My Books Need to be Cleaned Up – Should I Do it Myself?
The short answer is yes, while some things are better left to the professionals there are some things can be done on your own for your financial books. If you think (or know) that your disorganized financials are keeping your business from accelerating to the next level, and want to learn more about how to fix them, then keep reading. Making informed decisions at your firm should involve a regular evaluation of your financials, but if you’re books are too messy to provide you with the information you need, it’s no wonder that growth or success may have stalled. Believe me, you’re not alone. Many companies face the same problem. The choice then becomes what to do about it.
The truth is, if you don’t have clear books and records that are organized to help you evaluate key performance metrics, it is very difficult to make informed decisions that will help you continue to grow or improve your business effectively. Whether your books are a total mess or were never really set up properly, do not worry, it is possible to transform them and get back on track. If you have specific goals or objectives that you would like your company to achieve, your financial reporting must be set up to provide you with proper performance evaluation. So, let’s focus on what you can do now.
How to get started
You should begin by thinking about the story you want your financials to tell you about how you are doing when it comes to your objectives. What are your ultimate goals? Even if you’re not financially-minded, if you start thinking this way, you will begin to identify which metrics are critical to achieving your goals and you can start fixing some of your reporting issues to help you improve how you assess these metrics.
The Most Common Problems That You Can Fix on Your Own
While every company is different, there are some common bad habits we see that many of our clients have formed in maintaining their books and records. They are also things that either you or your internal financial resource can help you fix. They include:
- Activity That was Never Cleared, Leaving Your Books Out of Balance
Many business owners reconcile account balances but often don’t address items that get recorded in the books but never show up on the company’s bank or credit card statements to be “cleared.” As a result, accounts end up over- or understated over time – making it seem like you have more or less money that you actually do. Often what happens is uncertainty about where a transaction belongs leads to ignoring it. Eventually, these small transactions turn into thousands of dollars that can no longer be disregarded. The most common accounts that end up distorted include credit cards, bank accounts and lines of credit. We understand, as a busy business owner, you likely struggle to find the time or dislike managing the details necessary to monitor transactions and ensure they are in the right place for the right amount. But don’t let this become a habit. Putting off resolving these accounts will only make imbalances more difficult and costly to correct in the long run.
To resolve these issues, make sure to establish a simple process to review transactions that do not show up in monthly statements and include this in your monthly procedures to confirm everything gets posted to the right account for the right amount. Ensuring these transactions are included will reduce the likelihood of forgetting where they belong, making it less likely that you will leave anything unresolved.
- Falling Behind on Settling Receivables and Payables
The most common issue we see here is with accounts receivable. Invoices have been paid by clients but the proper entry was not made to connect the invoice to the payment, thus the receivable appears outstanding. This also happens with accounts payable too to a lesser degree. Often, an expense ends up booked twice, overstating the company’s true costs. In either case, your financial statements and reports are not up-to-date. Without current information, it then becomes difficult to make sound business decisions or address problems that may go unnoticed.
When receivables or payables go unsettled for a long time, it is common to mistakenly delete transactions in an attempt to get the accounts to reconcile, not realizing the impact this has on other accounts. In QuickBooks, for example, transactions are linked together so if you change or remove one, you may be inadvertently deleting other transactions attached to it. This often results in bank accounts, accounts receivable and accounts payable balances that are totally out of whack. So be careful when reconciling these accounts and make sure you complete this reconciliation properly.
We recommend creating a process for reconciling receivables and payables and carving out time each month to ensure the process is done properly. Not only will this help you keep your books up to date, it’ll help you manage cash flow by ensuring you are on top of which clients owe you money and what you owe to your vendors.
- Not Properly Accounting for Credit Card Activity
Many firms do not take the time to properly record bookkeeping entries for each credit card transaction separately and only account for them as a lump sum balance or payment. While it may seem easier to handle as a lump sum, you are actually setting yourself up for bad reporting and more work in the long run. By not breaking the balance down into individual purchases, you forgo insight into your company’s spending habits, leaving you helpless when trying to evaluate financial metrics (like changes in profitability). This short-sighted approach not only costs you the transparency of your financial reporting but can be especially problematic if you pay vendors with credit cards and have to search through old statements to prepare 1099s. Trying to rectify this down the road can be a very daunting and expensive task.
We strongly recommend that companies take the time to properly account for each credit card transaction separately. By categorizing everything, all of your transactions will be assigned to the proper expense bucket and vendor, leaving you with more clarity on your spending and streamlining other parts of your financial reporting process.
Your financial statements are a tool that can be used to help you make better, more informed business decisions. But informed decisions cannot be made if your books are a mess. While some clean up should be done with the help of a professional, there are some things you can and should take on yourself. By focusing on creating better habits with these three common mistakes, you will set yourself up for better, more transparent financial reporting. And remember, putting off correcting your books is a terrible mistake that will cost you dearly in the long run.
If you need help fixing your books or would like to discuss how you might improve your financial reporting process, we would love to help. professionals have over 15 years of experience developing and reporting on key financial metrics and have helped hundreds of firms grow and improve their business. Give us a call at 303.249.4687 or email Christina at firstname.lastname@example.org to set up a time to discuss your business and its goals.
Christina Griggs is a financial expert and spreadsheet maven that has spent her entire life in and around the business world. Christina has worked as a short-interest trader in London, as an investment advisor with Dean Witter (now JP Morgan), as CFO for a corporate housing firm and CFO for an eCommerce marketing agency. This experience, along with her client work at Gemsbok allows her to continue to cultivate her enthusiasm for financial analysis. Visit our website or contact us for more information on our firm and services.
 A good test in QuickBooks is to switch the balance sheet to a cash basis – both accounts payable and accounts receivable should go to zero – the only exception is when there is an outstanding credit.
 This can be done two ways. First, you can download the transactions from your bank and then categorize them in your accounting software accordingly. While this may seem like the most efficient way to enter in the transactions, it often can be more time consuming. The reason for this is that many stores have their own store number or identifier and the software recognizes them as different transactions, leaving you to enter each one individually. Alternatively, it may be simpler to enter the transactions manually. In QuickBooks, this is done through “Enter Credit Card Charges” under the banking function.