What is clean-up bookkeeping? How much do I need to spend on bookkeeping clean-up fees? How can I prevent the need for clean-up services?
In this post, we will be answering these questions and more. We aim to educate you on this kind of bookkeeping service. We also hope this article will serve to caution you against getting into a situation where you need it. And this isn’t just to prevent spending on bookkeeping clean-up fees. It can get messy if you’re not careful!
However, if you find yourself in a mess already, don’t worry. This post can also help you understand how to get your books sorted.
What is Clean Up in Bookkeeping?
There are times when our financial management could be more organized. Maybe you have been handling your bookkeeping for years and didn’t notice a few discrepancies until tax season. It is also possible that you have hired someone to do your bookkeeping. However, they did not do a thorough job of checking to ensure your accounts were accurate. Whether it was competency issues or human error, you need clean-up bookkeeping.
Clean-up bookkeeping is when you go through the process of reviewing your business's financial records. You aim to fix any errors or discrepancies that you find. The main goal of clean-up bookkeeping is to ensure accurate, consistent, and complete books.
This is remedial bookkeeping. What do we mean by that? You are correcting previous transactions that may have been inaccurately recorded, wrongly categorized, or otherwise mismanaged.
A bookkeeper may have to scour through your expenses, purchases, and sales to find errors or discrepancies. These transactions can be as recent as a week ago or, in more severe cases, months and years back.
Note: Some people use the definition of clean-up bookkeeping and catch-up bookkeeping interchangeably. This could be because many businesses offering catch-up bookkeeping include cleanup in their services. However, for this post, we will talk about cleanup bookkeeping as a separate thing.
Everyday Situations That Require Bookkeeping Clean Up
Tax Season
The most urgent situation where cleanup is required is during tax season. We highly recommend putting off a cleanup at the last minute. However, we recognize that it does happen. Therefore, presenting accurate books and consistent records for tax filing is crucial. Not only can you avoid fines and claim deductions, but you also avoid the risk of having your business closed. When you’re facing that, paying bookkeeping clean-up fees is a no-brainer!
Audits
A business preparing for an external audit must ensure that all of its books are balanced. They will want to show competent financial management. Additionally, you may be doing everything smoothly and under the table. However, clean books leave no room for unnecessary suspicion or speculation.
Accurate Financial Standing
You may need an accurate number of how much you are spending or earning every month. Clean-up is also helpful in ensuring factual financial statements and accurate reporting. These are important to gauge profitability and accurately assess budgets. Cleanup can show you how you can better allocate your resources.
Seeking Funding
Financial statements are commonly presented to investors when seeking funding. If these financial statements are messy and inaccurate, it could detrimentally impact your financing chances.
Unreconcilable Accounts
Your accountant might need help reconciling your accounts or balancing your books. If so, you know there is a problem. You could need receipts or transaction records. I think your expenses may need to be adequately documented and clarified. This makes it challenging for an accountant to do their job.
Common reconciliation errors involve:
- Bank statements and cash accounts
- Inventory levels and Inventory accounts
- Amount owed to a business and Accounts Receivable
- Amount owed by a business and Accounts Payable
What Are the Common Clean-Up Bookkeeping Fees?
Calculating bookkeeping clean-up fees is more complex. It’s rare for freelancers or bookkeeping firms to offer exclusive pricing for cleanup only. Usually, these services, as we mentioned earlier, are included in catch-up bookkeeping service offerings. Other “service bundles” we have seen some freelancers offer include software set-up, auditing, and clean-up.
These prices can range from $100 to $250, with delivery times ranging from 2-10 days.
Clean-up and catch-up are often add-on services. They are not standard bookkeeping services. Because of this, the pricing usually depends on each person. For instance, we at EcomBalance will offer a custom pricing quote for your catch-up needs. We'll hop on a call, take a look at the needs of your business, and quote a price based on that.
Factors Influencing the Cost of Bookkeeping Clean Up
Amount of Work
One of the leading factors affecting bookkeeping clean-up costs is how much clean-up work they need to do. The longer you wait, the bigger the problem and the higher the bookkeeping clean-up fees. More than just the amount of time, they also consider how many accounts you need to clean up.
Assessment Fees
Some bookkeepers will charge for the time it takes to assess the scope of the work that needs to be done.
Urgency
The closer it is to tax season, the more urgently you’ll need clean-up work accomplished. This drives the price up because you are under pressure, and so is your bookkeeper to work double time. We recommend assessing your books earlier and determining if clean-up is necessary.
Payment Basis / Rate Calculation
Some calculate their bookkeeper clean-up fees by estimating how many hours it will take to complete. They will then multiply that by an hourly rate.
Others prefer to do fixed pricing or calculate bookkeeping clean-up fees as a percentage of regular bookkeeping fees. This is usually based on how many months you are behind on your books.
Avoiding Bookkeeping Clean-Up in the Future: Best Practices
Reconcile Thoroughly
Two of the most surefire ways of avoiding errors down the line are to 1) reconcile transactions daily and 2) verify each recorded transaction. You want to ensure all the information, such as the amount, date, and classification or category, is correct.
Use a Bookkeeping Software
One way to reduce manual error, increase accuracy, and save time is by using accounting and bookkeeping software. Not only can you reconcile much easier, but you can also automate other processes to reduce human error.
Monthly Checks
When you conduct regular monthly bookkeeping, it’s essential that you also check the accuracy of financial statements and make monthly financial reporting a norm.
Separate Personal and Business Accounts
Many business owners make the mistake of using their accounts for business expenses. A separate account helps you make distinctions between your costs. This way, you avoid migrating or recording those statements separately. You can avoid potential confusion by opening a different bank account for your business.
Conduct Internal Audits
Internal audits allow you to assess your bookkeeping processes' effectiveness and accuracy objectively.
Review Accounts
Whether it’s your inventory account, accounts receivable, or accounts payable, you need to ensure everything checks out.
Inventory – Review your sales and list regularly to ensure you aren’t stocking up when you don’t have to. Generate reports and reconcile any discrepancies within the account before monthly reporting.
Accounts Receivable – Record any bills that are overdue and reconcile any accruals. Make sure to track your payments and follow up with customers. The last thing you want is to have a charge recorded without receiving the payment.
Accounts Payable – Record all the money you still owe to vendors or suppliers. Pay your invoices as soon as possible, preferably before incurring outstanding balances.
Frequently Asked Questions
1. How long does bookkeeping cleanup take?
The longer you wait to fix a bookkeeping issue, the longer it takes to clean up. However, you can expect it to take a couple of days at least.
2. What is the Difference Between Clean Up and Catch Up?
Clean-up bookkeeping deals with organizing and correcting financial records that are assumed to be up to date, just inaccurate. Catch-up bookkeeping refers to updating financial documents that haven’t been updated. Because these two terms are closely related, we encourage you to head on over and check out our catch-up bookkeeping article. (After you’re done with this one, of course!)
3. Can I Clean Up My Books?
If you can set aside the time and dedicate yourself to learning how to manage your books properly, we don’t see why not. However, a lot of the time, it is improper DIY bookkeeping that leads to the need for clean-up services in the first place. If you find yourself in need of cleanup, we highly recommend getting a professional to do it. They have efficient processes in place and know how to identify errors and sort them out quickly. Not only that, but they can also put up safeguards to prevent the same thing from occurring again.
4. What Happens if I don’t clean up my books?
In the best-case scenario, you end up with inaccurate financial records that make it difficult to assess your financial health. In the worst-case scenario, you will get in trouble with the law due to discrepancies in your tax filings.
What Is EcomBalance?
EcomBalance is a monthly bookkeeping service specialized for eCommerce companies selling on Amazon, Shopify, eBay, Etsy, WooCommerce, & other eCommerce channels.
We take monthly bookkeeping off your plate and deliver your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for monthly analysis so you and your business partners can make better business decisions.
Are you interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here are some free resources:
- Monthly Finance Meeting Agenda
- 9 Steps to Master Your Ecommerce Bookkeeping Checklist
- The Ultimate Guide to Finding an Ecommerce Virtual Bookkeeping Service
- 6 Reasons Accurate Ecommerce Accounting is Crucial for Your Business
- Accounting Basics 101: What Small Business Owners Must Know
- Generally Accepted Accounting Principles (GAAP) Cheat Sheet
- How to Read a Balance Sheet & Truly Understand It
Conclusion
The need to pay bookkeeping clean-up fees is, quite frankly, avoidable. If you know how to manage your books correctly from the start, that is. You won’t have to clean anything up if you do it right the first time. Know what situations to look out for, avoid, and correct before it’s too late. Knowing the costs and the factors influencing them will hopefully be an incentive to maintain complete and accurate books.
