Bryant Bookkeeping Co. provides virtual catch-up bookkeeping, bookkeeping cleanup, and monthly bookkeeping services for small business owners and real estate investors in Brunswick County, North Carolina and beyond.
I use QuickBooks Online to help clients get their financial records organized, current, and CPA-ready.
If your books have been sitting on your to-do list for months, now is a good time to deal with them. Complete the intake form on the Bryant Bookkeeping Co. website to tell me where your books currently stand and what kind of help you need.