Preparing your bookkeeping before a vacation

 Need a break from the office? Before taking a vacation, it’s important for both business owners and bookkeepers to prepare in advance and leave the office (and the books) in good shape.

You’ve been working hard, and you’re ready for that much-needed vacation on the beach that you booked months ago. But there’s a lot to do before you leave, including making sure your books are up to date and key functions in the office are covered while you’re away. 

Sometimes if you’re rushing through things before you leave, mistakes will happen. Though they can happen if you’re rushing through things independent of taking a vacation, too. The important thing to remember is that, in bookkeeping, there’s really no mistake that you can’t fix. 

If you have a clearly defined process for keeping your books, it should be pretty easy to prepare them before heading out on vacation. If you’ve been hobbling along without a clear process, it might take a little more time and effort, and your chance of making a mistake might increase a bit. It’s a good idea to look back over your work and retrace your steps to minimize the chance of making a mistake. 

If you do find a mistake, you can complete the transactions to adjust the books just like correcting income to a loan payment, for example. Identify the cause of the mistake and adjust your process to prevent similar mistakes from happening in the future. If you’re working with a bookkeeper, they can help ensure regular reviews of your books and a set process for revising any mistakes that may occur. 

Whether you’re the business owner functioning as a bookkeeper or you’re paying a bookkeeper, there has to be a process regardless. You could be on top of your game and still make a mistake. We are human. And that’s why you need a vacation! Just know that if you plan a vacation, you will have to do some extra work on the front end to keep your books current. You’ll have to do extra work after vacation to catch up as well. That’s true not only for your bookkeeping, but also for the rest of your business, of course.

If you are a business owner, it can be hard to walk away and take a vacation. But it’s important, and you should enjoy your time off! We all need vacations to recharge, and with some advance planning and a clear process for bookkeeping, you can ensure your business and your books are fine without you for a little while. 

Don’t delay finding a CPA

As the calendar turns to a new year, many small businesses start thinking about taxes. If you already have a CPA, great! If not, don't delay.

Certified Public Accountants are insured, have a code of ethics, and are, well, certified. Some work in specific industries, some have a focused niche, but any CPA is bound by professional ethics when completing a tax return for any client.

You have until around March 1st to find a CPA that will consider taking on your tax returns. After that, it might be difficult to find a qualified CPA who wants to take on new business. That can be a smoother process, however, if your records are already organized. If that's the case, you are in a position to hand off good financial statements to a tax preparer.

Many sole proprietors include a Schedule C with their personal return that is due April 15. But if your business is organized differently, your return may be due March 15.

If you find someone in early March who is willing to work on a return that is due March 15, they are probably going to charge you an extra fee; that, or they’re taking on the work because they don’t have anything else to do. (And you may want to ask yourself why.) However, if an available CPA is building a new business, it could be an opportunity to build a relationship that will benefit you both.

The CPA will ask you to sign an agreement acknowledging that you are responsible for the accuracy of the financial statements, and that tax returns will be filed based on those statements. They may have questions if there is missing information, but they don't analyze every transaction; that's why good, ongoing record keeping is important.

Finding the right tax preparer for your business

Periodically, I am asked to recommend a qualified tax preparer. Finding such a professional is like finding a qualified plumber, tree trimmer, or physician. Ask around, and get several recommendations from people you already know, like, and most importantly, trust.

Also, the IRS provides a guide to choosing a tax professional on its website, and there are links on that page with more information. Among them are the avenues to check on qualifications.

Here are a few things to consider as you look for a tax preparer for your business.

Is the firm or individual taking new clients?

Start looking long before your tax returns are due; good tax preparers are usually booked with existing clients, and simply won't take on a new client's returns right at tax time. If they do, the bill will, understandably, show it. Simply filing an extension request may fill the immediate need, but keep in mind the tax bill is not delayed.

What else can a tax professional help with?

A good tax professional will become a trusted financial advisor for you and your business. So first things first: determine what issues other than tax preparation you have about your business. Do you need guidance with any of the following:

– applying for a loan?
– improving your cash flow?
– taking on a partner, or exiting the business?

What questions should I ask?

Now that you know who is taking clients, and what services you need, here are some questions to consider asking of prospective professionals:

– What degrees, certifications, or training do you have?
– What is your experience with businesses in my industry, and of my size?
– Whom will I be working with, and how quickly will they respond?
– How do you set fees?
– What expectations do you have of me?

One last thing

When you submit your financial numbers and supporting documentation to your tax preparer, you likely sign a statement that says you’re submitting information that’s accurate and true to the best of your knowledge. When your tax preparer files your taxes for you, they sign a statement that says they’ve completed the filing based on information you provided. If the professional made an honest mistake, they often will pay any penalties and interest, but you are responsible for the actual tax bill.

Why documenting your processes is important

At the beginning of my solopreneurial career, I found myself stressing out when I faced certain tasks at one or another of my bookkeeping clients. Upon leaving, I was invariably longing for wine or chocolate. Or both.

That couldn't continue if I was to be efficient and successful, not to mention healthy! So I turned to two of my experiences in the corporate world.

For my first accounting job, I transferred from another department, and started out with zero accounting classes. But they needed me and I needed them, so we made it work. You better believe I wrote down everything. Years later when changing desks, I found those notes. I hadn’t used them after the first several months, but at the time they were invaluable.

Fast forward to another departmental transfer, where I utilized both my accounting experience and classes, but in a different capacity. My company was subject to FDA regulations, so processes were documented to the nth degree in most departments, including my new one. While getting all that documentation correct and in place was no picnic, the result was very gratifying. My coworkers and I went from thinking, "How do I...?" to "What's the name of that procedure where...?", to just getting busy and accomplishing the task.

So drawing on those experiences, it made perfect sense to document processes for my clients' needs, as well as for my own business. Processes done daily or even weekly generally become second nature pretty quickly, but bookkeeping usually involves monthly financial statements, and inevitably annual financial statements; it's those processes that can seem brand new either twelve times or once a year.

I highly recommend documenting your business practices, whether on paper or electronically. Make it as detailed as needed. Make a checklist. Make a flowchart. Whatever works for you is the right way to do it. The next time you do that process, follow your checklist or worksheet to see if you documented it correctly. If you didn’t, update the checklist or flowchart. As the relevant mantra goes: Document what you do, and do what you document. If either isn't right, figure out what needs to be changed.

When I took on a client in an industry new to me this year, I have again documented the heck out of things. (If I hadn't, the wine and chocolate thing would have resurfaced.) New client, new industry, new type of accounting and reporting: process checklists and flowcharts have been a life saver!

Oh, and in case the client is subject to a formal audit, which my new one is, well documented processes followed consistently go a long way to explaining what's been done and why.

Documenting bookkeeping processes and procedures is a service I provide for my clients. In addition to helping me provide good financial reports, there may come a day when the client grows enough to hire an employee to do the bookkeeping in-house. The new person can take the documentation and use it to ease their transition into that job.

It can be a challenge to find the time to document, but it’s well worth it.

How to properly record a loan payment

If you are like many businesses, you may have one or more loans on which your business makes regular payments. Write a check, and the payment is made! But are you doing the bookkeeping side of your loan payments correctly? Let's take a look!

What I see all too often is someone making a payment on their business loan, and then either showing the entire amount as an expense, or as a reduction in the loan amount.

Either of those is definitely the wrong way to do it!

When you obtain a loan, it generally comes with a document called an amortization schedule. (If the loan paperwork doesn't come with such a document, ask for it!) Amortization refers to the process of paying off a debt over time through regular payments. The loan amount may also be called the principle.

An amortization schedule shows the details of the loan: the original loan amount, the interest rate, the term over which payments are to be made, and the amount of each payment. This payment amount is further broken down to the portion applied to the loan (principle) balance, and the portion that is interest.

Since the payment consists of two portions, is makes sense those portions are recorded differently. So choosing to show the payment as all expense or as all debt reduction would be wrong.

Instead, when making the payment, usually via writing a check, the principle amount is recorded as a reduction of the debt, and the interest is recorded as an expense.

And, since loans and their associated payments vary widely, depending on the principle amount, the interest rate, and the term, the amortization schedule shows that the principle and interest amounts change slightly with every payment. Therefore, though each payment is the same amount, the way it is divided between principle and interest changes.

By the way, at the end of your business year, compare the loan balance on the Balance Sheet with the amortization schedule's balance on the date in question. If they don't agree, a payment was probably recorded improperly. Now you know how to correct it!

Not all incoming money is income

When your business gets money in, it’s easy to go into autopilot. Most of the times that happens, it’s probably income. But that’s not always the case. You need to think about everything you enter in.

Services and Products

When you get a check in, ask yourself if it’s for a service you’ve rendered or product you’ve sold. If so, it’s pretty straight forward. It will probably go against an invoice you created because you wanted someone to pay you. So you simply have to receive the payment.

But what about other situations? Not everything matches up perfectly with an invoice. Each transaction has to be considered individually and entered correctly.


At some point in their business, nearly everyone gets a check back because they overpaid a vendor. Of course, you want to avoid overpayment when you can, but that’s not always possible.

Let’s say your insurance rates change and you get some money back. What are you going to do with it?

Well, why did you get it? You didn’t get it because you provided a service or product. You got it because it was an overpayment. Was the amount paid appropriate at the time? Yes, you paid the amount due. So it’s not income, because you didn’t do anything to earn it.

So what do you do with it?

It’s just a deposit. You enter it against the expense line you incurred to begin with. In this example, the refund would be a credit to your insurance expense.

You might think, “Insurance is an expense, so I can’t credit it there.” Yes, you actually can. In that specific example, you know it was really a reduction of an expense, so you credit it to that expense.

Owner Contribution

Another example is owner contributions. I’ve often seen this with companies that are just starting out. They take an owner contribution and call it income. That’s the worst thing you can do!

If it sits in income, you have to pay income tax on it! In reality, it wasn’t income. It was a contribution by the owner to keep the lights on or make payroll. You didn’t do anything to earn it, so you need to categorize it as an owner contribution.

They key is to think about each and every transaction. Often it will match up perfectly with an invoice. But not always. So don’t let yourself slip into autopilot and make a costly mistake.

Bookkeeping blogs and resources

Whether you’re a long-time business owner or just getting started, you’re likely going to encounter some questions about bookkeeping and accounting along the way. While consulting with a professional is generally the best way to ensure you’re getting sound advice, there are a few online resources that can be helpful as well.

Here are three online resources that can be helpful for business owners who want to learn more about bookkeeping, find answers to specific questions, and ensure they’re doing things the right way.

Accounting Coach

Accounting Coach is a really great online resource with basic questions and answers about common accounting terms and concepts. It’s a good first step if you hear a term you don’t know or want a simple explanation of key concepts.

QuickBooks Tips & Tricks group on LinkedIn

This LinkedIn group is a wealth of information about all things QuickBooks. With more than 28,000 members, there have been a lot of questions asked in the group with a lot of great discussion in the responses. You can request to join and then review previous questions which may very well lead you to the answer you need.

Internal Revenue Service website

Okay, this one may seem a little obvious, but it’s honestly an overlooked resource by many business owners. If you’re using an IRS form of any kind, I recommend visiting to download the form every time you need it. The forms change over time, and you want to be sure you’re using the latest version. Plus, the IRS website has lots of useful information for small businesses, including all the details about what classifies as a deduction.

While these resources are great for quick answers about a specific topic and to ensure you’re following the IRS guidelines, it’s still beneficial to consult a professional for strategic guidance. A professional bookkeeper adds much more value than simply where to record debits and credits. They can review your accounts and help you understand how certain decisions impact the big picture, make sure you’re within all the necessary guidelines, and so much more.

Things to consider in nonprofit accounting

I come from a corporate background where the primary financial goal is to make money. While many of my clients are for-profit businesses, I also have some nonprofit clients, and I have volunteered with various nonprofit organizations. And it’s a different world, bookkeeping and accounting-wise, with some specific things to consider.

In the nonprofit world, you’re not trying to make money-your goals are to keep the organization running, and providing its services. That means the goal is to basically break even. If there’s a little bit left over that can be put into a specific program or an additional effort, that’s great, but breaking even is the norm.

Here are two important things to keep in mind regarding nonprofit accounting.

Do nonprofits have equity?

A balance sheet tells you where the organization stands financially. It has assets at the top, and liabilities below them. In the corporate world, and at the bottom of the balance sheet, the difference between the two is called equity, generally meaning the owners’ residual claim on the business assets. But in the nonprofit world, there’s no owner, which renders the term equity meaningless.

Rather, in the nonprofit world, the difference between assets and liabilities is referred to as Net Assets. There may still be some nonprofits who use the term equity, perhaps as a way to help readers, usually board members, to understand financial statements. But in formal financial statements of a nonprofit, Net Assets is the norm.

How should you handle restricted funds?

Another accounting issue to the nonprofit world is that of restricted funds, specifically the classification and use of donated restricted funds. The tracking of restricted funds, both their receipt and expenditure, is of primary importance to a nonprofit.

As the name implies, donations of restricted funds must be set aside and used toward a specific purpose, either as specified by the donor, or by board directive. Let’s say a nonprofit that serves families wants to build a new playground, and it gets a large donation specifically for that purpose. That donation is set aside to be used only for a new playground. Even if the roof starts leaking, or the air conditioner goes out and needs to be replaced, that specified donation is off limits, and must be used for the playground. Repair expenses must come from other sources.

Where it matters in bookkeeping is how you set things up. You should keep the cash equivalent of the restricted funds amount somewhere hard to access. I’ve seen some nonprofits simply say “Oh, we won’t let our operating bank account go below X amount, because that’s what we have designed as restricted funds.” But that is a dangerous approach, because it’s easy to eye those funds when the roof or air conditioning needs urgent attention.

The cleaner way to approach it for bookkeeping purposes is to put restricted funds in a separate bank account. Then, if you need to pull funds out of that account for a different purpose, it requires board approval and there’s a clear record of when and why it was done.

Whether you’re working at a nonprofit or serving on the board of one, it’s a good idea to keep these two things in mind regarding nonprofit accounting.

When should you consider a mid-year change?

I have a friend and neighbor whose lawn and garden always looks outstanding. It’s lush and green and beautiful. It’s the lawn everyone on the street envies.

To get that lush green lawn, he spent years amending the soil. He dug up a patch and showed me one time, and it was nice, loamy soil. As we were talking about his lawn and his process for amending the soil and planting things in his garden, I told him I never know when it’s the right time to do it.

His response? “Do it when you feel like it. If it doesn’t bloom this year, it’ll bloom next year.”

The same is true for your bookkeeping. Want to change your reporting method? Messed up your chart of accounts and need to make a fresh start? If you need to do it, then do it. You’ll be happy you made the choice and changed it.

People often think they need to wait until the first of the year to make any changes to their bookkeeping, but that’s not necessary for most small businesses. And let’s face it, there’s a lot of other things happening in January for any business, so you might not actually want to implement a new system then.

You don’t have to wait for the first of the year to do it. You can do it now.

Yes, making a mid-year correction to your process or your books might mean that pulling together information for your tax return next year is a little more complicated, but most bookkeepers and accountants are used to that happening sometimes. Check with your bookkeeper or CPA in advance and get their professional advice about the situation, then make the change if it’s necessary. In some cases, not making the change will create more problems than making it.

Sometimes in business, things don’t go as planned. You have a budget and a business plan, and it all looks great on paper. But then the real world happens. Maybe you recorded a deposit incorrectly or messed up your chart of accounts, but you know what happened to cause the problem. If you know what happened, that’s okay. If you don’t know why it happened, that’s a problem.

If something happens in your bookkeeping or in your business, you should document it, especially in small businesses with only a couple of people involved. When you’re looking at your books two years from now, you may not remember the specifics or the person who resolved the issue may not work with you anymore. Be sure to document any changes you make to your process or errors that occur in your bookkeeping-it’ll save you time and headaches later.

Seven common QuickBooks mistakes

QuickBooks is an incredibly powerful tool for small businesses, but like any tool with lots of options, it can get confusing and create problems if not used properly.

Here are seven common mistakes I see small businesses make in QuickBooks and the right way to do it instead.

1. Creating an invoice but not applying the payment to it

This is one of the most common mistakes I see in QuickBooks. When you create an invoice for a customer and then later receive that check, you need to enter it as money received against the invoice. If you will receive multiple checks before going to the bank, it’s best to enter them as undeposited funds first but also record them as money received against the invoice. That way, all six or eight checks show up as one deposit, which is how it looks at the bank also.

2. Not reconciling accounts regularly (or at all)

For many small business owners, bookkeeping may not top the list of their favorite tasks, so it’s common for people to fall behind on reconciling their accounts. The problem is, the longer you wait to do it, the more work it is. And you could be missing mistakes in the mean time.

If your statements come monthly, you should reconcile your account monthly as well. If some statements come quarterly, reconcile your account whenever you get the statement. It may depend on volume though. If you only have six total transactions in a month, you could probably wait a couple months and it would be fine. But if you’re writing 50 checks a month, running a debit card, and have payments on autopay, you absolutely need to reconcile every month.

3. Letting outstanding items go for too long

When you’re reconciling your accounts, it’s good to keep an eye on anything that’s outstanding. As a general rule of thumb, if something’s outstanding more than three months, it’s probably a good idea to reach out and ask them to deposit that check. Life happens, so a gentle nudge may help in case the check got buried in a stack of mail or something else.

Some other outstanding checks may be data entry errors, so it’s good to clear those up as well. If a check’s been outstanding more than six months, go ahead and stop payment so you can fully reconcile the account. If the person contacts you about the check later, you can write another one.

4. Not adding enough information to vendor and customer records

For new customers or vendors, be sure to add as much information as you can to their record. In QuickBooks, you want to focus on the information that will be needed related to billing and accounting. For customers, you want their billing address and phone numbers for key contacts. For vendors, you want the address where you’ll need to remit payment and the right contact for billing questions. If you have multiple contacts and numbers, enter multiples. And then keep that information current as contact people, phone numbers, or addresses change.

5. Failing to keep sales tax numbers updated

QuickBooks does a great job of managing sales tax requirements if you use it appropriately. The best approach is to use tiered taxes so that you enter city, state, or county tax rates separately. When you invoice, those will roll up into one sales tax rate for your customers. If something changes with one of those tax rates, it’s easy to change it in one place with the tiered approach.

6. Creating chart of account categories that are too broad

When it comes to your chart of accounts, it’s easier to add things together than break things apart. If you create extremely broad categories and put lots of expenses in them, it takes a lot of effort to sort those into more detail. But if you create more categories than you need, it’s much easier to add two categories together at a later date. If in doubt, go ahead and add that extra category. You can always change it later if you don’t really need it.

7. Having too many vendors in the vendor list

When recording expenses, you don’t need to enter every single restaurant, gas station, and hotel in your vendor list. If you have some large vendors with whom you do a lot of business, it might make sense to specify those vendors. But otherwise, I recommend approaching vendors on more of a category approach, which means creating a vendor list that includes airlines, auto maintenance, food vendor, gas station, hotel/lodging, etc. Then, as you record a specific expense, you can list it under the appropriate vendor category and use the vendor name in the Ref field to make reconciliations easier.