So you’ve fallen a little behind on your bookkeeping.
First things first, don’t panic. If a few months have gone by and you haven’t gone through your receipts or checked on the state of your invoices, it’s possible to get caught up again. It just requires a little elbow grease, a fully-charged computer, and maybe a few cups of coffee.
Business owners can fall behind on back-office tasks for a host of reasons. The first step to catching up is, simply, to start. The longer you put off getting caught up, the more overwhelming the task will be. And if you wait until a tax deadline begins to loom in front of you, you may put yourself in an unnecessarily stressful position or need to bring in a bookkeeper or accountant to help you sort through things.
Rather than putting it off, focus on cleaning up one area of your business at a time. Once you’ve crossed the first one off your list, you’ll feel empowered to keep going. And before you know it, your books will be in good shape again.
Gather Your Receipts
Keeping and organizing receipts is one of the most tedious tasks awaiting a small business owner. They can also be the most time-consuming to catch up on, which is why we’re starting here. Jump off the deep end and get the worst part over with quickly.
Print out your bank statements from the months you’ve fallen behind on and start to gather physical and digital receipts for all transactions. Make note of what you’re missing and hunt around for them. The IRS requires that you keep receipts for anything over $75. It’s best practice to keep all receipts, no matter how small they are, but keep that in mind in case you’ve misplaced a $4 coffee receipt.
Once you’ve gathered them up, it’s time to go digital. Snap a photo of each receipt. Ideally, you would then upload them to your accounting file so that they are linked to their corresponding transactions, which can then be classified into spending categories.
However, if you don’t have an online accounting or bookkeeping tool, use a file storage system like Google Drive to keep them safe and organized.
Did you receive any customer payments during this time? If using an accounting solution that allows you to send invoices, make sure that the payments you received are linked to the appropriate invoices and that the dates the invoices were paid out are correct.
Equally important, follow up on any outstanding invoices. If you’ve forgotten about anyone or have been hesitant to send another email reminder, do that now. Don’t be afraid to send a friendly reminder even if the due date hasn’t passed. Your customers are busy, too. They’ll appreciate it.
If anyone fails to pay, keep a record of your follow up to prove you tried to collect on their debt. You may be able to write it off later.
Collect W-9s, 1099s, and W-2s
It’s important to have paperwork documenting who’s helped you through the year. Are they a full-time employee or did you rely on contractor help? Either way, the government wants to know. W-9’s will help you gather all the info you’ll need come tax time for freelancers and contractors, and when tax season rolls around you’ll be responsible for sending them 1099’s. W-2’s, on the other hand, are intended for employees, and your payroll provider should be able to help you issue them.
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Set Up a New System
Getting your books in order isn’t a pain-free process. Once you’ve gotten your bookkeeping into better shape, avoid the temptation to ignore it again. Hopefully the process of catching up will remind you of the importance of keeping up with your books on a weekly or daily basis. Here are a few ways to set yourself up for success going forward.
Adopt a Digital-First Attitude
Here’s the easiest tip of them all: stop getting paper receipts and store everything digitally. Then, all you need is software to collect everything in one place, which many of them will automatically file all receipts and invoices accordingly. And with the technology evolving all of the time, most of the better platforms are AI-driven, which means they learn and evolve the more they interact with your business.
So the next time you make a purchase and start to put that receipt in your wallet to deal with later, take a moment to snap a photo instead. Many solutions will allow you to do that directly in the app so that the photo is automatically linked to the transaction.
Open a Business Bank Account
If you don’t set strict boundaries between your personal and professional finances, the cleanup process was likely pretty hairy. A simple solution in the future is to make sure you have a separate account for business matters. Don’t think that because you own the business you have access to business funds for personal matters.
Instead, make sure to pay yourself from your business account through a “draw,” which can be done by bank transfer, check, or cash withdrawal. Set strict boundaries between your business and personal finances, and you’ll thank yourself later.
Bring In a Pro
Finally, consider whether your time is better spent on other areas of your business. Be honest with yourself about why you fell behind in the first place. Whether you need an in-house accountant to help you with your business or a software solution that can organize your information and take some of the burden off you, explore your options and do some research.
One thing is certain: your books need to be accurate. The IRS is pretty adamant about that fact. So if you don’t have the bandwidth to manage the books yourself, it may be time to call in some backup. For more information on accounting best practices and options, check out our blog.