Plenty of startups go a year or more on a bank feed and good intentions. Then a raise, an audit request or a tax deadline arrives and the books have to be right, quickly. Catch-up work is predictable when it is done in the right order.
Order of work
| Step | Output |
|---|---|
| 1. Gather | Every bank, card, payment processor, payroll and loan statement for the period; contracts; the cap table |
| 2. Reconcile cash | Each account reconciled month by month to the statement |
| 3. Clear the suspense | Uncategorized and "ask the accountant" items coded with support |
| 4. Rebuild revenue | Billing data mapped to the ledger; deferred revenue built from contracts |
| 5. Payroll | Payroll registers posted with taxes and benefits by department |
| 6. Accruals and prepaids | Year-end and month-end schedules |
| 7. Equity and financing | SAFEs, notes, stock issuances and option grants recorded |
| 8. Review | Monthly P&L and balance sheet trends checked for anything that does not make sense |
Cash first, because everything else depends on it.
The usual findings
- Stripe deposits booked as revenue at the net amount, with fees missing
- Annual prepayments recorded as revenue in the month received
- Owner or founder card spend mixed with company spend
- Transfers between accounts recorded as income or expense
- Contractor payments with no Form W-9 on file
- SAFE proceeds recorded as revenue or as equity without terms
Rebuilding deferred revenue
For each customer contract: start date, term, billing schedule and amount. Recognize revenue monthly over the service period, compare to invoices, and post the difference to deferred revenue or unbilled receivables. The ending balance should tie to a contract-by-contract schedule.
A worked month
March bank deposit from Stripe: $47,350.
| Component | Amount |
|---|---|
| Gross charges | $49,000 |
| Refunds | −$300 |
| Processing fees | −$1,350 |
| Net payout | $47,350 |
Correct entry: revenue and deferred revenue from the gross charges per the billing data, refunds against revenue, fees to their expense account, and the payout cleared through a Stripe clearing account.
Getting tax filings current
- If a return is not yet due, file the extension (Form 7004 for a corporation) and finish the books first.
- If a return is late, file as soon as the books support it. Penalties for failure to file generally accrue monthly, so speed matters.
- Late information returns (Forms 1099) also carry penalties that grow with time; file them once contractor data is complete.
- Penalty relief, including first-time abatement, may be available once everything is filed.
Keeping it caught up
The cleanup is wasted if the old habits return. Close monthly, reconcile every account, and review the trial balance before anyone reads the P&L.
We take on catch-up projects for SaaS companies, rebuild the books on accrual, and keep them current every month after.
Sources
- IRS, Recordkeeping for businesses
- IRS, How long should records be kept
- IRS, About Form 7004, Application for Automatic Extension
- IRS, Failure to file penalty
- IRS, Penalty relief due to first-time abatement
Questions founders ask
How far back should catch-up work go?
To the last point where the books were reliable, or to formation if they never were. Open tax years and any period an investor or auditor will review set the minimum.
Can we file the tax return before the books are caught up?
File an extension if the deadline is near. A return filed on incomplete books often needs amending later, which costs more time than the extension.
