BUSINESS ARTICLES
Signs That Your Books Need to Be Cleaned Up
Running a business involves juggling many tasks, but keeping accurate financial records is crucial. Disorganized or neglected bookkeeping can lead to cash flow issues, tax troubles, and financial instability.
To avoid these risks, watch for key red flags that indicate your books need a cleanup.
1). Negative Cash Flow
Cash flow is vital to any business—if you can’t pay your bills or staff, your business won’t survive. Negative cash flow means you need to review your billing practices. Make sure you have a set billing schedule, clear payment terms, and effective collection practices.
2). Missed Bank and Credit Card Reconciliations
Monthly account reconciliation is critical for accurate financial records. This process ensures your records align with bank statements and transaction documents. Forgetting about reconciliations can lead to errors, missing expenses, and a skewed financial picture, putting your business at risk.
3). Unknown Profitability
To determine if your business is truly profitable, you need clear and accurate financial reporting. Up-to-date financial statements should include accurate revenue and expenses. If your reports are unclear or difficult to understand, consider reviewing your account list—financial reports are only valuable if they provide meaningful insights for decision-making.
4). Overdue Payments
Missed or overdue payments on bills, loans, or other obligations might be a sign of disorganized bookkeeping. Late payments can harm your business’ reputation and financial stability. Reviewing your Accounts Payable report regularly helps track liabilities and keeps payments from falling through the cracks.
5). Uncleared Transactions
An often-overlooked red flag is uncleared bank or credit card transactions. These are entries that were recorded but never posted to a statement. Discrepancies like this can distort financial reports, leading to overstated or understated figures on the Profit & Loss statement and Balance Sheet. Routinely reviewing and reconciling accounts helps verify your business’ financial reporting.
6). Mixing Personal and Business Funds
Keeping personal and business finances separate is essential for accurate bookkeeping, tax compliance, legal protection, smoother audits, and a more professional business image.
How to Review & Evaluate Your Books
Reviewing your books is the first step in cleaning them up. While you may not know how to fix the mess, you can run the following reports and look out for warning signs.
Here are some key reports you should be looking at monthly:
- AP Aging: Make sure all open bills are listed on this report. There should be no negative balances and nothing over 90 days unless a payment arrangement has been made.
- AR Aging: Double check that all open invoices are included on this report, there are no negative balances, and nothing over 90 days without open customer communications.
- P&L Detail: This report can help you see how your activity is being recorded. It’s important to see how your bookkeeper is categorizing your business activity.
- Last Month’s Bank Reconciliation: Check any uncleared transactions. There shouldn’t be anything older than 3 months that hasn’t been cleared.
By regularly reconciling each account, you can identify and correct discrepancies, paving the way for more accurate and reliable financial records.
Why Clean Books Matter
Maintaining clean and up-to-date books doesn’t just save you time and stress—it also helps you make better financial decisions and may even lower your tax burden. When your books are organized, you’ll have the financial clarity to plan for growth, secure loans, and avoid penalties for late payments or tax filing errors.
Let Dugan + Lopatka Help
Managing your books doesn’t have to be overwhelming. Dugan + Lopatka CPAs offer expert outsourced accounting services to help you get back on track. From reconciling accounts to creating transparent financial reports, our team is here to handle the details so you can focus on growing your business.
That’s Accounting for What Matters.