Have you cracked open your accounting software in a while? If your answer's a yes, then good job! But if you answer no, you might be heading toward troubled water.
But why? You might wonder.
Well, the truth is, it doesn't take long for your books to fall behind when your business grows exponentially, which can lead to non-compliance with the IRS. This is exactly where 'Catch-up bookkeeping' comes into the picture.
Simply put, catch-up bookkeeping helps you find mistakes in your books and get them up-to-date. Besides giving you a clearer picture of your revenue, catch-up bookkeeping helps you get your business’ account receivables and payables in order. Plus, managed books help you stay compliant during tax season.
This guide explores everything that falls in and around catch-up to help you start on the right foot.
You could be months or years behind on your bookkeeping, and catch-up service will help you quickly get your books in order. Generally, business owners like yourself hire the services of a bookkeeper, but you can do it yourself, too. But since catch-up involves a lot of number crunching, it's better to outsource this task to dedicated professionals. Doing so will save you time and effort and ensure that your books are in good hands.
Now let's take a look at some of the common scenarios where catch-up bookkeeping comes into play:
This is one of the most common situations where small businesses must catch up on bookkeeping. When your business is growing rapidly, keeping up with the books becomes difficult. And as a result, your books can quickly become outdated. This can lead to several problems, such as:
You might miss out on important tax deductions that can save you money.
You could make costly mistakes in your bookkeeping that can hurt your business in the long run.
Your financial statements might not be accurate, which can make it difficult to get financing from lenders or investors.
This is another common scenario where catch-up bookkeeping comes into play. If you last looked at your books a while ago, likely, they're not up-to-date. And as a result, you could miss out on important information that can help your business. For example, if you're not keeping track of your receivables, you could be losing money that's owed to you. Or, if you're not tracking your inventory, you could be overstocking items that aren't selling well.
Tax season can be a nightmare if you don't keep up with your bookkeeping. This is because you'll need to gather your financial information and organize it before filing your taxes. If you're not prepared, this can lead to costly mistakes, such as overpaying or underpaying your taxes.
Now that we've covered some common scenarios where catch-up bookkeeping is needed let's look at when your business might need it.
If you're adding new accounts to your bookkeeping, it's important to ensure they're properly set up. This includes setting up the correct chart of accounts and linking the accounts to the appropriate transactions. If you don't do this, your bookkeeping will be inaccurate, and it will be difficult to track your finances.
If you have unreconciled transactions, it's important to reconcile them as soon as possible. This ensures that your bookkeeping is accurate and up-to-date. However, unreconciled transactions can also lead to problems, such as overstating your income or expenses.
If you're migrating to a new bookkeeping software system, it's important to ensure that all of your data is properly transferred. This includes transferring over your chart of accounts, transactions, and records. If you don't do this, you could lose important information or have inaccurate bookkeeping.
If you need to prepare reports for your bookkeeping, it's important to ensure they're accurate. This includes preparing financial statements, tax returns, and other reports. Hiring a professional bookkeeper is always best if you're unsure how to prepare these reports.
If you aren't being paid correctly, it's important to find out why. This includes understanding your invoicing process and ensuring that your clients pay promptly. If you're not being paid correctly, it could be due to bookkeeping errors, such as incorrect invoices or unrecorded payments. In fact, bookkeeping mistakes are one of the major reasons why small businesses don't get paid on time.
If you're thinking about selling your business, it's important to have your bookkeeping in order. This is because potential buyers will want to see your financial records to get an idea of the health of your business. It could be difficult to sell your business if you don't have up-to-date bookkeeping.
Now that we've underlined the scenarios that help you understand why you need to keep your books updated, let's take a look at the steps you need to follow.
If you're going to catch up on your bookkeeping, the first step is to gather all of your receipts and documentation. This includes invoices, bank statements, credit card statements, and any other financial documents. Once you have your documents, you'll need to organize them. This will make it easier to input the information into your bookkeeping software.
If you don't already have a chart of accounts, now is the time to create one. This will help you organize your bookkeeping and ensure that your transactions are properly categorized. When creating your chart of accounts, be sure to include all of the relevant information, such as:
**1. Customer Invoices** Customer invoices are necessary as they help in bookkeeping and tax filing. Furthermore, keeping track of customer payments is easier if you have their invoices. Customer invoices are exactly where you keep track of your bookkeeping when you offer services or products on credit. **2. Debt Collections** If you are bookkeeping for a business, sooner or later, you will come across debt collections. This is an important bookkeeping task as it helps you track the money owed to your business. **3. Business Expenses** Business expenses bookkeeping is important as it helps you keep track of the money going out of your business. This includes things like office supplies, utilities, and other business expenses. **4. Vendor Accounts** Another important bookkeeping task is keeping track of vendor accounts. This includes things like invoices, payments, and other transactions.
The next step is to reconcile your bank accounts. This means matching your bank statements with your bookkeeping records. This will help you identify any bookkeeping errors and ensure that all of your transactions are accounted for. Reconciling your bank accounts comes in handy when you are bookkeeping for small businesses. This helps in keeping a tab on the accuracy of bookkeeping.
If you've been mixing personal and business expenses, now is the time to separate them. This will make tracking your business expenses and preparing your taxes easier. You can use bookkeeping software to track your expenses or create a spreadsheet.
If you're still using paper records, now is the time to go paperless. This will make it easier to store and organize your bookkeeping records. Plus, you'll be able to access your bookkeeping records from anywhere. State-of-the-art bookkeeping software, like Fincent, can help you grow exponentially. Bookkeeping software can track expenses, create invoices, reconcile bank accounts, and more.
If you are bookkeeping for a business, you'll need to collect W-9s, 1099s, and W-2s from your employees and contractors. These forms are necessary for tax filing. Let's shed some light on how and why.
- Independent Contractors: Form W-9 & Form 1099-Misc
As a bookkeeper, if you make payments to independent contractors, you need to have them fill out a Form W-9. This form provides your business with the contractor's taxpayer identification number (TIN). You'll use this information to prepare a 1099-Misc form, which you'll send to the contractor and the IRS.
- Employees: Form W-2
If you are bookkeeping for a business with employees, you'll need to prepare W-2 forms for each employee. This form reports an employee's annual wages and the amount of taxes withheld from their paycheck. You'll need to send copies of the W-2 form to your employees, the Social Security Administration (SSA), and the IRS.
As you can see, bookkeeping is crucial for businesses of all sizes. And, if you're not already bookkeeping, now is the time to start. The good news is that bookkeeping is relatively easy, especially if you use bookkeeping.
Catch Up bookkeeping by Fincent is the perfect solution for business owners looking to get their books sorted quickly. It's a powerful software that automates bookkeeping tasks, like reconciling expenses, managing payments, and preparing tax filings. Plus, it has all the features you need to manage your bookkeeping, like invoicing, tracking expenses, and managing vendor accounts.
Keeping up with your books is very important for your business. Because if you're not keeping up with your books, you could miss out on important information that can help your business prosper and could make costly mistakes that can hurt your business in the long run. Therefore, catching up on your bookkeeping is important to avoid these problems.
If you need help in getting your books in order, consider trying Fincent.