3 Tips for Catching Up Your Books
Falling a little behind in your books is no big deal. After all, you can always catch up tomorrow, right? But how many “tomorrows” in a row does it take before you lose control over your incoming and outgoing expenses?
Before long, your overdue books are hanging over your head like that project you forgot to complete in middle school.
If your hands are already sweaty from the mere thought of catching up on your books, you’re not alone. Nearly 25% of businesses are behind in their books. Thankfully, we can help. Today, we’ll offer you three tips for catching up on your books and getting you back in the game.
Why You Need Current Books
Business owners wear many hats. “Bookkeeper” should never be one of them. Some owners handle their own accounting, thinking they can do it all. Others cut corners, trying to save expenses where they can.
Nearly all of them live to regret this decision. Don’t be one of them!
Here are some of the reasons why you need current books:
Overdue books will cripple your business once tax season rolls around. If your books are not up-to-date by the time you file your taxes, you don’t just need to catch up books and data; you also run the risk of mistakes, audits, penalties, and late fees.
Filing an extension might sound like a solution, but it can cause your problems to snowball, creating a bigger mess than you had before.
Without current books, you’ll have no clear picture of the health of your business. Keeping your books up-to-date will help you understand your cash flow, which can help you to make strategic plans and grow your business in the future.
If you need a business loan, your lender may ask for a recent financial report showing your income and expenses. Staying current with your bookkeeping will allow you to provide this documentation and increase your chance of receiving these funds.
Step 1: Organize Key Documents
One of the best tips for catching up your books is to stay organized. You’ll want to verify that you have the appropriate documents to record your company’s income and expenses.
If you’ve fallen a bit behind, you’ll want to organize your key financial documents, including:
How much money have you taken in? Your income will be reflected in your customer invoices. Organize them by date, and make a note of any outstanding invoices, if any.
You’ll also need to pay attention to your company’s accounting method. In a cash basis business, the invoice is sent to the customer once they’ve paid. But for accrual accounting, you’ll record the income when the sale occurs, even when the customer doesn’t pay until a later date.
Unfortunately, many businesses will have customers who don’t pay their invoices. For accrual accounting businesses, you may have to chase down your delinquent clients.
Technically, you can deduct the cost of bad debt from your tax return, but first, you’ll have to demonstrate that you took reasonable steps to collect the money you’re owed.
Besides, it’s better to collect these debts than to accept defeat at the hands of non-paying clients!
Business Expenses and Receipts
What are your expenses? If you’ve saved your receipts, it should be easy to calculate and record your business expenses. Make sure to separate business and personal expenses, especially since these will represent different deductible income for tax purposes.
Make sure you have a copy of every bill you’ve received from your suppliers. These expenses will appear on your year-end statement, so it’s very important that you have copies of these documents.
If you discover you’re missing a bill or invoice, contact the vendor, and they may be able to send you a copy. If you’ve missed any payments, make sure to take care of this as soon as possible so you can remain in good financial standing.
If your business has employees, you’ll need to complete the associated paperwork. This is important for them, but it’s also important for your business. If you paid a contractor more than $600 over the course of a year, you’ll need to send them a W9 and have them return it to you.
A W9 form requests the contract employee’s information, which you’ll then use to send them a Form 1099. This reports how much you paid them during the year.
Company employees will require W2s to show their yearly earnings. These documents will be important for tax planning, but the income your employees receive will also be recorded among your company’s expenses.
Step 2: Reconcile
After you’ve followed the above tips for catching up your books, you’ll need to reconcile your bank accounts and financial records. When reconciling, you’ll compare each transaction from your bank statement with the same transaction in your company’s accounting records.
Each transaction should be the same. If not, you’ll need to fix these errors so that your bank statement matches your company’s books.
In some cases, you’ll have to return to the previous step, since some errors may be the result of outstanding customer invoices or unpaid bills. Reconciling your books can therefore be a laborious process, but it can highlight discrepancies in your income and expenses to help improve the health of your business.
If this process sounds time-consuming, it’s because it is—especially if you’re behind in your books! You can farm this process out to a bookkeeper or a CPA, but they may charge for all of the time spent on this relatively menial task.
For some owners, it may be worth this added expense, especially if you need to catch up your books as fast as possible. Others might reconcile their books beforehand to save the account time and money.
Step 3: Have a Bookkeeper Help You (or Hire a Tax Professional to Review)
Finally, you may want to have a bookkeeper help you. Financial professionals will understand these tips for catching up your books quite well and can perform some or all of the work for you.
At the very least, a CPA or tax professional may be able to review your books, ensuring that your records are complete and up-to-date. They may be able to offer additional tips for catching up your books for tax planning purposes.
Small business owners usually have their hands pretty full. In some cases, you’ll need help with the whole process just to bring your records up to date. Thankfully, many of today’s accounting firms offer what’s called “historic accounting” or “catch-up bookkeeping.”
Catch-up bookkeeping is a simple process by which a financial professional will review your documents and ensure that your books are current and accurate.
These services can go a long way toward improving efficiency and cutting costs. Rather than relying on a company bookkeeper or accounting staff, an online accounting firm can handle your books and offer catch-up services at a fraction of the cost of a regular employee.
Catch-Up Bookkeeping You Can Count On
We hope you’ve benefited from these tips for catching up your books. Need a hand? We’d love to help. Busy entrepreneurs have come to rely on Xendoo’s industry-leading catch-up bookkeeping for small businesses, bringing financial records up-to-date.
We also believe the best solutions come with a good strategy. Without a clear plan, you could find yourself faced with the same problem in a few months.
Xendoo offers a variety of accounting and bookkeeping solutions to streamline your accounting processes and improve the efficiency of your business as a whole.
Create a free account today, and learn more about what Xendoo’s services can do for your business.