2. Defining Bookkeeping, Clean-Ups,Catch-Ups, & CFO Services

BookkeepingCFO

May 15

My name is Leah from Orca Accounting.
And I'm Aminder from Sequoia CPA.
So today, we are going to be talking about essentially just what is bookkeeping, what is monthly bookkeeping, cleanups, catch-ups, CFO services.
There's a lot of terminology out there about the types of services that fall under this umbrella of bookkeeping and other business financial services.
So we just thought that we would break it down for you in an episode today.
Yeah, and it'll be great to kind of touch on what each one is and who it's for and why it matters.
So let's dig in, Leah.
Let's get into bookkeeping.
So just to preface for this episode, we are going to do our best to do just a high-level overview of what bookkeeping includes.
So we're not going to dive too deep, because we are actually going to do a series upcoming for the next few episodes, really just diving into what these terms mean and explaining it in a way that is very relatable for small business owners so that they can apply it to their own business.
Yeah.
And hopefully, Leah, this will be a great deep dive into each area of accounting.
So stay tuned.
Okay.
So at a minimum, just to list out what bookkeeping includes is action categorization, account reconciliation, adjusting journal entries, financial reporting, understanding your numbers, and other things it can include includes payroll, accounts payable, accounts receivable, 1099 filings, sales tax reporting, quarterly estimated taxes, and we're just reviewing any questions or concerns for your understanding.
So just dive a little bit deeper into what these terms actually mean.
The first one, transaction categorization.
This means that you are coding each cash inflow or outflow that happens either on your bank statements or credit card statements to be able to code those to the right account, so that it is that piece that flows into your financial statements at the end of the month.
And I think the modules in a lot of these software platforms do a good job, Leah, of guiding you through that process.
So this is where QuickBooks or Xero, FreshBooks provide that guidance of helping you categorize.
I mean, it's a little bit more difficult if you're trying to do it in Excel, but it can be done if you know what you're doing.
But ultimately, after you've gone through categorization, you'll need to reconcile your accounts.
And that really means ensuring everything that's listed, say, in your bank statement or your credit card statement reflects what's in your books.
So you'll go through and look at your bank account balance and say, yes, it ties to what's on my statement.
So I feel comfortable that my P&L accurately reflects my business transactions for the month.
Absolutely.
And bank account reconciliations are just one example of a reconciliation.
Something I always say is important for a monthly or quarterly close is reconciling other aspects of your balance sheet because there's many things that can hold an account balance that needs to be reconciled, like loans or any sort of liability.
There's a lot that can be reconciled within a month.
And so that's something that I always like to suggest that people do at least quarterly.
Yeah.
You don't want any dead bodies in your account.
So it's important to go back and look at all your balance sheet accounts and see does this tie to what I expect.
So yes, that's a good mention there.
Yeah.
So then the next bit is after you have everything reconciled, then there's what is called adjusting journal entries.
So a couple of examples of adjusting journal entries are depreciation.
If you're using accrual basis accounting, it could be accruals, it could be going through your prepaid and just making sure that everything is lining up.
But really, it also could be in the form of if your business has inventory, just any sort of inventory adjustments that your business is making, a higher level accounting knowledge really comes into play with those adjusting journal entries because it really is something that helps shape the actual story of what happened in your books for a given time period.
A lot of times, this is where if you've accidentally made purchases on your personal credit card or vice versa, you'll need to book these adjusting entries to be able to capture the expenses.
So I always like to point that out to clients because it's important to keep those transactions separate, but it is inevitable you will accidentally use the wrong credit card when you're buying coffee and you'll have to make the adjustment.
So if you're not aware of how to make those adjusting journal entries, you'll need to have someone make those.
Otherwise, your filing for taxes will not be accurate.
So that's another key piece to be aware of.
Moving into reporting.
So after all those adjustments are made, your accounts look good.
And the ultimate goal is to generate financial statements out of them.
So those are really your balance sheet, your income statement, and your cash flow statement at the end of the month.
And this gives you a picture of what's going on with your business.
And this can be done very easily within QuickBooks and Xero for context.
Aminder uses QuickBooks Online primarily, and I use Xero.
But it is a feature that is available in most accounting softwares.
And it just makes it very easy because if you are using Excel for your financials and you're doing it all yourself, I honestly think it just is a lot of extra time and effort for something that a software could do for you very easily.
And the cost is, I think, something that's worth it.
So something that we'll talk about in a future episode is, you know, QuickBooks versus Xero or any other sort of perks of having an accounting software, but it does make it easy.
So beyond just financial reporting, here are some other things that bookkeeping can include, but may not be necessarily applicable to every single business right when they're starting out.
So something that once you have employees, payroll is an aspect of bookkeeping that bookkeepers can provide.
Or if you are a business owner, then you can provide yourself.
Common platforms that people typically run payroll through include Gusto, ADP, Paychex, and on the front, you can put the hours worked or any other sort of timing structure that indicates how much an employee of the business is supposed to make, what the taxes being paid are, tax filings and documents included in the process.
It makes it really easy to just help with what is happening on the actual detailed journal entry level.
And just looking at the next piece here, Leah, as well, there's Accounts Payable is a huge piece for business owners as well.
And that really just means paying your vendors.
So if anyone sent you an invoice to say, hey, I performed services for you, please send my payment.
You'll need to track those payments, right?
And you'll need to track who the individual was.
They'll need to submit maybe a W-9 depending on their classification.
And then you'll need to be able to file the 1099 filings at the end of the year.
So, a lot of the platforms and softwares make this tracking a lot easier.
So, that's where having a good software like QuickBooks and Xero is great.
Doing this outside of a platform may be a little bit more difficult, and you'll have to do a lot of manual calculations and tracking.
So, again, the software is the way to go.
And the next bit of that is accounts receivable.
So, that is just sending invoices to the people who pay you, to your customers, your clients, and really just making sure that you have proper documentation.
You're sending those invoices on a timely basis.
Your clients have an easy way to pay you, or maybe not so easy if you are collecting cash or checks or that sort of thing.
But every bit of that process is just capturing invoicing the people who pay you and making sure that it is recorded and all documents are recorded along.
Yeah, I think that's a really key piece.
And then also, if you have any sort of integration with Stripe or PayPal, that that's connected with whatever software you're using, that sometimes makes accounts receivable a little bit easier and your revenue recognition a lot smoother.
Yeah.
Okay.
So Aminder, I live in Oregon, so I do not handle sales tax.
We don't do sales tax here, but you live in Washington, so tell me a little bit about that.
Yeah.
So sales tax reporting applies to certain types of services.
So mainly service based businesses are not subject to sales tax, but there are some nuances.
So on my end, I do provide support for sales tax reporting, and QuickBooks Online does have sales tax tracking.
In Washington, it's a destination based sales tax.
So it really depends where the sale happened in the state.
If you have a storefront, you're going to have a set sales tax.
But if you're providing online sales, right, say you have an ebook, you really have to look at what location did you sell that product and to be able to accurately calculate the sales tax.
So that's where having a tool like QuickBooks does the calculation for you based off of where the purchase was made.
So I will help and support with that.
If it's a lot bigger, you'll need a big different software like Avalara will help track a lot of these pieces.
But there are some nuances that come with sales tax here in Washington.
So I'd like to provide that support.
Yeah.
Oh my gosh.
Sales tax also is something even though because I live in Oregon, many of the businesses, unless they're shipping things elsewhere in the country, they don't have to deal with it.
But for the few that do Shopify, if you use Shopify and you're selling physical products, then that is a huge, they take care of so much on the sales tax end, and it's all very visual from the business owner perspective.
So that is always really helpful as well.
Yeah, Shopify is great for e-commerce, and it also integrates with QuickBooks.
Plug for QuickBooks.
And then, Aminder, with quarterly estimated taxes, the support that I provide there is just making sure that all of the reporting from my end on a quarterly basis is all up to date.
Also just support what annual tax liability will be.
I just help provide context there.
Does your process look a little bit different than that?
Yeah, so for me, it's pretty close to yours.
I'm looking at their annual tax liability and helping them understand how they need to file, right?
And helping them understand the self-employment tax and any other piece or nuances that may come into play with their quarterly tax filings.
And then how to actually file on the IRS website.
It's actually pretty straightforward.
You go in, you have an account, and you make the payment.
And then you just need to be able to track those payments so that at the end of the year, when you do file your taxes, you're not overpaying.
So you need to be able to track how much you did end up paying to reduce whatever small liability that you may have at the end of the year.
The goal is zero, but we always know that we're basing it off of an estimate.
So it might not be exactly zero, but as close as we can get, that's the goal.
Yeah, absolutely.
And I think that the last bit about what our process is, being able to address any questions or concerns, or just being able to have that further understanding of what is actually happening in your business for the month.
I, for my clients, love to meet with them once a month, if that's included in their package.
So just so that we can meet, ask questions, and really just connect on a live basis so that they know what's happening.
Also so that if I have any updates from my end, then we can just address those and make sure that we're all just on the same page, and the client is getting what they need out of the full monthly closed process.
Really just understanding where their numbers are going.
And I think this is also a really great point.
If there's any change that's upcoming in the business, a really great touch point to kind of realign with your client on their business needs.
So if they're going to have a new stream of revenue, or if they're looking at an unexpected expense down the road, you can kind of help them plan for that, and just a good checkpoint for your knowledge purposes.
If you're seeing the revenue dip, it's expected.
You don't have to start ringing the alarm bells right away.
So it's a good point to realign as well and just understand the business holistically.
Yeah, yeah, absolutely.
That is really what is included in a full monthly close.
Who needs monthly bookkeeping versus quarterly bookkeeping?
Just a quick note on that from your perspective.
Yeah.
So monthly is really for a business that's established, and they will really want to stay on top of their books.
They want to get insight.
They need support on an ongoing basis.
They don't want to dedicate the time out of their own day to focus on bookkeeping.
It's a great point to delegate off.
You don't want to be spending too much time on your books.
If you're getting to the point where you're like, I'm spending my weekends doing my books, you should really consider outsourcing and hiring someone to provide that support.
So you can really focus on growing your business and working on the things that you love, because accounting can really snowball into a big beast, and that's what we're here for.
We want to step in and help there.
And really on a quarterly basis, I would not recommend quarterly unless you have very low business activity.
And the reason is because there's a lot of compliance and reporting that comes into play.
And if you're missing anything on your books or you're kind of behind and you're trying to make it up on a quarterly basis, you can kind of miss those deadlines, especially for quarterly tax reporting.
So rule of thumb, generally use monthly.
There may be instances where you could use quarterly.
I completely agree because I always think that, you know, whether or not you're having somebody else do your bookkeeping monthly, or if you're doing it yourself, a huge way to gauge about whether or not you want to outsource or not, is that opportunity cost of your time.
So if you'd rather be spending your time or weekends or whatever, doing something else besides doing the books, then that's really a good sign that you're ready to outsource it, especially if you're at a point in your business where you can afford delegating that task, because really you're just investing in a deeper understanding of what is happening in your books, a deeper accuracy, more completeness, and a more timely reporting basis.
I completely agree that monthly is perfect for that realm of things.
And just another point on that, Leah, I think it also helps having those accurate books so that when tax time does roll around, that you can take advantage of all the tax deductions.
A lot of times if you haven't been keeping up and you're trying to file your taxes at year end, your tax accountant may not have the time, especially during that short period of the year, to be able to dig in and look at all the types of deductions you can take.
That's where being diligent with your monthly bookkeeping, you can keep track of all sorts of expenses.
And during those monthly check-in calls, you can ask about certain expenses and say, hey, is this something that I could deduct on my taxes?
So being proactive in that way can help save you in the long run on your taxes as well.
So I like to point that out.
So many tax professionals that at the end of the year, the last thing that they want to do is go through and try and identify what's deductible and what's not from your books.
It's always the goal to have that prepped and ready by the time you have take that to your tax professional.
Because they will then be able to just assist you in a streamlined way.
And it's only made easier, like we said, if you maintain it monthly.
Always, always what we recommend.
OK, so we talked about monthly.
So in terms of a cleanup or a catch up, these terms are thrown around a lot in the running space.
And just to give a brief definition, a cleanup means that you are making sure that all historical data of your books is complete, accurate, reconciled.
It's really just a complete picture of a monthly close, but for all the months that have not had taxes filed on it yet.
And this can kind of happen if you've been doing your books yourself, and now you've kind of reached the point like, hey, did not have all the time to dedicate on my books, but I think I'm missing pieces here and you want to kind of do a clean up and make sure everything's accurate.
So this is a great time to make sure your chart of accounts are set up correctly, that they accurately reflect your business and align with your business needs.
So that will be a part of my cleanup process, really.
And then also making sure the bank feeds and automation is in place.
And then again, with any sales tax, filing deadline registrations, that's also an important part of making sure the books are set up and so that you meet all those deadlines.
It is something, again, you can do it yourself, but it is also something that somebody can do for you.
And it really just depends on how much time you want to invest in it, or if you want to invest in someone else handling it for you.
Because a huge benefit could be you not having to spend the time doing it, and also making sure that it is done correctly, because at the end of the day, that's the goal of doing a cleanup, is making sure that everything that is wrong is now presented correctly.
Yes, yes.
And I think just to tag on to that, Leah, I think cleanup is one of the services, but also setting up someone's book.
So a lot of times, new business owners want to do all this.
They want to start off on the right foot, but they've gotten their QuickBooks or Xero subscription, and now they're like, I don't know what to do.
I got this software, but what's the next steps?
So that's where we can come in and really set up the software platform so that you're able to have all that customization in place, that we've mentioned, any integrations, your chart of accounts.
So you're really set up for success right from the get-go, and so you're just gonna have to maintain them if you want to do them yourself, or if you want to outsource that, your accountant will be very happy that you had someone set it up correctly for them.
And it's also a great point just to ask questions.
If you're a new business owner, there's a lot of financial questions you may not be aware of, like what kind of retirement plans can I set up?
What type of health insurance should I be really looking at?
And so this is where we can kind of step in, and any financial partner can step in and also help guide you on those questions.
And so there's a lot of value that you can get from your accountant beyond just doing your book.
Yeah, absolutely.
And one other piece of the cleanup and historical catch up or setup phase is defining cleanups versus catch ups, because sometimes people have past records, you know, they just need their books up to the present day.
So maybe they've had them done correctly and everything is looking good.
But it's only through March of a past year, but then still April needs to be caught up through the end of the year and through the current month.
And to be honest, I love catch ups and sometimes they even love starting cleanups from a clean slate and just if a cleanup is really messy and it would be more efficient, to just start fresh and start clean, then it is kind of a perfect marriage of both the clean setup and then also making sure that everything in the past is accurate because you can just really set someone up for success, make sure their chart of accounts is beautiful, and it makes sense for their business, and also just making sure that those bank needs and everything is set up going forward as well.
I think that's a great description there, Leah, of how we can provide those services as well.
So a little bit of everything.
Shifting gears, now that we have accurate data, it looks good.
What are some other services that we can provide?
I think the next really big thing that we really want to dig into is fractional CFO services or advisory services for businesses.
I know it's like a big term a lot of times for business owners to think of CFO and they're not really ready or at that point yet, but really understanding what a CFO service is, is really understanding where your business is at currently, and then making a strategy and looking forward.
And that's where you're looking for support.
So this could look like forecasting, budgeting, cash flow planning, ratio analysis.
You're looking for support in terms of the future.
And I think the main difference, like you said, is you're taking a look at everything that has happened in the past.
So that's historical data.
So everything that is bookkeeping or accounting related is focused on work that has already happened.
So a good way to think about this is, when you get your bank statement, that is activity that has already happened.
And so now you're just reporting on it and making sure that it is accurate.
And so really what CFO services are for, that future focused work, sometimes people use different terminology.
So I've heard it called CFO of advisory work, and it always has that sort of virtual or fractional aspect of it, because a lot of times people think that the CFO for a company is just this C-suite officer who is helping a startup, for example.
They're helping get funding, they're helping to negotiate any sort of investment deals into the company.
There's a lot of different realms that they cover that can sound a little bit intimidating or a little bit beyond what a small business may need.
And so a lot of what I think of CFO services is, is the forecasting, budgeting, cash flow strategy, just providing context using the historical records and showing what future months could look like and really giving the business another context into what different variables can drive those results that they are projecting or budgeting, forecasting for.
Yeah.
And I think the ultimate goal is really to be a partner in with the business and help them, like you said, guide them through the financial decisions.
And this could look like many different things.
If you're wanting to hire another employee, does it make sense?
It requires an analysis of where you are at currently, but also what does that look like in relation to your revenue growth, your expenses, what does your bottom line look like at the end of the day, if you add that new hire?
So that's where a lot of that analysis comes in and it's more future focused.
So you're making decisions based off of a strategic plan and based off of the data.
And this is where the bookkeeping being accurate is so important because you can't make these decisions if your data is not accurate.
So before you even move into thinking or considering a CFO type service, you really need to have really good accurate records.
And so you need a good bookkeeper in place.
So Leah, just wrapping up, I think just to provide a high level of everything we covered today.
So bookkeeping is really just keeping things running and making sure you have your accurate records in place.
Clean up and setting up your books is really setting up the foundation for your business and then CFO services is really the guide and the partnership to growth.
Yes.
If you have any questions about these different steps of the process, then me and Aminder are here to be a resource because there's definitely, depending on where your business is at, some businesses may be ready for that bookkeeping service that is ongoing and monthly and ready for them.
But then others may not have the past few years caught up.
And so it is something where everyone is really in a different position.
And at the end of the day, every business is, the goal is to get to that place where you are ready for that strategic support going forward within the form of CFO services.
So I think that was a great summary.
So thank you everyone for listening to this episode of The Accounting Edit.
And thank you for joining us.
We will love to talk to you next time.
We will see you next time.
You've been listening to The Accounting Edit, a podcast by Aminder Man of Sequoia CPA and Leah McCool of Orca Accounting.
We'll be posting new episodes every other week, so be sure to follow so you don't miss out.
Does your business need help on the accounting side of things?
We would love to help you.
You can find Aminder at sequoiacpa.com or on Instagram at sequoiacpa.
You can find me, Leah, at orcaaccounting.com, or on Instagram at orca-accounting.
And if you're enjoying the show, don't forget to follow us so you don't miss an episode.
And if you have any feedback or thoughts, we'd love it if you left us a review.
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Welcome to Episode 2 of The Accounting Edit!

In this episode of The Accounting Edit, Leah and Aminder break down what bookkeeping actually involves — and why it’s so much more than just data entry. From categorizing transactions to reconciling accounts and preparing accurate reports, they unpack the foundational elements that help small businesses stay financially healthy.

They also talk through common cleanup needs, the difference between monthly and quarterly bookkeeping, and where fractional CFO services come in for deeper strategy. Whether you're a business owner trying to stay organized or an accountant expanding your service offerings, this episode offers a practical (and honest) look at what good financial support should include.