When your books need a cleanup before they need a monthly bookkeeper

Most owners don't decide to hire a bookkeeper on a calm Tuesday. They decide it when a lender asks for a profit and loss statement, when a tax preparer sends back a list of questions, or when they realize they can't say whether last month made money. If that sounds familiar, the first job usually isn't monthly bookkeeping at all. It's a cleanup.

Signs the records have drifted

A set of books can fall behind quietly. Receipts pile up in a drawer, a few weeks pass without anyone categorizing bank transactions, and then a few months. Nothing breaks on a particular day. The file just slowly stops matching what really happened in the business. These are the signs worth looking for first.

• The bank balance in QuickBooks doesn't match the balance on your statement, and nobody can say why.
• A big share of your transactions sit in a catch-all account such as Uncategorized Expense or Ask My Accountant.
• Your profit and loss shows a month with no rent, no insurance or no payroll, even though you paid all three.
• Customers show as owing you for invoices you know were paid, or vendors show bills you settled long ago.
• Personal spending and business spending run through the same card, and the file treats them the same way.
• Last year's receipts and statements are still in a box, and that year was never closed out in the books.
• Your tax preparer asks the same questions every year because the file can't answer them.

One of these on its own is common. Several at once usually means the file needs a proper review before anyone builds a monthly routine on top of it.

What a cleanup actually involves

Bookkeeping cleanup means reviewing, organizing and correcting existing financial records so they accurately reflect business activity. It's detective work first and data entry second, and it tends to go in a sensible order.

First comes a look at the file as it stands: the chart of accounts, the connected bank and card feeds, the opening balances, and which periods were reconciled and which weren't. That shows where the trouble starts. A file that was sound through March and wandered afterward is a different job from one that never had a solid starting point.

Next come the statements. Each bank, credit card and loan account gets tied to its actual statements, month by month, beginning at the earliest period that needs attention. Duplicates get removed, missing transactions get added, and anything that was recorded twice, once through a feed and once by hand, gets sorted out.

Then the categorizing. Transactions parked in catch-all accounts move to the right place, using receipts, invoices and whatever you can tell your bookkeeper about what a payment was for. Some will need a question back to you. You should expect a short list of those, not an interrogation.

Last, the open items. Accounts receivable and payable get compared with what actually happened, and owner draws, loans and personal spending get separated so they stop bending the numbers.

Why the cleanup comes first

A monthly bookkeeping routine assumes the starting point is sound. If it isn't, every new month inherits the old errors. You can reconcile March perfectly and still carry a wrong opening balance from the year before. Fixing the base once costs less time, and less frustration, than patching around it every month.

It also changes what you're able to see. Once the history is corrected, a profit and loss statement tells you something. You can compare this quarter with the last, notice a vendor whose costs crept up, and hand a lender or a tax preparer a file they can actually use.

What to bring to the first conversation

• Statements for every bank, credit card and loan account, going back as far as the cleanup needs to reach.
• Access to your QuickBooks Online file, or a backup copy if you use a desktop version.
• Last year's tax return, or whatever your tax preparer most recently sent you.
• Payroll reports, if you have employees.
• A short note on anything unusual: a new loan, a second location, a partner who left, a large equipment purchase.

Don't tidy anything beforehand. A messy box of paper is fine. It's the raw material, and the person doing the work would rather see it as it is.

Where to go from here

Guirian Bookkeeping Services LLC is a locally owned virtual practice in Waldorf, Maryland, and cleanups are one of its core services for small businesses, medium-sized businesses and nonprofits across Waldorf, White Plains, Washington DC, Bethesda and Silver Spring. Amy Guiriansoro is an Advanced Certified QuickBooks ProAdvisor in QuickBooks Online and QuickBooks Payroll. If your books have drifted, read about Guirian's bookkeeping cleanup service on this site, then call (301) 848-6619 to set up a consultation by appointment.