Whether you are buying an existing business, coming into a new position, or just helping a friend straighten out the finances of their small business, you need to be prepared. If you are equipped with the proper paperwork and information beforehand, the work will go faster and smoother. Here are a few items to think about before breaking out the calculator.
When to Start
The easiest time to take over a business’s bookkeeping is at the beginning of their fiscal year. If there is no current problem and the business has kept good records, you simply carry the numbers forward from the previous year. All the paperwork should be in order and the closing balances from the previous year will become the opening balances for the new fiscal year.
However, things get more complicated if you start during the fiscal year, especially if you are trying to resolve certain accounting problems, such as financial discrepancies. In general, the closer you start to the end of the fiscal year, the more material you need to review. You will need to go over the financial records at least since the start of the current fiscal year. If you are investigating a problem that began earlier, you will need to go back as far as the case takes you.
Do Your Due Diligence
You need to find out what the business’s previous process for balancing the books was, and why it is no longer working for them. This will give you an idea on how deep to delve into previous records. If the owner was doing it themselves and no longer has the time, or their bookkeeper is retiring, you may just be able to pick up where they left off. If the previous bookkeeper was fired for incompetence or the company has issues with financial discrepancies, you will need to go over the records more closely.
What You Need
If there are no problems and you are coming in at the beginning of the fiscal year, ask to see the data file for the accounting software, current bank statements, and the previous fiscal year report. If you are coming in during the fiscal year or are resolving issues from the previous year, you will need to ask for quarterly reports and any relevant forms such as payroll, tax records, sales invoices, purchase records, and any other documentation relevant to the business.
Once you have the documentation and files in hand, give them a quick assessment. Whether or not you plan on going over them in detail later or you plan on following the previous bookkeeper’s processes, you still need an idea of how everything is organized. This will also help identify any obvious errors the previous bookkeeper may have overlooked and help you ask informed questions.
Opening the books on an existing business is always an adventure, but following these processes will help give you a good starting point for your work.