I know you didn’t start your wedding business to do bookkeeping but it is an essential part of running a business. It may be tempting to ignore your bookkeeping until tax season but that’s only going to cause more stress and headaches for you. In this post, I’m going to show you how you can catch up on bookkeeping and make sure you never fall behind again.
Getting Caught Up With Your Bookkeeping
I use Bench for my bookkeeping so I don’t have to play catch up but if you’re still DIY-ing your books, this step-by-step guide will help you get through your bookkeeping backlog in no time.
Step 1: Collect Receipts & Invoices
Start by collecting all receipts and invoices related to your business expenses. There are many different types, so here’s a rundown of the most important ones.
Review your customer accounts and double-check that you’ve collected all customer invoices for the tax year. If not, this is your opportunity to try to collect on those!
Review your customer accounts for any bad debt expenses (AKA when a customer doesn’t pay). In order to deduct the cost of bad debt from your tax return, you have to prove to the IRS that you have taken reasonable steps to collect the debt. Bad debts can be claimed by using either the specific charge-off method or the nonaccrual experience method. Your accountant or tax preparer will be able to advise you on that.
Don’t have one? I highly recommend working with one because, at least in my experience, they save you more money on taxes than they cost. They’ve helped me maximize my deductions and learn about ways to cut my tax bill that I would have never known about.
They also ensure everything gets done right. I recently had an issue with the IRS where they claimed I owed more than $10,000 that I knew damn well I didn’t owe because I knew everything had been done right.
I was able to go through it with my accountant and he prepared a letter for me to send that made the IRS realize they were in the wrong. He didn’t charge me for that. He just did it for me because I work with him on my taxes each year. That alone is worth $10,000 to me and that’s nowhere near what I pay him to do my taxes.
Collect all of the receipts from the business purchases you have made during the tax year. Use this handy list of small business tax deductions to double-check that you’re tracking and claiming every deduction available to your business—because who doesn’t love saving on taxes?
Review your vendor accounts to ensure that you have paid them all in full. Make sure you have a copy of every bill from each vendor activity and, if you don’t, contact the vendor and ask them to send you a copy.
Step 2: Reconcile Your Bank Records
Reconciling your bank records accomplishes two things: 1) It ensures you don’t miss any business expenses or important records from Step 1, and 2) It helps you catch any mistakes your bank may have made.
You can do this by comparing each transaction from your bank statement with the same transaction in your accounting records. If the transactions don’t match, identify and fix any errors to ensure they balance out.
Many bookkeeping tools will do an automatic import from your business bank account(s) and business credit card(s). This is great and super helpful but I’ve found errors in these in the past. Make sure you print out your bank statements for the tax year and compare them to your bookkeeping tool.
Step 3: Separate Personal and Business Expenses
Keeping your personal and business expenses separate makes things clean and organized but if you have an LLC or corporation, there’s an even bigger reason to keep business and personal expenses separate. As a separate entity, a corporation or limited liability company (LLC) is set up to “shield” the owners of the corporation (or members of the LLC) from personal liability for the debts, negligence, or mismanagement of the business.
That can all go out the window when you start commingling personal and business expenses. This is known as “piercing the corporate veil” which may result in you being held personally liable for your business’s debt and actions. The sooner you separate your business and personal expenses, the better. If you don’t currently have a business bank account, open one today and keep all of your business and personal expenses totally separate.
If you’re unsure about whether a purchase qualifies as a deductible business expense, you can learn how the IRS differentiates personal and business expenses here.
Step 4: Create Digital Records
If you haven’t already transitioned to running a paperless business, you should consider it as you work through your records. As you process your paperwork, create digital records of receipts and important documents.
This is as simple as taking a photo of a document or scanning it, uploading it to Google Drive or Dropbox, and shredding the original. You never have to worry about losing it or that weird receipt ink fading beyond recognition. Some tools like Wave and Quickbooks have their own apps for this.
Here are a few tools to help you go paperless:
Step 5: Submit Forms for Contractors & Employees
If you paid independent contractors and/or employees during the tax year, there’s a good chance you’ll need to file the following forms:
Independent Contractors: Form W-9 & Form 1099-MISC
If you paid an independent contractor more than $600 for work during the year, you’ll need to submit a Form W-9 and a Form 1099-MISC. A W-9 requests a contractor’s taxpayer information. The contractor completes this and returns it to you. You then use the information on the contractor’s W9 to issue a 1099 to the IRS.
Employees: Form W-2
You’re required to file Form W-2 for all employees.
How Keeping Your Bookkeeping Up-To-Date Helps You
We often think about bookkeeping as one of those things we have to do to be in compliance with the government and pay taxes, but that’s not the only reason to keep your bookkeeping up-to-date. Keeping your bookkeeping up-to-date actually helps you in a lot of ways.
It Helps You Manage Your Money Better
Up-to-date bookkeeping means knowing how much you’ve spent, and how much you’ve earned. That’s very important information for the day-to-day operations of your business.
Recording your expenses regularly can ensure that you are financially aware all year long, and not just during tax season. Knowing where your money is going and how much you’re spending can improve your spending habits and help you be more profitable. Plus, you’ll have a better idea of where you can allocate money to positively impact your bottom line.
You Can Stick To A Business Budget
Budgets are a lot like strategic plans. They’re great but it’s one thing to create one and have good intentions for it and another to stick to it. When you do regular bookkeeping, you can see where you’re tracking against your budget plan, and you can make changes on the fly as you need.
You Can Get A Loan
Let’s say you want to expand your business and to do that you want to take out a loan. In order to do that, you’ll need to present up-to-date financial statements. I saw this really mess people up when they applied for COVID assistance because they couldn’t tell the SBA how much money they made each month without sitting down and spending a ton of time updating their books.
The three key financial statements you’ll need to get a loan for your business are the income statement, the balance sheet, and the cash flow statement. These three statements let you know, respectively, how much money you’re earning, how your expenses affect your revenue, and how money is moving throughout parts of your business. These statements aren’t accurate if your bookkeeping isn’t up-to-date.
You Can Adjust Your Profitability
How profitable are each of your products or services? How much do they cost you to deliver? If you can understand the expenses associated with each product or service clearly, you can increase your profitability by either increasing prices or cutting your costs. Those adjustments are much harder to make when you don’t have real numbers to go off of.
You Can Check The Pulse Of Your Business
Do you ever feel like you’re not doing enough or that you’re somehow failing even though you don’t have anything to back that up? Sometimes I feel like I’m behind where I was last year and I absolutely hate that feeling. So instead of sitting in that anxiety-ridden state, I open up my bookkeeping reports and check. Most of the time, I’m pleasantly surprised at my progress but if I’m not, I can make changes on the fly to catch up to where I want to be.
You Can Skip The Tax Season Stress
Every year, I see wedding pros struggle to get their bookkeeping up-to-date so they can file their taxes all while trying to market and book weddings during engagement season. That’s an optional struggle.
When your books are up to date, tax season is easy. Now that I use Bench for bookkeeping, I’m one of the first of my accountant’s clients telling him that I’m ready to get tax filing out of the way. It requires almost no work on my part. All I do is upload the reports for my accountant and let him take it from there.
How To Stay Up To Date With Your Bookkeeping
Now that you’re caught up with your bookkeeping, how do you stay up to date and make sure you don’t fall behind again?
If you’re doing your bookkeeping yourself, you have to set up systems to make it as easy as possible for you to get your books up to date quickly. That means using a tool like Quickbooks or Wave, setting up automatic imports from your business bank account(s) and business credit card(s), and creating a recurring appointment with yourself to do your books each month at a minimum.
Set aside 30-60 minutes each month in your calendar right now and treat it like an appointment with a client. This is your time to do your books each month so they stay up to date. If you prefer to do them weekly, go for it. Just make sure you have a regular appointment with yourself so it actually gets done.
If you want to take the easy route and get bookkeeping off your plate entirely, use Bench. Bench gives you a team of bookkeepers who do all your bookkeeping for you. They automatically import transactions, categorize them, and prepare monthly financial statements for you.
I spend less than 5 minutes per month on my bookkeeping. All I have to do is log in and categorize an expense if my Bench bookkeeping isn’t sure how to categorize it. Outsourcing my bookkeeping has helped me free up time to work on revenue-generating activities, made tax season way less stressful, and helped me manage my money better and make better financial decisions in my business.
If you’re ready to outsource your bookkeeping, click here and start a free trial with Bench. If you’re anything like me, you’ll wonder why you didn’t do it sooner.
I’m an affiliate for Bench because I use them and love recommending them so I’m able to hook you up with a trial via this link. If you decide to sign up for Bench, I may earn a small commission at no additional cost to you. Whether you decide to use Bench, another bookkeeper, or continue to do your bookkeeping yourself for the time being, make sure you set up a system to ensure it actually gets done.