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Finding Bookkeeping Errors for Small Business Owners

Carmen Manrique
Posted by Carmen Manrique on Aug 11, 2022 11:50:58 AM

Business owners are experts in their own businesses, but they rarely are experts in accounting and bookkeeping. Unfortunately, this often leads to them even lacking the knowledge and experience to know if a bookkeeper really is producing accurate books. What is the result?

When the owner finally turns to a professional like you, it falls on you to find (and fix) the errors. Wouldn’t it be nice to have a checklist of common errors to make sure you don’t miss any?

Why are small business financial records so often wrong?

Business owners usually think they are saving money either by using an in-house team member or doing the bookkeeping themselves. And there may have been a time when their business was straightforward enough that they or the internal team member could handle the simple transactions.

However, as businesses constantly evolve, their evolving businesses mean evolving bookkeeping needs. Whereas the owner might have only brought in a professional bookkeeper or accountant for tax season support, that no longer is sufficient.

And the owner eventually finds out how costly it has been to work their own books.

Once the business owner who thought their books were accurate hires outside bookkeepers to review the books, they find out just how many errors there are.

The difference between bookkeeping services and audit-proof bookkeeping services.

Properly trained bookkeepers have the proper skills to complete the job accurately. Unfortunately, not all bookkeepers are equally trained.

As a professional bookkeeper, you understand the importance of audit-proof bookkeeping. Regular, even real-time, transaction entry with accompanying, thorough documentation is critical. Also, having process checklists means that you are able to provide accurate financial statements.

Make sure that you understand the ramifications of cleaning up the books. Also, you may want to recommend starting a new set of books for the current year if the existing data contains many years of accounting.

When you are preparing to take on a new client, it is important to include a fee for a thorough evaluation and cleaning up the books. Here are the most common errors you should look for.

Common Bookkeeping Errors Checklist

1. Is the Chart of Accounts set up correctly? Does it include duplicates?

2. Are all bank accounts reconciled through the current date?

3. Are checks that have not cleared the bank in the past months voided?

4. Are transactions appropriately classified?

5. Have high-priced purchases been appropriately expensed?

6. Are there receipts for all transactions, either in digital or paper format?

7. Have payments been missed, resulting in interest and penalties?

8. Are sales and use tax returns filed and paid in all appropriate jurisdictions?

9. Are employees and 1099 vendors correctly classed?

10. Do payroll reports match the Profit and Loss and Payroll Tax Liabilities?

Bookkeeping Cleanup Projects as a Service

Rather than offering a cleanup project to a new client, your standard pre-engagement process should include a review of books as a paid service. If the books are clean, great.

When you find errors in the client’s books, the next step would be to conduct a cleanup project. It is important to understand the ramifications of cleaning up books with errors. Also, you may want to recommend starting a new set of books for the current year if the existing data contains many years of accounting.

Michelle Vilms compares cleanup projects to a couple’s first date. You enter into an agreement with the client, you and the client both participate in the project, and you decide whether you want to move forward with the engagement or not.

Cleanup projects should not be loss leaders for your firm. When priced properly, which Loren Fogelman explains how to do, cleanup projects can be highly profitable.

More importantly, they give you the opportunity to test new clients and find out if they are ideal for your practice.

Topics: Financial Advisory


 

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