How Bad Bookkeeping Hurts Your Business

Bad bookkeeping creates business problems, not just accounting problems. Inaccurate financial records can lead to overpaying taxes, missing valuable tax deductions, making decisions based on unreliable numbers, and creating challenges when applying for loans or funding. Our favorite Bookkeeping Mensch, Paul Rosenblum, is here to explain why accurate books matter long before tax season arrives and why getting the numbers right can save businesses significant time, money, and stress.

Using a real bookkeeping cleanup project as a case study, Paul shares how what initially appeared to be a routine cleanup uncovered missing bank accounts, unrecorded credit cards, unreconciled transactions, and financial reports that couldn't be trusted. Along the way, he explores the importance of tax loss carryforwards and demonstrates why bookkeeping is far more than data entry. Accurate books provide the foundation for business decisions, tax planning, financial reporting, and long-term growth.

Mentioned in this episode:
Does Bookkeeping Need To Be More Regulated? S7E4
https://pod.link/1688000860/episode/QnV6enNwcm91dC0xODcxMTY0Ng

Transcript

S10E01: Episode 91: How Bad Bookkeeping Hurts Your Business

This day started off nicely. Knowing that I had a webinar on QuickBooks scheduled that day, I was in a good mood since I love teaching so much.  It’s a nice way to break up the day from bookkeeping. I hosted a 2-hour webinar, and soon after, an attendee emailed me wanting to talk to me about doing her bookkeeping. And even though I am cutting down on clients, I still talk to everyone trying to find quality or interesting clients and businesses. We talked for over an hour on the phone and I got home at 6:30. It was an interesting conversation about an interesting company, and I told her that I would need access to the books before I would commit. This story is an interesting one, so stay tuned.  I’m Paul Rosenblum. 

When I got access to the company, I immediately ran a profit and loss and a balance sheet and exported to PDF files to prepare to write comments for the client. 

I commented on some of the names of the accounts, and how they were organized, and did my regular writeup.  Unreconciled transactions in the bank reconciliation meant that the balance sheet in an S Corporation was incorrect. So; far, so good. It was a cleanup job, somewhere in the average range. 

A few days later, I went into the books again and found more things that I didn’t like. I started to look at the transactions in earlier years, such as 2022 and 2023. Most of the transactions, rather than being downloaded, were entered in the form of journal entries.  No vendors, just amounts and categories.

 I determined pretty quickly that 2022 and 2023 and probably 2024 were not put together well and knew that this would be a gigantic ‘fix-it’ job for me. 2025 wasn’t filed yet, so I knew that 2025 would have to come first. There was a bank account started in July of 2025 that wasn’t entered into QuickBooks yet.  The transactions were in the bank download area for close to a year. I didn’t get back to the client, because I was really considering turning this away. I finally called the perspective client back and told her that this is a lot of work.  She wanted the 2025 stuff to be filed by the deadline, which, because they were already on extension, would be September 15th.   We talked more about their finances, and they didn’t think they were making a profit because they kept borrowing more and more money from personal credit cards and funding companies.  Most bookkeepers would not take this client on.  Period.  The client couldn’t afford to pay the required bookkeeping charges, for one – and frankly, it would be a lot of very careful work putting things together properly. I talked again to the client, and she told me that she had two other bookkeepers who had worked on the file previously, and both said that the books were clean and ready for the accountant.  Needless to say, the accountant sent the books back saying that they are “a mess”. I think the client didn’t really believe me when I said that this will be a lot of work to fix. I call this ‘bookkeeper battered syndrome’. 

For those of you who have listened to lots of episodes here know that I am two things:  

1. A sucker for companies who have been ‘battered’ by bookkeepers and- 
2. Someone who looks at bookkeeping as a public service to get their books correct, especially if the company is doing something for the environment, such as this one is, and just fell on bad luck or bad judgement in the hiring bookkeepers. 

So. What did I do?  I took them on as a client, even knowing that I had 6 weeks to get their books up to par for 2025. They had a budget that really was unacceptably low for me to pay for bookkeeping, but I promised them that I’d take care of them, fix the books, and help them make a profit, and make their accountant happy (and in turn, maybe get referrals from the accountant),  And eventually go back to old tax returns that they thought they overpaid taxes and see if we can amend those. I will be billing them in small increments so the cost would be more affordable spread out. 

The owner suggested to me that I teach a family member how to go into the banking section and accept the 2026 transactions that are sitting there. I spent a couple of hours with that family member, and they caught on very quickly.  Then I started working on the bank account that wasn’t entered since it was opened in July of 2025.  Most every transaction, I had to enter in the Ask My Client account, since this company is in the food industry and didn’t know if things should be categorized as a meal, or food that they are buying for re-sale as part of the business.  

I have a type A personality, as I surely know my producer knows, and probably you do too – and I like to have the feeling that I am in control, especially in my bookkeeping practice.  However, when I sent the first Ask My Client spreadsheet to the client in email, she immediately said -- let’s set up ‘Slack’ ... We can put everything in there, seamlessly. I reluctantly said OK— (because I don’t like change in routine) and also because I wanted to get this done within the time frame with my rules. Obviously, the client is Type A as well. But I really like her and admire what she is doing with her business, except the bookkeeping, of course. 

After a few days, she was very quick in getting back to me with answers for all of my questions, and as I began to see a pattern, I was able to set up rules in the download section of QuickBooks. 

There was the normal stuff such as deposits attached to invoices deposited to a bank account, but the deposit didn’t show up on the bank account statement. I temporarily (hopefully), made the deposit go into another bank account that was not reconciled yet for 2025. We’ll see if they come up later when I get to that bank account. 

I looked at the Chart of Accounts, and there were 3 credit cards listed, and I did see payments from the bank account to these credit cards, but no expenses were entered. So, I decided to do a ‘Slack video call’ with the client to go over the credit cards. It ended up that there were 4 more credit cards, never set up through QuickBooks and never had a an account on the chart of accounts assigned to them. 

And I started to feel a bit of steam coming out of my ears – not about the client, but about 3 other bookkeepers who have said the books are clean and ready for the accountant. There is a recent episode (Season 7, Number 4) in which I talk about regulating bookkeeping. Well, this is a perfect example.  Why is it not standard procedure that when a bookkeeper gets a set of books that is known to need cleanup that the bookkeeper has to go through every bank and credit card account, including funding and loans and credit lines with the client to at least make sure that all accounts are in the accounting system?   Isn’t that just common sense? You don’t need A.I. for that, just H.I. ! 

So, every time I sit down to work on these books (and I try to make it an hour a day every day until it’s done), steam comes out of my ears. However, I somehow do my best work when I’m angry at other bookkeepers, mostly. I’m laser focused on the task just to be able to say to the client --- “This is now behind you since you have actual clean books, and we can now move forward. I promise your accountant will be happy.” 

I have a year of another bank account to do, and I’m not sure if there is time to edit each and every transaction from a journal entry to a standardized expense entry (I will determine this in the next couple of days after writing this), but even if I don’t, I will make sure that the journal entry, the amounts and the categories match up to the bank statement. 

Then I have to deal with at least a year (but I will probably go back a few years) of credit card transactions that were not in the system at all and enter some of those manually since the downloads won’t go back more than 1 to 1 and a half years. There are 6 credit cards in total, and a funding company that I have to separate the principle and the interest in every transaction, not to mention bank balances reconciled but having incorrect balances on the balance sheet that is reported to the government at tax time. 

I have (so far) noticed that this corporation has elected to file as an S Corporation in NYC and has no NYC or NYS filing fees in 2025, at least (I haven’t looked at previous years). 

It looks like, at least right now, that there will be no profit in 2025, so payroll for the officers is moot. It seems like every time I log in and start working on the books, I am uncovering some new things.  

Why is this so important to get right even though the company isn’t making a profit?   I know that’s what you’re thinking. 

The answer is this:  The losses on a corporation (or a partnership) carry over to future years. So, if you are at a $100,000.00 loss for one year, and the next year, you show $110,000.00 net profit, you might only pay tax on $10,000.00 since the loss can be used toward the current tax return. So, we need these numbers right from top to bottom. That’s the goal here, but I do have a time frame. 

What’s another reason, you ask?  Because there might be some funding or bank loans involved in the near future, we don’t want to forward the balance sheet and profit and loss reports that could be wildly incorrect. 

And as I do this, I am getting behind with other clients. So, last week, I was in high gear like I am during tax season, and financially, I am having my best July ever, I think. The adrenaline is flowing, for sure. I took this weekend totally off (except for writing this episode on Sunday afternoon) and did some very nice things with my ‘other half’.  Hopefully, I’ll be fresh for Monday, and I can do it again for 5 straight days, and get a lot done for many clients. 

I look at this as an investment. I won’t get paid what I’m worth for this project, but it’s an investment to keeping with my mantra as to being a good human being in the ways that I can. Also, eventually, when the client starts making some real money, I can raise my prices and make closer to what I should be making. 

I’d love to hear from any bookkeepers listening to me right now. Let me know if you have similar stories about your clients and let me know if you have taken on a project like this. One day, I’ll get the name and phone numbers of these other bookkeepers who worked on these books, and I’ll have a serious phone conversation with all of them, non-threatening, of course.  That’s my Type A – just like my father – he’d lecture and yell at filmmakers in his classroom about the mistakes that they made in their student films, and even though many students cried, they all thanked him later. It’s called tough love. Give me bad bookkeepers --  lemme at ‘em! (Going out and buying some boxing gloves). 

I am relating this situation to all of you bookkeepers and business owners, so that as a business owner, you can avoid this, and as a bookkeeper, it might help you decide if you are going to work with people in trouble bookkeeping wise or stick to regular bookkeeping and keeping your bookkeeping practice consistent and happy.  Or are you going to be a bookkeeping martyr like me, and torture yourself for your beliefs in life in general.  

I hope my next life is a really handsome stud who just has a regular job, makes a nice living, has a family, takes vacation with the family every year, has a white picket fence around the house in a nice neighborhood, and has a relatively stress-free life.  

On second thought --- 

I don’t think I could ever deal with that – not even in my next lives!   Nahh -- Forget I ever said that. I must be overtired or undermedicated.  

I’m Paul Rosenblum