How We Do a Full Year of Bookkeeping
In Q4 we start talking about tax season, prep for the new year, you know the drill. Whenever we bring on new clients around this time (and honestly any time after February or March), we almost always have to do a clean up and catch up. So today I’m spilling the tea of what that process looks like when you bring us on to do your books and we get you ready to pass everything along to your CPA.
Evaluate the Current System
The first thing we do is decide if the system you are currently using is salvageable. Sometimes we’re able to jump right in, but more often than not we have to completely start from scratch to make sure things are set up properly for you. Sometimes things are categorized incorrectly, the balance sheet may be off, and things not reconciled properly. Depending on your situation, we may be able to stay inside your current system (please note that we solely work in QBO and Xero and we prefer the later).
Verify the Ending Balance for December 31st
Before we get into the bulk of the cleanup, we want to make sure that the ending balance for the previous year is correct. If you’re in QuickBooks, the way to do this is go to the Accounting tab, then Reconcile. From there it’ll show you your beginning and ending balances. I've had multiple clients come to us where the balance is off. Which is interesting because some of them had their CPA do the previous years bookkeeping. (this is the perfect example of why I recommend having a separate bookkeeper AND CPA, because we specialize in different things).
Review Reports
Once we verify the balance for the previous year, it's time to look at reports. When we go through your P&L we look through each account and transaction to see if it was done correctly. We can either recategorize the incorrectly coded transactions or we can undo all of the year's transactions at one point. From my example client earlier, there were more incorrect transactions than there was correct so we ended up starting the year over. We also deleted all of the old bank rules since they were part of the problem.
After the Profit and Loss report, we review your Balance Bheet. This one can be quite a mess sometimes. Luckily, most of my clients don't have a ton of cleanup here because of the nature of their businesses. It shows your assets like cash, camera equipment, if you own a vehicle, or storefront. It also shows your liabilities, like your credit card, mortgage on an office space, etc. Like I said, for a lot of creative businesses there's not a lot on the balance sheet but we still make sure everything looks good.
Once we have those two reports done, we have a good feel for what the Chart of Accounts is like. A lot of times we have to go in and adjust it. From my example earlier, there were some expense accounts labeled as bank accounts which throws everything off (depending on the type of account, it changes where it goes on the reports). If that's done incorrectly, then you're not getting an accurate picture of what your numbers look like. So for a cleanup, we make sure to go in and make any changes needed to the Chart of Accounts and customize it to our clients' business.
Re-categorize Transactions
Next up is the fun part 😉 We now get to categorize all the transactions that we undid earlier. A lot of times we'll have hundreds, if not thousands of transactions to go through. There's ways to speed up the process, but we have to be careful to make sure things are done correctly. One thing we do is go in and make bank rules. You'll do all of this in that same Banking tab in QBO. We make the bank rules and terms very specific. Bank rules are helpful, but you still want to go through each transaction to make sure it's done right.
Questions and Finalize Reports
Once we've categorized everything, if we have any questions for you we group it by quarter. So Q1 questions, Q2, etc. We might ask for clarification on a transaction and what it was for (like Etsy or Amazon, those can be for anything). Once we have those answers, we finish categorizing those transactions and move on to reconciling month by month. We make sure the balances are correct and then my favorite part: delivering reports.
This is seriously my favorite because this is often the first time you get to see what your business is actually making and doing. It provides SO much clarity! So we pull and deliver those reports via email with a simple summary. You're able to jot down notes or questions in preparation for our Recap call. On the call I walk you through everything, all the reports, and answer any questions you have. We want to make sure you fully understand the reports and what they mean for you and your business!
That's pretty much it! Cleanups are like a puzzle. You have to fit each piece together to make a beautiful picture and it's often the first time people are able to have an accurate, clear image of their business finances. We set you up for future success whether we're the ones doing your monthly bookkeeping or not. Reach out if you have any questions!
