Your 2023 Bookkeeping Clean Up Checklist

Good bookkeeping is essential if you want to lower your tax liability and run your business based on the numbers, not hopes and dreams. Start with this bookkeeping clean up checklist. It’s your first step toward bookkeeping that drives tax savings.

Some items can be handled internally; others require a certified public accountant (CPA) or tax professional.

But first, let’s get up-to-speed on the role and importance of bookkeeping for small businesses.

What is bookkeeping? A quick primer

Bookkeeping is a day-to-day process of recording, classifying, and organizing a business’ financial transactions into a detailed “book” of record.

Bookkeeping also involves preparing documents for transactions. Examples include:

  • Invoices
  • Receipts
  • Bills
  • Orders

For bookkeeping entries to be “detailed,” we need at least these three values:

  • Dollar amount
  • Transaction type
  • Details (or context).

These values contribute significantly to your business’s operation and tax-saving potential.

How a bookkeeping clean up benefits your business

So what does a detailed record do for your business? Let’s keep it simple and talk about what dollar amount, transaction type (or classification), and details (or context) do for your business:

  • Provide an accurate picture of your business’s performance—past, present, and, to a certain extent, the future.
  • Give your accountant and tax planning partner critical information he or she needs to maximize tax deductions and identity eligibility for tax credits.

Bookkeeping plays a significant role in deductions and credits

Tax deductions are expenditures you can subtract from your gross revenue. So bookkeeping contributes to deductions by keeping track of mileage, payroll, and paperwork from accounts receivable.

Tax credits reduce your tax bill “dollar for dollar” and incentivize certain behaviors. Organized bookkeeping can help you decide if it’s profitable to make advantageous tax decisions. Examples include:

  • Converting to electric vehicles
  • Spending additional resources to find and hire veterans
  • Taking on expenses to provide reimbursements for employee childcare

Now, let’s run through your 2023 bookkeeping clean up checklist.

1: Separate business and personal spending.

Having a dedicated business credit card used exclusively for business purchases and having all business purchases go on that credit card, is an excellent first step toward good bookkeeping practices.

Sometimes it’s convenient to pull out a personal credit card or cash. “I’ll log that later,” we say. But continuing this practice can create a quagmire of entangled personal and business expenses that can weaken the separation between your finances and the finances of your business.

With a clean separation between business and personal spending, you won’t have to pull together multiple credit card statements or search through your personal transactions to add up expenditures. And if you ever face an audit, believe me, you’ll appreciate the separation.

2: Monitor ongoing fixed transactions.

Keeping track of ongoing fixed transactions makes cash flow management and bookkeeping easier.
Tracking can be as simple as creating a spreadsheet with vendors, dates or payments, and amounts (fixed or average). Make sure to regularly update your spreadsheet because up to 88% of spreadsheets have errors, which can lead to accounting errors.

Every business needs steady cash flow to respond to business problems and opportunities and settle its invoices for goods and services.

But with so many expenses—utilities, telecom, insurance—it can be easy to lose track of accounts payable, resulting in nasty surprises like overcharges. Don’t be surprised.

3: Leverage software tools for automated recordkeeping.

Local travel can provide a significant tax deduction for business owners who have non-commuting travel expenses. Unfortunately, local travel is also one of the easiest things to lose track of.

One option is to use an app like TripData to capture how far you’ve traveled. Just apply the standard mileage rate, which incorporates expenses like gas and maintenance, and automate the process.

But don’t forget paper receipts.

Software and paper get along? Yes, it’s true. If you’re used to keeping paper receipts, consider using QuickBooks. It’s easy: Take a picture of your paper receipts, input the image into QuickBooks, and the software migrates that information into your books.

4: Create a streamlined bookkeeping process.

Small business owners spend around sixteen hours each week on administrative work, which includes entering bookkeeping details.

A simple, streamlined bookkeeping process makes periodic accounting (quarterly and annually) easier.
One of the most important is a uniform process for invoicing and payments.

Again, options include software and tax professionals. But sometimes, the process can be as simple: “All paper receipts that come into this office will immediately go into this file, and all email receipts will immediately be forwarded to this address.”

Do you need a professional bookkeeping clean up?

Bookkeeping maturity can deteriorate without the right processes in place. And this can happen to businesses that are profitable, growing, and flush with cash. It’s easy to understand. As a business owner, you have to set priorities. So when a business owner “feels” increasing sums of cash coming in each month which far outpace expenses, he or she thinks more “grow” rather than “clean up.”

But this is a mistaken idea. Growing businesses need even better bookkeeping. Why? Because there are more transactions, more employees, and a faster “tempo” to accounts payable and accounts receivable.

Here’s your “hire a professional” bookkeeping clean up checklist:

  • Get a third-party review of financial statements.
  • Collect and categorize outstanding cash and credit card transactions.
  • Ask for a comprehensive reconciliation of cash accounts and bank statements.
  • Set up payroll processes to keep pace with hiring.
  • Upgrade your accounts payable and accounts receivable process.

A proper bookkeeping clean up should be understood as an investment in the future. Putting solid bookkeeping practices in place at the beginning of the year pays off with clean books at the end of each quarter, more precise performance metrics, and better information for your accountant. Visibility and tax reduction—that’s the takeaway.

If you’re a growth-stage business, I can help.

As I always say, tax savings starts with clean books. A knowledgeable CPA firm is the best choice for solid bookkeeping processes, especially if that CPA firm handles your accounting and tax planning.

So if you need more accurate, efficient, and integrated bookkeeping, call me. We’ll talk through your options.

Talk soon,
Jeremy A. Johnson, CPA

Meet the Author
Jeremy A. Johnson, CPA, is an expert in strategic tax planning, accounting, CFO services, and thought leadership.

Jeremy writes for small business owners who need actionable information on tax strategy, efficient accounting practices, and plans for long-term growth.

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