What Does a Bookkeeping Cleanup Include? A Guide

Helping business owners gain financial clarity, improve cash flow, and increase profitability.

What’s Covered on This Page

• A Bookkeeping Cleanup is Far More Extensive Than Just a Transaction Re-Categorization
• Bookkeeping cleanup happens in a specific order
• How do I know if my books actually need a cleanup or just regular monthly bookkeeping?
• What happens if I only fix the big, obvious errors and skip the small ones?
• As a home service contractor in Teaneck, why does bookkeeping cleanup matter more for my type of business?
• Can a bookkeeping cleanup help me make better business decisions, not just fix tax problems?
• Is a bookkeeping cleanup a one-time fix, or will I need it again?
• What’s a common mistake Teaneck business owners make that leads to needing a bookkeeping cleanup?

Need what does a bookkeeping cleanup include? everything you need to know?

973-453-5052

Book A Free Consultation. Call Capgro Bookkeeping Services LLC now.

A Bookkeeping Cleanup is Far More Extensive Than Just a Transaction Re-Categorization

People usually think a bookkeeping cleanup is someone coming into your accounts and correcting a few transactions. Perhaps, correcting some expenses. And, really, there is only a fraction of bookkeeping cleanup. A proper bookkeeping cleanup involves a complete examination of all of your accounting records, including your general ledger, and every single transaction in each month you may have been missing or handling incorrectly. We have encountered client accounts here in Teaneck in which six months of deposits had been deposited into "Uncategorized Income," and the business owner never knew their accounts were that inaccurate.

Here is the scope of bookkeeping cleanup:

1. Reconciliation of Bank and Credit Card Accounts. This involves a line-by-line reconciliation of each bank and credit card account with the bank statement, identifying and fixing missing or duplicate transactions.
2. Transaction re-categorization. This entails moving expenses from the wrong accounts to the appropriate ones. A misplaced category affects the reports.
3. Elimination of duplicates. A duplicate transaction can skew your expenses and income, distorting profit.
4. Accounts Receivable and Accounts Payable Cleanups. Invoices that were paid but not cleared as paid? Outstanding invoices that are not outstanding anymore? These items must be resolved.
5. Closing out incorrect beginning balances. If your beginning balance was incorrect, it would make the rest of the account incorrect. Cleanup goes to the root cause.
6. Financial Statements that are Correctly Prepared. Following cleanup, the profit and loss statement and the balance sheet will be an accurate reflection of the financial position of the company.

It is the last bullet point that is at the core of it all.

The Failure of Minor Repairs

I have worked with contractors and tradespeople who had attempted to "clean up" their own QuickBooks files in advance of tax season. They had addressed the most glaring issues, the large, obvious, "obviously wrong" amounts. They hadn't found the small problems that accumulate over time.

A $200 expenditure recorded in the wrong category does not appear to be that important. But consider the effect of that $200 expense over 12 months, in three different areas. The financial statements would present an entirely different picture. According to the IRS, faulty bookkeeping practices are among the most prevalent issues small businesses are found during audits.

Here's something many people are unaware of until it's too late: Your records are not only relevant to your tax bill. It influences your business strategy. Can you add another crew member? Is it possible to get the new truck? You can’t answer them without first cleaning up your books.

What’s the Difference Between Cleanup and Regular Bookkeeping?

Regular bookkeeping is the month-by-month management of your books going forward. Bookkeeping cleanup is getting the books up to a manageable state if they’re currently a mess. You can’t manage your books from here to the next harvest unless you first get the books caught up to today. This happens all the time with new clients; a plumber in Teaneck calls to have us do their monthly bookkeeping, but their books have not been done properly for a few months and sometimes years. We have to fix it first and then maintain it going forward.

A home service provider in Teaneck or an excavator, contractor, or landscaper that works in Bergen County, needs to be able to tell what each job cost them expenses and what the profit margin was on each job. That’s what a bookkeeping cleanup does. We can’t tell that from the mess in your QuickBooks file. Bottom line, A Bookkeeping Cleanup is not a. You need a bookkeeping cleanup in order to put your financial records on a sound footing.

Signs that Your Books Need a Bookkeeping Cleanup

There are a number of tell-tale signs that it might be time to call the professionals. Most of the time this is something that business owners are not expecting until they are in the middle of tax time and suddenly are confronted by a mountain of problems, or their bank asks them for financial statements and they can’t produce them. Read more about bookkeeping cleanup

But usually this is just a symptom of problems that have been there from the get-go. We’re constantly hearing stories about home service contractors in Teaneck, and the surrounding towns, who run a service business, but never really keep any records of their work. They take care of a client all year long, then at the end of the year they pull out the receipts and stuff them into the shoe box, or file drawer, and get someone to input it into QuickBooks in their “spare time”. It’s no wonder that at the end of December you’ve got a QuickBooks file that is a disaster!

Let’s take a look at some common symptoms, red flags, that you may be needing a bookkeeping cleanup:

• Your bank accounts in QuickBooks and your credit card accounts don’t match your bank or credit card accounts;
• Transactions are sitting in your bank feed uncategorized for weeks and months at a time, and you don’t know what to do with them;
• You’ve been told that some accounts may have duplicate transactions entered, and you’re not sure what is going on;
• You’ve taken a look at your Profit and Loss, and it just doesn’t make any sense; or
• You can’t tell which of your jobs are profitable, and which have cost you money.

If any of the above are occurring then you’ve got a major problem with your books. If it’s two or more of them, then you definitely need to give your QuickBooks files the once-over. And let’s face it, this isn’t a brand new development; when your balance sheet shows a negative cash balance, but your bank account shows you have money in the bank, there must have been something wrong some time ago. The disconnect between QuickBooks and the actual reality of your business won't close on its own.

The Problem Most People Don't See

Dirty books do a lot more than complicate your tax season. They can conceal the real performance of your business. One contractor that we've worked with thought he was turning a significant profit on every roofing project. But his expense items weren't being recorded in the right categories. It turned out his actual profit margins were some 15% lower than he assumed. That's the sort of issue a bookkeeper finds after you've let a mess accumulate.

According to the non-profit SCORE, 40% of business owners identify bookkeeping and taxes as the most challenging aspect of operating a small business. That's often because of the frustration that comes with ignoring your records as month after month goes by.

But what exactly does a "messy" book look like? Consider a homeowner in Teaneck who runs all his landscaping business expenses through one bank account. Personal purchases like groceries or filling up his personal truck get combined with business outlays and incoming payments. Untangling those different transactions takes considerable work and focus. Until that's completed, all the reports from QuickBooks are incorrect.

A common sign that's often overlooked is old outstanding checks. Reconciling a statement and discovering checks from six months prior have not yet bounced requires some digging. Those items skew your cash balance and undermine your financial records.

And one more issue to look for. If your bookkeeping has changed hands or you've been managing books in-house after a bookkeeper has left, it's almost guaranteed that there will be gaps. Periods that have gone unattended create holes in your history. It's common for us to pick up files and realize three months of data have never been captured.

Does this describe your situation? Find out more about what bookkeeping cleanup can do to help at our Cleanup resources page.

That's not the end of the story. None of these issues are permanent. They just require a bookkeeper who knows where to look.

Bookkeeping cleanup happens in a specific order

Bypassing steps creates problems, and we regularly see this happen when helping home services businesses in Teaneck. Attempting to reconcile your business bank account when you haven't cleaned up your chart of accounts first sets you up to fall into that bad bookkeeping trap again in just a few weeks. Read more about bookkeeping cleanup

Bookkeeping cleanup follows a specific sequence. You can't fix Step C before getting Step A and B sorted out.

Our Bookkeeping Cleanup Steps

1. Review your books. Our bookkeeper will look at all the accounts in your bookkeeping file before making a single adjustment. We look for duplicates, missing transactions, and miscategorizations. This allows us to understand the extent of the issue and how far back it goes.
2. Fix the chart of accounts. Think of the chart of accounts as your filing cabinets. If the cabinets are mislabeled, the files go into the wrong drawers. We reconfigure your accounts so they align with how you actually run your business. So for a plumber or HVAC company, that could mean setting up accounts for jobs to enable you to monitor job profits.
3. Categorize and reclassify transactions. This is the biggest part of a cleanup. Every single transaction has to be in the right account. We take transactions that were left as "miscellaneous" or "uncategorized" and get them where they need to be. This is slow, and it's more important than everything else combined.
4. Reconcile all bank and credit card accounts. Once the transactions are in the right accounts, we reconcile them against your bank and credit card statements month by month. This uncovers missing bank deposits, payments that got made twice, and transactions that shouldn't exist at all.
5. Clean up accounts receivable and accounts payable. Invoices you've received for that you've paid, but never entered in the accounting system can add up quickly. We remove old balances so that you can get reports that show you what your customers actually owe you now.
6. Produce accurate financial reports. Only after all of the above work can your profit and loss report and balance sheet be relied upon to tell the truth about your business. You can see actual profits. Actual margins. Actual category spending.

Here is something that often gets overlooked in this discussion. The reason the sequence is important is that each step verifies the previous step. The most common reason your reconciliation doesn't match is that one of your transactions was categorized incorrectly in Step 3. This is why we do not deviate from the sequence.

What A Cleanup Looks Like in Practice

For instance, consider a landscape service company working near Votee Park in Teaneck. All summer they've been billing clients and recording their expenses all under one or two headings in QuickBooks. You've spent money on supplies, employees, gas, and machinery rental. Everything goes into that general "expenses" bin. They look at their P&L statement and they're making a profit. But they have no concept of which jobs were profitable and which ones bled cash.

When we come in for the cleanup, we break these costs down properly. We allocate the right expenses to specific jobs. All of a sudden, they can see that their residential lawn maintenance has healthy margins, but their large commercial project from June went $2,000 into the red once they add in the cost of labor.

That's how much clarity makes a difference.

So if your books look like a disaster area, odds are good they haven't had this done in the right sequence. Our bookkeeping follows this order exactly because we've seen too many shortcuts create even more problems down the road.

However, the exciting thing about bookkeeping cleanup is that it makes regular monthly bookkeeping. What's hard is doing the cleanup and getting caught up. Once that's done, it's maintenance.

Frequently Asked Questions

Common questions about what does a bookkeeping cleanup include? everything you need to know services in Teaneck

Ready to Get Started?

Book A Free Consultation. Call 973-453-5052 today.