Let’s assume that you reached the conclusion that your file is too big. What can you do? First and foremost, you need to decide if you maxed out QuickBooks Pro and Premier and you need to upgrade to Enterprise. If you have reached the limit on number of items, you can try to cleanup the  items that you don’t  use anymore (see more on this below), but if it doesn’t have a sufficient impact, Enterprise might be your best option. I recommend that you first try a cleanup, because Enterprise represents a significant jump in price from Pro or Premier. Getting a second opinion from an expert is not a bad idea at that stage, just because of the cost involved. Don’t bother asking Intuit because they have an incentive to get you upgraded to Enterprise.

If you decided to try to decrease the size of your file, you have 3 options:

Use QuickBooks’ “Clean Up Company Data” feature to condense the past years.

This feature replaces most of the transactions from the previous years by much smaller monthly journal entries. The details on your previous years are gone, but the P&L and balance sheet “should” remain intact. See some disclaimers on this feature below.

Use QuickBooks’ “Clean Up Company Data” feature to remove ALL transactions.

The same Clean Up feature mentioned above also allows you to create a new company file without any transactions left, but with all your lists of items intact (customers, vendors, etc.). In this scenario, you need to manually recreate the opening balances for all your accounts, starting from a certain date, including open invoices, open bills, inventory, bank accounts, etc. It can be hard work. It’s as if you started with a brand new company file, exept that you don’t have to recreate your item lists.

Start a brand new company file

This is the brute force approach. It requires you to recreate all the opening balances and all your item lists. HOWEVER, don’t necessarily discount this option. It may make complete sense in a number of scenarios. Here are some examples:  

Your current item list is unnecessarily bloated. The previous 2 options carry over your old lists. Starting afresh is sometimes faster than deleting old items, which in some cases is not possible anyway.

Your database has become corrupted and you can’t seem to be able to fix it.

You have messes carrying over from previous years that would take a lot of work to fix (broken sales tax liability, open invoices that should have been closed a long time ago, etc.)

Keep in mind that there are 3rd party tools that allow you to migrate lists and transactions from one QuickBooks file to another. This is sometimes an elegant, albeit complex, solution.

A word of caution on the “Clean Up Company Data” feature in QuickBooks. This feature doesn’t work well unless you select the option to delete ALL transactions. Even Intuit is gun shy about this feature and seldom recommends it. The good news is that they seem much to be much more confident about this feature in the 2012 release that will come out in the Fall of 2011. They apparently made a breakthrough. If you are not in a rush, I’d wait for this new release before making big changes. The issues with the Clean Up feature are as follows:

• Sometimes, it simply breaks, ie it alters the financials for your previous years. The only way to make sure this doesn’t happen is to do very careful backups and archives of your file and create as many reports as possible before and after the cleanup and compare them, both on accrual and cash basis.
• In many cases, it doesn’t shrink the size of your file all that much, because it has an algorithm that tells it that certain transactions cannot be deleted (e.g. open invoices, inventory transactions linked to current items, etc.).

It doesn’t hurt to try this feature, but proceed with caution: create backups and compare you data before and after. When you create a backup, make sure to rename the backup and save it in a separate Archive folder. This a very important backup because it’s the last version that contains the details of your previous years. You don’t want to lump this with your generic daily or weekly backups. Also, don’t forget to note the password for that archive version. Your passwords of your “live” QuickBooks file changes over time and you want to make sure that you can reopen that archive file a few years down the road in case you have an audit, for instance.