How to Catch Up on Long Overdue Bookkeeping
Before you start reading: The process I’ll outline below is suitable for sole proprietorships and single-member LLCs not taxed as an S-Corp. If that’s you, YAY! Keep reading.
Also: I lay out ALL the steps you need to catch up in this blog post. AND. About 2/3 of the way into the post, I show a demo of a paid template I created to make this process easier. Just wanted to let you know ahead of time.
With that said, let’s jump in!
So you’ve fallen a bit behind in your bookkeeping. And by “a bit” I mean 6 or more months. Maybe it’s April 10th and you need to do an entire year’s worth of bookkeeping in a day or two. Well, I’ve got you. Read on, my friend!
Why you’ve fallen behind:
There are a few main reasons why most people fall behind in their bookkeeping:
It’s important but not urgent. Other than taxes being due in April, there’s no inherent deadline, so it’s easy to put off bookkeeping for something more urgent, especially if bookkeeping isn’t your favorite thing to do in the first place.
Lack of know-how. If you don’t know HOW to do your bookkeeping, of course you’re going to let it fall by the wayside! Learning something takes time, and that’s something we all seem to be short on these days.
Your numbers aren’t where you want them to be. If your business isn’t doing as well as you wish it was, it can be hard to look at your numbers. As one of my clients put it, “I didn’t want to see how big of a failure I was”. (I gently reminded her that SHE wasn’t a failure. But that’s another post for another day.) With all the love, though, not doing your bookkeeping isn’t going to change the numbers. It just means you have one more to do that’s looming over you.
Bookkeeping means “things are getting real”. This can be the other side of the coin of the point above. If your business is going gangbusters, it can bring up a lot of feelings. Maybe you weren’t expecting things to take off so quickly. Maybe you’re afraid of not being able to sustain the success. Either way, as I mentioned above, not doing your bookkeeping doesn’t change reality. In this case, though, it might mean you get walloped with a tax bill way bigger than you were expecting!
Or it may be something else entirely! If none of the points above rang true for you, that’s okay! There are as many reasons to fall behind on your bookkeeping as there are people who run businesses.
Whatever your reason is, please be assured: I see you. You’re doing the absolute best you can. Please don’t get down on yourself. You can do this.
And now, the actual steps to catching up:
Step One: Forgive yourself.
As I mentioned above, you’re doing your best. At any given time, we’re ALL doing the very best we can with the resources we have available to us. When you take away any judgment about what falling behind on your bookkeeping “means”, it’s a LOT easier to move forward with getting caught up.
Falling behind doesn’t mean you’re lazy, unfocused, bad with money, or a doofus. It simply means you fell behind on your bookkeeping. Do you need to eventually catch up? Yes! But beating yourself up doesn’t help at all.
Step Two: Learn what numbers are important, and what aren’t.
Let’s be clear: if you’ve fallen 4, 6, or 12+ months behind on your bookkeeping, the time that data for making strategic decisions about your business has passed. (And that’s okay! See step 1 about forgiving yourself!). The ONLY thing we care about now is gathering data to use to file your taxes. (Again: THAT’S OKAY!).
Give that, the only numbers we care about are the numbers the IRS cares about. And for sole proprietors and single-member LLCs, the ONLY thing the IRS cares about is income and expenses.
They DON’T care about how much you paid yourself, what your bank balances are, if you have any loans or credit card debt. (Why? Here’s why! <- link to “How to pay yourself as a business owner)
So, YAY for that! We don’t need to track how much you paid yourself or go hunting for bank or credit card balances. Woot!
Step Three: Gather income data
The easiest way to gather your income info is to go directly to the source. If you’re reading this, you’re probably some type of online business owner. Which means people pay you over the internet. Which almost certainly means you use some sort of payment processor to, well, process those payments.
So instead of pouring over bank statements and possibly missing a deposit, go directly to your payment processor (or course platform or CRM) and get them to tell you how much income you made!
Payment processors like:
Stripe
PayPal
Square
Course platforms like:
Teachable
Thinkific
CRMs like:
Honeybook
17Hats
Log into your account, and run a report showing your revenue for the period in question. *brushes off hands* Easy peasy.
Note: if you made over $600 in revenue your payment processor/course platform/CRM will probably issue you a 1099 in January. That’s another way for you to gather info on your revenue!
Step 4: Gather expenses
I know. This is the hairy one. But it probably doesn’t have to be as painful as you might expect. (Brains, man, am I right? They are SO good at making mountains out of molehills. It’s what they DO. Like, evolutionarily speaking, I mean. That’s what they are DESIGNED to do. So let’s give them a break. They are just REALLY good at their job!)
Here’s my tried and true, let’s make this as easy as humanly possible, process:
Log into your credit card or bank account. (ie any account where you have business expenses)
Export all the transactions for the period in question into a CSV or Excel file. (Hint: you’re looking for an “export” option, not monthly statements.)
Repeat for all relevant accounts.
Copy and paste everything into one big Excel/Google Sheets/Numbers file (whatever spreadsheet software you prefer)
HERE’S THE MOST IMPORTANT PART: Sort everything by description. That’s right. By description. Not date. This way all the charges to your website host are together, all the charges to Zapier, to Google, to Amazon are together. This makes the So. Much. Easier to go through. (If you’re eyes are starting to glaze over, jump down to the video below. I created a premium template to make this WAY easier!)
Add an expense category to each line. (Need some help on what categories to use? Here’s a giant cheat sheet to get you off on the right foot!) This is going to be way easier now that you’ve sorted everything by description. Hint: For anything that’s not an expense, you can put the category as “Not Applicable”.
Sort the spreadsheet again, but this time by category. (This puts all your software subscription expenses together, all your office supply expenses together, etc.)
Sub-total each category.
Bada-bing, bada-boom! You’ve just done your bookkeeping, baby!
It might not feel like it, but you have! You’ve gathered data for everything the IRS cares about: your income and your expenses. Time to celebrate!
Not-so-subtle quickie sales pitch: the template that comes with my “How to Catch-Up on Long Overdue Bookkeeping” workshop makes this SUPER EASY, and actually takes out a step or two. Here’s a 90-second video showing you the highlights.
If you’re interested in the template/workshop, you can purchase it here. (It’s $25, so it’s not going to break the bank!)
Step 5: Combine with previous bookkeeping (if necessary)
If you were using bookkeeping software for part of the year, but petered out, run a profit and loss statement (also called an Income Statement) for the dates where you were keeping up and the software has accurate data. Combine those numbers with the income and expenses you just gathered. (Hint: make sure nothing overlaps. You don’t want to double-count anything!)
Step 6: Bridget the gap if necessary.
Meaning, if you were using bookkeeping software, fell off the wagon (so to speak), followed the above steps, and now want to go back to using the software. This is where things admittedly get a little tricky. So if you need help with this situation, contact me! Let me know what software you’re using, and I’ll give you some tips specific for your situation.
Tips, Tricks, and Mindset:
Here’s my best advice for going through this process:
Do not UNDERESTIMATE income. The IRS doesn’t look kindly on that. When in doubt, round up.
Do not OVERESTIMATE expenses. The IRS doesn’t look kindly on that, either! When in doubt, round down or leave it out completely.
Yes, assigning categories to months of transactions can get tedious. Take breaks when you need to.
Use the “5 second rule” - if you can’t tell what a transaction is after 5 seconds, move on to the next one. Don’t get bogged down trying to remember what you bought at Target 7 months ago. Just move on.
Because remember: nothing bad is going to happen if you don’t claim Every. Single. Business expense. You’ll pay a bit more in a taxes, yes, but probably not as much as you think. I mean, yeah, if you spent $5000 on a mastermind, you want to be sure to include that. But don’t tear your hair out trying to track down ever $12 info-product you bought or $3.99 you spent on pens in Staples. It’s not worth your sanity.
And that, my friend, is how you catch up on long overdue bookkeeping. I know you can do it.
