Messy accounts are typically the result of an intense business environment stemming from rapid growth, a shortage of relevant staff or simply ignorance. It is quite stressful knowing your records are a mess and you need to clean up messy books. The bookkeeping cleanup process requires responsibility and increased motivation as it often ends up dragging from ‘let’s start next week’ to ‘next month’.
While this is quite common, especially amongst startups, it is a fixable issue. In this following guide, we will discuss the essentials for you to catch up bookkeeping, and how to fix bookkeeping errors.
How Do Your Books Get Messy In The First Place ?
The main reason for having messy books is simply a shift in priority. Bookkeeping often feels like a secondary task, that can be delayed or forgotten about. For many, primary tasks are often focused towards sales and marketing.
While bookkeeping is quite manageable, even with minimum staff, the situation starts to change when business gets busy. Increased transactions, expenses piling up, payments, etc., all add up and require attention. This is when the stress starts and your records start reflecting nothing more than the past.
With untidy books that are not up-to-date, your pricing strategies, tax season, and ability to make informed decisions are all significantly affected. This is why you need to implement bookkeeping cleanup strategies as soon as possible to ensure your business stays on the path to success.
The First Step To Clean Up Messy Books
Once business owners realize their accounts are outdated and they need to catch up bookkeeping, many end up panicking especially when tax season is near. This can lead to rushing (which could increase the errors) or procrastination as it can be quite overwhelming.
The first step is to fix your mindset and understand the purpose of the bookkeeping cleanup process, which is to have accurate records for reduced stress and informed decision-making.
Bookkeeping cleanup typically has three core objectives, which are:
- Accuracy: Should reflect actual accounts
- Clarity: Books must be well-organized and understandable
- Completeness: All transactions need to be recorded
Dealing With The Mess: Step Two
Once you realize the need to catch up bookkeeping, you will probably find weeks or months of unrecorded entries. This could include bank balances not matching your own records, missing receipts, duplicate transactions or no transactions at all.
Overdue bookkeeping solutions mostly always involve dealing with the same set of issues mentioned above such as unreconciled accounts, missing expenses or income, and incorrect entries. Try to determine what records are available, what is missing and how far behind you are.
You will need to collect and organize all your records including bank and credit card statements, payment platform statements, receipts and invoices.
The key is to deal with your messy books one step at a time, understand the problems first then go through the overdue bookkeeping solutions.
How To Fix Bookkeeping Errors: Step Three
- Use An Accounting System: If you already use one, try to clean it up before thinking to start new. In case you do not use an accounting system, consider using one such as QuickBooks or Xero. Accounting systems help maintain and organize your accounting records.
- Bank Reconciliation: Reconciling your bank statement with your records is probably the best way to start your bookkeeping cleanup process. It requires you to check if your bank balance is different to your books. If so, compare them week by week or on a month by month basis to see what’s missing, duplicated or incorrectly recorded. Correct any errors as you identify them rather than skipping them for later. This prevents duplication of work and saves on much needed time.
- Missing Transactions: Any transactions that have been previously missed should be completed now. The most common of these are cash transactions, interest charges, bank charges etc. Remember, bookkeeping cleanup needs patience and should not be rushed. Rushing will only complicate things and result in repeating this whole process again.
- Incorrect Entries: Reconciliations often make clear any incorrect entries or duplicate transactions. Simply remove any duplicates and correct any wrong entries as identified.
- Chart Of Accounts: This is the list of categories to organize all income and expenses. A messy chart of accounts is often one with multiple or unclear categories for the same type of expense and unused accounts. Make it as simple as you can by merging similar names, removing duplication, and using categories that are more relevant to your business. Once your Chart of Accounts is ready, you can now categorize incomes and expenses, making your books clean.
- Financial Reports: This is when things begin to brighten up while you clean up messy books. You get to see how much you actually are earning, where your money is going, and why expenses may be unreasonably high.
- DIY vs Outsourcing: Again, if you are unable to take out time in the first place, you should consider whether you would have time to clean up messy books. Doing it yourself may be workable if your lagging behind just a few months, lack basic accounting knowledge or the number of transactions are relatively lower. For transactions pending to be recorded for over a year, larger volume of transactions or if you need to prepare for tax season, it is recommended to hand over your overdue bookkeeping solutions to a professional.
If you are struggling to catch up bookkeeping, you may end up overpaying taxes, understating income and filing incorrect returns. This can open an audit. Without any proper documentation, you are at risk of a hefty penalty, especially if proven that your tax filed was understated. In such situations, it is advisable to work with a professional CPA to clean up messy books.
Step Four: Setting Up A Proper Accounting System
The bookkeeping cleanup process is only half the work. Without a routine system in place, you may end up with messy books again. Construct a simple, easy to follow routine for yourself, such as setting aside an hour a week for your bookkeeping to avoid such situations again. The time allocated for your books can be used to check the accuracy of transactions, reconcile accounts and review reports regularly.
Create A Bookkeeping Cleanup Checklist
- Set a realistic timeline to complete the cleanup
- Collect all financial data
- Reconcile bank statements, credit cards and loans
- Organize files by month
- Choose or review your accounting system
- Fill in missing transactions
- Remove duplicate entries
- Create simplified categories
- Review your financial reports
Messy books may feel worse than they actually are. It might be a hassle initially, but with a systematic approach, you can actually clean up messy books quicker than you think. With clean and organized books, you can make informed decisions, prepare for tax season and determine how well your business is doing. So don’t procrastinate, and begin as soon as possible!
Need Help Cleaning Up Your Books?
If your books are messy, you don’t have to fix everything alone. The experts at AccountiPro specialize in bookkeeping cleanup, catch-up accounting, and ongoing financial management for growing businesses.
👉 Contact AccountiPro today for a consultation and get your books back on track, so you can focus on running your business with confidence.
