How catch-up bookkeeping works when you're months or years behind

The steps, in order

Catch-up work follows the same sequence whether you are three months or three years behind. Skipping ahead, for example categorizing before the accounts are set up correctly, is the usual reason a catch-up has to be redone.

• List every account the business used: banks, credit cards, loans, payment processors and payroll.
• Collect the statements for every month you are behind.
• Set up or repair the chart of accounts so it fits how the business actually earns and spends.
• Bring in the transactions, from bank feeds where they reach back far enough and from statements where they do not.
• Categorize every transaction, and set aside the ones only you can explain.
• Reconcile each account, month by month, to its statement balance.
• Book the adjustments: loan interest and principal, payroll, depreciation, owner contributions and draws.
• Produce a profit and loss statement and balance sheet for each year, ready for that year's tax return.

What to gather before you start

The fastest catch-ups are the ones where the owner hands over everything on day one. You do not need every receipt, but you do need the statements, because reconciliation is impossible without them.

• Bank, credit card and loan statements for every month you are behind
• Payout reports from Stripe, Square, PayPal, Shopify or Amazon
• Payroll registers and quarterly payroll filings
• Prior tax returns and any IRS or state notices
• Receipts or invoices for large purchases and equipment
• Forms 1099 you received from clients

Two years behind? Put the tax deadlines first

If you are behind on bookkeeping you are often behind on tax returns too, and the IRS clock does not wait for the books. The failure-to-file penalty is 5% of the unpaid tax for each month or part of a month a return is late, up to 25%, and a refund can only be claimed within three years of the return's due date.

So work on the years with the most money at stake first: the most recent year that has not been filed, then the one before it. Once a year's books are reconciled, its return can be prepared while the next year is caught up; at SF Business Solutions the same team does both.

Reconciling old bank statements

Reconciling a year of old statements means proving, month by month, that the ending balance in the books equals the ending balance on the statement. When it does not, the difference is almost always a missing transaction, a duplicate imported twice, or a transfer between two of your own accounts recorded on only one side.

Old periods need extra care with opening balances. If the books start in the middle of a year with a wrong starting balance, every month after it will be off by the same amount, and no amount of categorizing will fix it.

How long a catch-up takes

The honest answer is that it depends less on the bookkeeper than on how quickly the statements and answers arrive. A few months of backlog with every statement in hand is a short job. Several years with missing statements means requesting them from banks, which can take weeks on its own. Ask any provider for a written timeline that shows what they need from you and when.

After the books are caught up

Catching up once and falling behind again is common, so plan the monthly routine before the catch-up ends. SF Business Solutions moves caught-up clients onto monthly bookkeeping, which starts at $250 a month, with the close usually finished between the 5th and 15th of the following month, depending on when your documents arrive.