Knock Out A Year’s Worth of Bookkeeping Before Christmas

We all know the feeling.

It’s getting dark outside. The holidays are upon us. We’re about to embark on the annual pilgrimage through family politics and scheduling nightmares and tryptophan-induced afternoon comas. Your calendar is a mess, your to-do list is worse, and if my years in tax preparation are any indication, your business’s books are waaaay behind.

Ten months worth of receipts stuffed in your glovebox doesn’t count, don’t you lie to me.

You could just ignore them, but then they’d have to get done later. You could give them to your cousin Amanda who took that QuickBooks class that one time, but you never really did trust Amanda. You could just start working on them yourself but there’s other stuff to do and good god, who decides to crunch numbers instead of fixing the damned printer connection for the ten thousandth time.

First of all, breathe.

Second, you’re definitely right about Amanda.

Third, this bookkeeping thing does NOT have to be as hard as you’re making it seem.

We’ve all had to do play catch-up at some point. Even yours truly. In this post, I’m going to give you my tricks to knocking out months of bookkeeping backlog. Once January rolls around, you’ll be able to hand things off to your taxman and start rolling in that refund ASAP.

But first things first.

YOU NEED A SYSTEM

Systems are what keeps your business running. Task lists, calendars, mail times, billing dates, project steps… Each of these are systems that your business wouldn’t run properly without.

Bookkeeping is just another (essential) system.

One difference is that you can’t just start this project today the same way you would start a new workout routine. You’ve got to catch up on work that wasn’t done over the past however-many weeks or months. Or years maybe, I dunno, I’m not here to judge.

Find some time – 20 minute sessions if that’s all you can handle – and start chipping away. Once you’re caught up, you’ll be able to keep your books current with just a few minutes a week. You’ve just gotta start working, play around, and find a system that works for you.

Part of this system will be the actual app you use to put everything together. There are a few options.

Spreadsheets

A popular method for bookkeeping noobs is Excel or Google Sheets. Spreadsheets are free, easy to use, and perfectly acceptable in the beginning as long as you keep up with them. The downside here is that the manual entry requires more time, and so creates a lot of friction. It will also take a few spreadsheet skills to use correctly. The business owners I’ve seen with this setup usually start with the best of intentions and abandon it after a month or two. I won’t try and talk you out of it, just know that it’s going to take quite a bit more discipline on your end.

Software
If you’re looking for something more automated, there are online accounting apps. Xero, QuickBooks Online and Wave are a few. They all connect to your bank, download your transactions in real time, and make month- and year-end reporting a breeze. A few of these options are even free for a limited number of users or bank lines. You’ll probably only be able to download the last 1-12 months of bank transactions, so for “catch-up” purposes, you may still have to deal with some manual entry. Going forward, however, the process will be much smoother.
Whichever platform you decide on, stick with it, at least through the end of the year. Any accounting changes you make to your business are best made at the end of your tax year. For most of us, this is December 31st.
I’m an app junkie, so I prefer and recommend signing up for software. That being said, it’s possible to make this a relatively painless process, even if you’re sticking to your Excel/Google Sheet guns.
Speaking of spreadsheets, you can download my Bare Necessities Bookkeeping Template at the link below. It’s the least-fancy, not-going-to-impress-anyone, jesus-did-she-really-put-any-effort-into-this “step 1” of your bookkeeping solution.

 

Take me to the template!

 

SO. Once you have your app selected and your time blocked out, it’s time to round up the information. Believe it or not…

 

RECEIPTS ARE NOT THAT BIG A DEAL

Let me repeat that.

RECEIPTS ARE NOT THAT BIG A DEAL

Tiny tapes shoved in shoeboxes seem to have become the poster child of bookkeeping misery. They’re really not all that important, though.
In our increasingly paperless world, there are only a few good reasons people keep receipts:
  1. To get reimbursed. Employees keep business-related receipts for expense reports so that they can get reimbursed by their employer
  2. To keep in case you’re audited. There are different IRS guidelines on keeping paper records. 3-5 years is safe. 6 years is conservative. Keeping anything past 7 years is a waste of space.
  3. To track cash expenses. Because there is no other paper trail, like a bank statement.
  4. To split up different classifications. If a restaurant owner goes to SAMs club and buys paper for his printer and food supplies for the kitchen, he’ll want to keep the receipt so that he knows how much of the total should be office expenses and how much should be food materials
  5. To have an alibi in the event of a murder investigation. In case you worry about that sort of thing.

You’ll notice that nowhere here does it say “To keep until end of the year when you sort them into haphazard piles scattered across your kitchen table and then count them up by hand to create some semblance of a financial statement.”

You should definitely not be doing that.

As a matter of fact, most receipts can go STRAIGHT to your archives!

The only time you can’t just file a receipt away is when A) you made the purchase with cold hard cash, or B) you need to split the purchase up into multiple categories. In either of these instances, you’ll need to enter them manually into your app, and THEN you can archive them.

If you already have a stack of receipts you’ve been hoarding, set up three folders:

  • “Cash” folder
  • “Split” folder
  • Archive

Start at the top of your receipt pile and start filing. Don’t worry about dates.

Once you’re all filed, enter the “cash” folder receipts in your system. You can add them up by category or put them in one-by-one, up to you. Once they’re all in, send the receipts to the archive. Keep the “split” folder for later, once you’ve exported your bank transactions. You don’t want to duplicate anything.

Your archive can be physical (like a folder or shoebox) or digital (like Evernote or Google Drive). Either way, the hope is that once a receipt is in the archive, you’ll never need to touch it again.

Because I’m a huge nerd, and under the guise that I did this for the “visual learners” amongst you, I prepared you the life cycle of a receipt.

receiptlifecycle
That’s really all there is to receipts. They’re good to keep around, but shouldn’t be relied upon as your primary form of bookkeeping.

 

**DISCLAIMER: This post was written with the assumption that your personal and business finances have been separated and that the business uses its own bank and credit card accounts. If you’re using your personal accounts for business expenses, you’ll be stuck with receipt counting. Split that shit up.
So if you’re not getting numbers by adding up receipts – where are they coming from?

 

Statements, statements, statements

Your bank and credit card statements are your number one resource when putting together your numbers. Statement descriptions are usually all you need to remember what a transaction was.

Credit card charge at Staples? Office expense.
Swiped the debit card at Dunkin Donuts? Meals & entertainment.
Odd series of numbers and letters with no real business name? There’s usually a phone number. Google it.

It’s what I use when doing catch-up work for my clients, and it’s where I recommend you start. There are a number of ways to get these transactions into your system.

  • Software sync: If you signed up for a bookkeeping app, it will walk you through how to connect your bank and import as much bank history as you can. Even if it will only sync the last 30 or 90 days, you can manually export a file from the bank and import them into the software. Speaking of exports…
  • Bank export: Almost any bank out there will allow you to export transactions. The tricky part is that time frames and file types will all be different. For spreadsheets, download a .csv file. For software imports, get a .qbo if it’s available. If you can’t export the whole year, get as much as you can.
  • Manual entry: Once you’ve exhausted the above, you’re stuck with one option: hand entering. Unless you have a really crappy bank, this will hopefully only be for a few months. Let this be a lesson to you… keep up with the books going forward!

You’ll do this with each checking account, savings account, and credit card your business has.

If you’re using an accounting app, you will “reconcile” these bank and credit card transactions after all the transactions are imported. Reconciling with a spreadsheet is a more complicated process than I’m going to get into here, but if you need help you know where to find me.

Categorizing everything

The cherry on top. Once you have all of your business transactions in one place, you’ll need to make sure you can look at them by category. Again, your accounting app will walk you through this as you set up and import bank info. If you’re using a spreadsheet, this is where your Excel skills come in. Ultimately, you just need to be able to take all of your expenses and see the totals for each category.

A few tips:

  • If you used your business card for something personal, don’t delete the transaction, just classify it correctly! These would go to “Owner Draws,” “Shareholder Distributions,” or something similar. If you delete the transaction entirely it’ll throw off your bank reconciliation.
  • Tax returns only have a certain number of accounts. Don’t feel like you need to break your transactions down into every sub-category imaginable. If it’s good enough to manage the company, its good enough for the tax return.
  • One of the only accounts that gets an abnormal tax treatment is “Meals and Entertainment.” Because the IRS knows you’d be eating whether you were on the job or not, this account is only 50% deductible. There are a few funny guidelines there (office snacks can go to the fully-deductible “Office Expenses”), but for the most part, that’s where you need to stick food purchases.
  • Any big purchases (vehicles, machinery, computers, anything over $1k or so) need to get separated into a “Fixed Asset” account. Sometimes this is an account type with accounts like “Machinery”/”Computers”/etc., sometimes it’s a single account. Just make sure they all get turned into your tax guy together so that they get reported correctly on your return.

This, That and the other

As long as you process business cash in and out of your business bank and credit cards, the above steps will get you the most important part of your year-end reports – your income and expenses. There are a few other things your tax guy may need, including Accounts Payable (what you owe vendors at the end of the year), Accounts Receivable (what your customers owe you at the end of the year), loan balances, 1099s, and details on any Fixed Assets. This is NOT meant to be exhaustive. Just to make your books less of a headache and more of a tool.

 

There you are – get to it! The results may not be perfect, but you’ll be well on your way to get this tax year behind you and manage your books correctly in years to come.

If it turns out your situation is too complicated to use the methods above, nbd! Just comment below or get in touch and we’ll see what we can fix up for you.

Have any business friends you bitch to about bookkeeping? Share!

Your Thoughts?