Happy Halloween. In the spirit of the day, here are five scary things I find in small business books all the time. None of them are rare, and all of them are fixable.
1. Money that never got deposited. In QuickBooks, customer payments can sit in an account called Undeposited Funds (in QuickBooks Online it may show as “Payments to deposit”) until they’re matched to a bank deposit. When that step gets skipped, payments pile up there for months. Your income may be right, but your bank balance in the books isn’t, and some deposits might get counted twice.
2. Accounts nobody has reconciled. Bank feeds bring transactions in, but reconciling is what proves the books match the statement. An account that hasn’t been reconciled since spring might be fine. Or it might be hiding duplicates and missing transactions. You don’t know until someone checks.
3. Zombie invoices. Open invoices from last year that were actually paid (and the payment was recorded somewhere else), or that are never going to be paid. They make it look like customers owe you more than they do. Clean them up, with your tax preparer’s input on anything you write off.
4. Loan payments booked as expenses. A loan payment is usually part principal and part interest. Only the interest is an expense. If the whole payment is booked as an expense, your profit looks lower than it is, and the loan balance in your books doesn’t match the lender’s.
5. Personal spending dressed up as business. A few personal charges on the business card, recorded as “supplies.” It’s usually an honest mistake, but it overstates expenses and can be a headache if anyone ever asks questions.
The good news: late October is a good time to find these. There’s still time to fix them before year-end, and before your tax preparer needs the books.
Hypothetical: a landscaping company has $14,000 sitting in Undeposited Funds from payments that were deposited months ago. The fix isn’t scary. It’s an afternoon of matching payments to bank deposits.
If you’d like someone to take a look and see what’s hiding, send me a message through the Contact page. No costumes required.
— Rachel, Two Miles LLC