You know how to run your business.
You know when to run a sale and when to increase your prices.
š¶ You know when to hold ’em, know when to fold ’emā¦ š¶
But how do you know when your books need to be cleaned up?
Small business owners are some of the smartest, most innovative people on the planet, but often donāt know when itās time to get their financials in order. I canāt tell you how many panicked calls and emails I get come tax time from people whose books are all kinds of messed up and are in desperate need of a quick fix!
And unfortunately, you canāt whoosah your way into organized books.
I thought it would be a good idea to give you a list of signs your books need to be cleaned up so that you can feel prepared ā and balanced ā for year end.
1) You have uncategorized transactions
When you connect your service-based businessās bank accounts and credit cards in QuickBooks Online, QBO automatically uploads the transactions for you – right into your books. Once they are uploaded, QBO will try to match the uploads to the transactions youāve already entered.
Itās a fantastic way to speed up your bookkeeping and make sure all of your transactions reach your books.
But even though itās an awesome automation tool, you still gotta do a little work.
When QuickBooks can’t find a match, it will create a new transaction record that will require a manual categorization. QBO will assign the transaction with an āunclassifiedā label: āunclassified incomeā, āunclassified expenseā, etc.
Because these unclassified labels are not proper accounts in your books, seeing transactions with this label is a sign your books need to be cleaned up!
2) Your balances arenāt balancing
Thereās a good reason I decided on naming my business Balanced Office Solutionsā¦
Balanced books are important!
(Balancing, balances, balancedā¦ Anyone else think ābalanceā sounds like an alien word now?)
Your balance sheet is the financial report that includes all of your businessās assets, liabilities, and equity. Your total assets must equal your total liabilities plus equity. If they donāt, it may be a sign your books need to be cleaned up.
The balance issue could be caused by a lot of things in your service-based businessās books, including:
- Transactions were improperly entered or categorized
- Equity calculations are incorrect
- Rounding errors are causing a mismatch
A proper clean up of your books at year end will uncover any of these errors in your accounts.
3) Youāve got negative numbers
In bookkeeping, youāre bound to have negative numbers. For example, a vendor might have reached out to you at year end to let you know you have a credit on your account that they are applying to your open bill. That credit is a negative number when booked inside the bill – and a good one at that! Who doesnāt need a little extra cash at year end?
But negative numbers on your balance sheet may be an indication that you have some bookkeeping errors you need to clean up.
A common issue causing a negative number I see from my clients is when they get a payment from a customer but there is no bill to apply the payment to. This creates a negative balance when looking at your accounts receivables. To rectify, create that bill and apply the payment. Easy as pie!
Negative numbers donāt always mean errors, so reach out to your bookkeeper if you have any questions.
4) You havenāt reconciled your accounts
This one is easily one of the most common steps missed when business owners manage their own books. And mostly because a lot of them are intimidated by the technical sounding name.
Reconciling simply means you are comparing two pieces of information and making sure they match up.
An easy example of this would be comparing a receipt you have for a purchase and making sure the amount correlates with the charge amount imported from your credit card into QuickBooks.
Here are some general types of reconciliation you should be doing:
- Bank account reconciliation – Do the uploaded bank account transactions in Quickbooks match your monthly bank statement?
- Credit card reconciliation – Do the uploaded credit card transactions match your monthly credit card statement?
- Vendor reconciliation – Do the accounts payable balances match the statements provided by your vendors?
When you havenāt reconciled your accounts for a few weeks (or months), you are bound to have discrepancies between what your books are showing and what actually happened in your business. These discrepancies are signs your books need to be cleaned up. Click here for more info on why itās so important to keep your bookkeeping and reconciliation current.
Okay, youāve got messy books ā now what?
Donāt freak out. Youāve got a pro in your corner!
Iāve been helping business owners with their bookkeeping for over 20 years. If you are seeing any of these signs your books need to be cleaned up, reach out today to see how I can help you sort through the mess and get back to balance.
