How do I know if my books are in good shape?
Bookkeeping is something that everyone knows is important, but few people really understand what it really means to have “good books.” Whether you’re recording things yourself or looking to have a bookkeeper help you out, here’s a little checklist of what we look for!
Your accounting is done in QB Online (or other comparable accounting software)
All of your business related Bank and Credit Card accounts are connected, and all activity has been imported
Your accounts have been “reconciled” to their bank statements (more on that below)
Your “balance sheet” report reflects the correct bank and credit card balances, and no “extra” accounts
Your “profit and loss” (AKA Income statement) report reflects your total income and expenses for the period, and there are no negative expenses.
Your “other business expenses” is less than 5% of your total expenses, and/or you’ve re-categorized all of the items to more appropriate accounts
Your “Retained Earnings” (AKA “Capital Accounts”) matches the prior year tax returns
If you have payroll (Including S-corps), your total wages reported in your profit and loss agree with your payroll reports from your payroll service
If you can confidently check off each of those boxes, then CONGRATS your books are in good shape and you can give yourself a nice pat on the back! You’re ready to use them to talk about your finances or to get your tax returns completed!
If however, you’re not sure what some of those things mean or how to check them, you might need some bookkeeping support in your world. Below is a little more detail on what each of the above items mean, how to go about getting them in line, and at the end, a few recommendations of bookkeeping resources to get your books up to speed!
Do I have to use QB Online or can I just keep using your worksheet? For S-corporations and Partnerships with more than 250K in gross revenue or assets, we are requiring them to keep their books in a proper accounting software. We use QB Online often and have the ability to support it. If you use Xero, Freshbooks or some other system, we can speak to general accounting principles, but we won’t assist with bookkeeping or corrections in those systems.
Can I use QB Online Self Employed? Not for S-corps and Partnerships! QB Self employed is an expense tracker, but not a full accounting system and as such it can’t perform many of the functions needed to ensure your books are up to date and accurate.
What bank and credit card accounts should be connected? QB should be reflecting your business activity, so only your business accounts should be connected to it. Occasionally you may have “personal” cards or accounts that also have business activity in them. We do not generally recommend connecting these to QBO as they add more confusion, instead, reimburse yourself from the business account for those expenses.
How do I reconcile my bank accounts? Reconciling is the process of matching up your bank accounts in QB to the actual bank statement. Rather than reinvent the wheel with our own video, QB has a pretty nice explainer video here!
How do I know if my “Balance Sheet” report is correct? You can think of your balance sheet as a list of all of your assets (things that can be turned into money) and your liabilities (things that will take your money). The most common items to check on your balance sheet are your bank and credit card accounts. If you’re reconciled (the step above) then those balances should match. If you see other items you don’t understand on your balance sheet, then it might be worth getting some bookkeeping assistance.
How do I know if my “Profit and Loss” report is correct? You can thing of your profit and loss as the story of what happened with your money this year. It will reflect your total money that came in (Income) and all the different ways in which your money went out (expenses). Those figures should make sense to you, but if you find yourself scratching your head thinking those numbers are way off from what you thought happened, then it might be a good idea to have it looked at.
Where do I put all my “Other business expenses”? While the information that goes onto the tax return gets rather summarized in the process, we still need to understand the types of expenses you had so we can make sure they’re reported correctly. If you group most of your expenses in an account like “uncategorized”, “Other” or “Misc” we’re missing valuable detail on what those things were, and it creates a highly auditable item on your tax return. We prefer “misc” to be a relatively small line item on the returns, so please break those expenses out to other categories, and create new categories if you think the existing ones aren’t a good fit.
How do I make sure my “retained earnings” agrees to the tax return? This isn’t one that most DIY bookkeepers are taking on themselves, but an external bookkeeper or a service should make sure this is done. The basic idea is that you’re making sure nothing’s changed in the prior year’s books since the returns were prepared so we’re confident we have the correct starting point. If that number agrees to what it was on last years S-corp or partnership return, then we have a pretty good confidence that nothing changed that will impact the current year, but if it doesn’t agree, then there’s often some work to be done to figure out why.
How do I record payroll correctly? Similar to the above, this isn’t something that most DIY bookkeepers do themselves, but any good external bookkeeper or service should definitely be doing. The tax return requires items like payroll, wages and taxes to be reported in a specific way, so it’s important that they are also reflected that way in the accounting records. Most payroll services will integrate directly into QBO and correctly post these transactions with just a little bit of setup. If you’d like some assistance with that, let us know!
OK, I think I need some assistance with my bookkeeping, what do I do?
There are a few ways you can get your bookkeeping in line and keep it that way:
We offer bookkeeping services! as well as budgeting, forecasting and CFO advisement. Packages start at 500/mo for quarterly updates and 1K/mo for monthly updates and we do offer cleanup services for new clients that need to get their books up to date.
Pro’s - It’s US! For taxes, we’ll get your books exactly as we want them, and for more frequent engagements you’ll also get the benefit of our 20+ years experience working with startups, ecommerce agencies and small businesses.
Con’s - We don’t always have new availability to take on bookkeeping clients
QB live Offers bookkeeping support! Packages start at $200/mo plus a cleanup/setup fee.
Pro’s - its’ cheap and integrated into a tool you already use.
Con’s - You may not always have the same bookkeeper, and they’re only handle the simplest of situations.
Bench is the other big name in bookkeeping! packages also start at $300/mo plus a clean up/setup fee.
Pro’s - also cheap, well established and all communication is in a single place
Con’s - They also only handle simple cash basis accounting, and they’re also always trying to upsell you into their tax support packages (which you don’t need if you have us!)
Pilot is the new player at the higher end of the robo bookkeepers. They offer bookkeeping starting at 500/mo, but if you’d also like to talk to someone about your books monthly, those packages start at 1,350/mo and go up from there if you want things like forecasting and budgets.
Pro’s - More robust services than QB or Bench, able to work with more complicated businesses
Con’s - Pricey for what is still essentially robo bookkeepers
Local Independent Bookkeepers! - In addition to the big services, there are a lot of small independent bookkeepers out there.
Pros - Dedicated person you can talk to and get support throughout the year, and many have complementary skillsets like 1099’s, payroll and sales tax support
Cons - Rates and experience vary, and many people will claim to be bookkeepers but not really be that great at it. We have a hard time finding great ones.
So what next? Obviously we’ve love to grow our relationship with you, but if we’re not available or you decide to go with one of these other services, hopefully you now know what to look for when evaluating whether you’re books are in good shape!