I'm months behind on my books — what happens and what do I do first?

Nothing breaks on the day you stop. Orders keep shipping, payouts keep landing, and the bank balance still looks healthy. What stops is your view of the business. Marketplaces pay you net, in batches, after fees, refunds and reserves, so a bank deposit tells you very little about what you sold or what you kept. Without the books, three questions go unanswered:

• Am I making money on each product? Margin depends on cost of goods sold, which depends on knowing what you bought and what is still in stock, including units sitting in a fulfillment center.
• Can I afford the next inventory order? Cash tied up in stock, in a marketplace reserve or in an unpaid card balance doesn't show up in a quick glance at the bank.
• Do my tax numbers match what the platforms report? Payment platforms report gross amounts on Form 1099-K, before fees and refunds. Your tax preparer needs books that explain the difference.

The longer the gap, the more work each month takes to rebuild, because statements get harder to download, memories of odd transactions fade, and one unreconciled month carries its errors into every month after it.

Catching up is bookkeeping, not a tax procedure, and it goes in a fixed order. Doing the months out of order means fixing the same balances twice.

1. Find the last clean month. That is the last month where your bank and card balances in the books matched the statements. Everything after it is the catch-up.
2. Gather the statements. Bank and credit card statements, plus the settlement or payout reports from every channel you sell on (Amazon, Shopify, eBay, Etsy and so on), and supplier invoices for stock you bought.
3. Work oldest month first. Each month's closing balances are the next month's opening balances, so the oldest month has to be right before the next one can be.
4. Reconcile every payout, not just the bank. Break each deposit back into sales, refunds, fees and reserve so revenue is recorded gross and the costs are visible.
5. Count or estimate inventory at the end of each period you close. Without it, cost of goods sold is a guess.
6. Then keep it current. A monthly close stops the gap reopening.

The example on this page shows one month of that work: an Amazon payout broken back into its parts and tied to the bank to the cent.

If you are catching up, you will want to know how far back your paperwork needs to go. The IRS says you can use any recordkeeping system suited to your business that clearly shows your income and expenses, backed by supporting documents such as deposit information, invoices, account statements and proof of payment.^[2]

How long to keep them depends on your situation. The IRS lists these periods:^[1]

• 3 years in most cases, measured from the return the records support.
• 3 years from filing or 2 years from paying the tax, whichever is later, if you file a claim for credit or refund after filing.
• 4 years for employment tax records, after the tax is due or paid, whichever is later.
• 6 years if you do not report income you should have reported and it is more than 25% of the gross income shown on your return.
• 7 years if you claim a loss from worthless securities or a bad debt deduction.
• Indefinitely if you do not file a return, or file a fraudulent one.

Records relating to property are kept until the period of limitations expires for the year you dispose of it, and the IRS adds that your insurer or lenders may want records kept longer than it does.^[1] Download each platform's settlement and payout reports now and keep your own copies: the platform holds them, not you, and decides how long each report stays available.

The cost is mostly decisions made on the wrong numbers. In the example, Amazon sold 39,656.50 in September but paid out 30,803.85. A seller reading the bank sees the payout; a seller reading the books sees 38,420.00 of net sales, 7,203.40 of fees and 412.75 held back in reserve. Price, ad spend and reorder decisions made from the deposit alone treat fees as if they were lower sales, and the reserve as if it were gone.

Across a demo store selling on three channels, those gaps add up to a profit figure nobody can stand behind. At tax time the cost moves to your preparer: the 1099-K shows gross, the bank shows net, and without reconciled books the difference has to be rebuilt in a hurry, or estimated.

Being behind also makes every later month slower to close, because an error in an opening balance has to be traced back to the month it started in. That is why a catch-up is priced and worked month by month.

If you are more than a couple of months behind, sell on more than one channel, or hold inventory in more than one place, a catch-up is usually faster done by someone who reconciles marketplace payouts every day. Our catch-up bookkeeping brings each month current, oldest first, at one published rate per month behind, and ends with tax-ready books your tax preparer can work with. If your 1099-K is the part that worries you, start with why your 1099-K doesn't match your sales.