Doing your own books in QuickBooks: what you can handle and when to bring in help

Yes, with a few exceptions

Many owners can keep their own books in QuickBooks: recording sales and expenses, categorizing transactions and reconciling bank accounts each month are learnable tasks. The parts I would not do alone are the initial setup, payroll, and the year-end adjustments that turn your books into a tax return or a financial statement someone else will rely on. A short review by a professional at setup and at year-end costs far less than rebuilding a file that drifted for two years.

I work in audit and assurance at Malnory, McNeal & Company, so I often see a company's books for the first time when a lender or buyer has asked for reliable statements. Some owner-kept files are excellent. Others have small early mistakes that grew into large cleanup projects. The difference is rarely intelligence or effort; it is knowing which decisions matter most.

There is also a question of time. Doing your own books makes sense when the business is simple and your hours are cheaper than an outside bookkeeper's. It stops making sense when bookkeeping happens late at night, gets pushed to the weekend and then to next month, or when the hours you spend on it would earn more if spent on customers. Be honest about which of those describes you, because the answer can change as the business grows.

What the IRS actually requires of your records

The IRS does not require any particular software. Its guidance says you may choose any recordkeeping system suited to your business that clearly shows your income and expenses, and that, except in a few cases, the law does not require any special kind of records. What it does expect is that purchases, sales, payroll and other transactions are backed by supporting documents and recorded in your books.

Retention matters as much as recording. The IRS says to keep records for 3 years in the general case, longer in specific situations, and to keep employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later. A well-organized QuickBooks file with attached receipts and statements makes that easy. A shoebox of paper and a file nobody has reconciled does not.

Setup decisions that are hard to undo

Most problems I see in owner-kept books trace back to the first week. When our firm sets up QuickBooks, we evaluate the business's needs first, then build the chart of accounts and the parts of the file the business will use, such as payroll, receivables, payables and inventory. We choose a starting date, load balances as of that date, enter outstanding receivables, payables, uncleared checks and deposits in transit, and compare a trial balance from the new file with the old records so both agree.

Every one of those steps exists because skipping it causes trouble later. A file that starts from unsupported balances will never reconcile cleanly, and a chart of accounts built on the fly tends to collect duplicate and overlapping categories that make reports hard to read. Fixing either one after a year of activity means touching every month that followed.

If you set up the file yourself, these are the choices to get right or to have someone check.

• Accounting method: cash or accrual, and whether it matches how your tax return is filed.
• Chart of accounts: specific enough to be useful, simple enough to use consistently, and aligned with your tax return categories.
• Starting date and opening balances: every account should start from a known, supported number.
• Items and sales tax settings: services, inventory and non-inventory items set up correctly from the start.
• Bank feed rules: automation that categorizes transactions wrongly will do it hundreds of times before anyone notices.

A monthly routine you can run yourself

Once the file is set up properly, an owner with a few focused hours a month can keep it in good shape. The key is doing the same steps every month, not catching up in a burst at year-end.

Pick a fixed day, such as the tenth of each month after statements arrive, and protect it on your calendar. A month of transactions takes far less time to review while you still remember what each charge was for. Three months later, the same review turns into detective work.

• Record or approve every bank and credit card transaction, with a receipt or invoice attached.
• Reconcile every bank, credit card and loan account to the statement.
• Review open invoices and follow up on anything past due.
• Review unpaid bills and schedule payments.
• Look at the profit and loss and balance sheet for anything that seems wrong, such as negative balances or a sudden jump in a category.
• Clear any uncategorized or suspense entries before the month is closed.

Where do-it-yourself books usually go wrong

The errors I see most often are predictable. Personal and business spending get mixed in the same account. Loan payments are recorded entirely as an expense, when part of each payment reduces the loan balance. Owner draws are booked as business expenses. Payroll is entered as the net paycheck only, so the withholding and employer taxes never appear. Deposits are recorded twice, once from the invoice and once from the bank feed, overstating income.

Two more are worth checking for. Sales tax collected from customers is sometimes recorded as income instead of as a liability owed to the state, which overstates revenue and hides what you owe. And equipment purchases are sometimes expensed in full when they should be recorded as assets, or the reverse, which affects both the balance sheet and the depreciation on your return. Neither is hard to fix in the month it happens.

Each of these looks minor in a single month. Over a year, they distort profit, the balance sheet and the tax return. When a lender asks for statements or the IRS asks a question, someone has to unwind them. Payroll errors in particular can create real exposure, which I explain in the payroll tax mistakes that cause the most trouble.

Signs it is time to call someone

Bring in help when the books stop being a routine and start being a worry. That usually happens at one of a few predictable points, and the earlier you act, the smaller the bill.

Payroll deserves special mention. Running payroll means withholding taxes, depositing them on the right schedule, filing quarterly and annual returns and issuing year-end forms. The software can calculate a paycheck, but it cannot tell you whether a worker should be an employee or a contractor, or notice that a deposit failed. For most owners I talk to around Dallas, payroll is the first task worth handing off.

• You are more than a couple of months behind on reconciliations.
• You have hired your first employee or are running payroll yourself.
• The balance sheet does not tie to last year's tax return.
• A bank, investor or buyer has asked for financial statements.
• You collect sales tax or have inventory and are not sure the file handles them correctly.
• You have no idea what your profit is until the return is prepared.

Help that does not mean giving up control

Hiring help is not all or nothing. Our firm trains owners and staff to use QuickBooks for accounting, management and tax needs, and offers follow-up training plus monthly, quarterly or annual reviews of the file. Many owners keep entering their own transactions and use us to check the work, make adjusting entries and prepare the return. Others hand off bookkeeping and payroll entirely and keep only approval and review.

If you do hand bookkeeping to an employee, keep some review for yourself. Opening the bank statement, approving new vendors and looking at the reconciliation each month are simple habits that protect the business, as I describe in internal controls for a small office. And if you are deciding between models on cost, what a CPA firm charges for bookkeeping, payroll and taxes lays out the factors.

Is your file healthy? A quick self-check

Before you decide whether you need help, spend half an hour on this check. If you can answer yes to all of it, you are doing well on your own. If not, the gaps tell you exactly where to start, and if the file is many months behind, a catch-up project like the one described in catching up books before a tax deadline comes first.

• Every bank and credit card account is reconciled through last month.
• The equity and retained earnings balances match last year's return.
• No transactions are sitting in uncategorized or suspense accounts.
• Loan balances in the file match the lender's statements.
• Payroll liabilities in the file match what was actually deposited.

What a review or cleanup session looks like

When an owner in the Dallas area brings us a QuickBooks file, we start by looking at the reconciliations, the balance sheet and the last tax return side by side. That tells us quickly whether the file needs a light review, targeted fixes or a fuller cleanup. Pricing follows that review of your business and records, and we share files through a secure client portal.

From there you choose the level of help: training, periodic reviews or ongoing bookkeeping and payroll. The goal is a file you trust, a return built on accurate numbers, and statements you can hand to a bank without worrying about what it will find.

Questions people ask me