"CLEAN-UP" for Client’s with Messy Books!
What if your new bookkeeping client has months or years worth of messy, mistake-ridden QuickBooks transactions? How do you even begin to fix that?
In this article, I will share where to start when doing a clean up, what to charge as a bookkeeper, what documents you need, how long a clean-up will take, and some of my personal experiences and opinions about bookkeeper clean-ups.
Watch the video here, or keep reading!
#1 - What is the cause of messy books?
As with most clean ups, there is not one answer to this question, “What is causing the messy books?” It’s hard to encompass everything that needs to be done in every situation, but I will break down the most common issues.
To start, a common problem is that someone has been doing things wrong inside your client’s QuickBooks account. Oftentimes it is the owner themselves. Maybe when the owner started his business,he had a good system in place for reconciling his books every month, but as his business grew and things got more complicated, he didn’t know what to do.
Some common reasons you need to do a clean up are:
The client tried to do invoicing, but didn’t know how to apply payments.
The client didn’t know how to use undeposited funds.
The previous bookkeeper moved on and no one is keeping up the books.
The books have been neglected for a long time.
And lots more reasons!
In all, clean ups are when you need to go into QuickBooks and fix a bunch of mistakes that have occurred over a period of time.
RELATED: Check out my video on Catching Up a New Bookkeeping Clients. (Typically with catch ups, there aren’t many issues to fix.)
#2 - Determine the time that it will take to fix the books
You will want to figure out how far back in your client’s books you need to fix because this will determine how long it’s going to take you and how much you’re going to charge the client. Sometimes the client will know the year that they need updated, whether it’s the current year or possibly the year prior.
It would not be unusual for a new client to want you to clean up their books before they file their taxes. In that case, you want to clean their books starting with the year that they need to file taxes for.
If the client has more historical data beyond last year and has already filed their taxes, even if the books are messed up, I would not worry about fixing them.
In some cases, it might even make more sense (and might cost them less time) to start over and start a fresh set of books. If it’s hard to sift through transactions where some have already been submitted for taxes and others have not, this might be a good option. You will want to talk to your client about what the best option is for them.
The last thing that is going to give you a good idea as to the scope of this project is when the books were last reconciled. Check the reconciliation reports and match them with the bank statements. Make sure nothing has changed since the books were last reconciled. This could be a good starting place, since it’s the last time the bank matched QuickBooks.
#3 - How long does it take to do a clean-up?
This is the difficult question that everyone wants to know. In my personal experience, a clean up typically takes me between 10-30 hours. This, of course, is going to widely vary depending on a number of things, such as:
How many years are you cleaning up?
How many accounts do they have (bank accounts, credit cards, PayPal, etc)?
Which accounts are you fixing?
How many transactions do they have coming through per month?
What size business does your client have? (Small, Medium, or Large client)
For a client on the small side, you can estimate somewhere around an hour per month for the designated time you are fixing. So, if you are cleaning up a year's worth of books, you can roughly calculate that it will take you about 12 hours to complete. For a larger client, it might take 2 hours per month or even more.
Don’t forget about your admin time either. This is the time that you are communicating with your client. Sending emails or talking on the phone about problems and asking questions. And, the more problems you’re fixing, the longer it’s going to take.
#4 - How much to charge for clean-up?
There are a couple of different ways that you can charge your client for a clean up. I will start by sharing the simplest way and the way I did it when I was first starting out.
As a bookkeeper, you will have an average hourly rate that you want to make, even if you are charging at a fixed rate. For a clean up, I charge by the hour and I let the client know I will check in with them after 5 hours. At that point, I have a better idea of how long the rest of the project will take me, and I can get questions answered in order to complete the clean up.
If pricing seems overwhelming to you, a great resource I recommend is Veronica Wassak. Veronica has a YouTube channel called “5 minute bookkeeping,” and she also has a couple of courses that I will share later on in this article.
For pricing, Veronica recommends what she calls a “paid diagnostic review.” In this review, you look at your client’s books, review them, diagnose the problems, and then come to your client with the total amount it will cost to clean up their books. One tip Veronica shares is to give your client a price range. This gives you a little wiggle room in case you come across some unexpected problems. Veronica also encourages bookkeepers to always collect 50% of the cost up front before you start the work.
One problem I have come across in pricing clean ups, is that a clean up can actually take less time then monthly bookkeeping because you’re mass categorizing transactions. However, monthly bookkeeping could cost more than a one-time clean up; therefore, in the client’s mind, they don’t want to pay the ongoing fixed rate every month to have up-to-date books, and they choose to wait and scramble at the end of the year because they can get a better deal. So, when pricing, remember that these clean ups are worth a lot to the client.
#5 - What documents do you need for a clean-up?
As a bookkeeper, I work exclusively online, so the first thing I need for a clean up is access to my client’s QuickBooks Online account. If you or your client use a different software, you will want to gain access to that.
Other documents you will need are bank statements. Any time you can get an electronic bank statement or guest login to your client’s bank account, that is helpful. If your client has a tax return, you will want to get a copy. You will also want to reach out to your client’s tax preparer, if they have one. This way, when you are cleaning up and categorizing, you are doing it the way their tax preparer wants, and you can ask them questions as things come up.
#6 - Familiarize yourself with the issues
Now that you have the documents you need and have access to your client’s QuickBooks Online account, you’re able to jump in and see what is going on and why a clean up is needed.
The first thing I do is start poking around: pull a profit and loss statement, look at the balance sheet, check out the bank feeds and the register, and figure out when the last time the books were reconciled. Look for clues where things might have gone wrong.
Are there negative balances where you know there should be a positive balance?
Are personal and business expenses mixed?
Are there owner’s draws in the equity account?
Are they writing invoices and applying payments?
Are they writing checks?
These are all issues that you want to look for and that you are going to need to sort out.
Look into every corner of their QuickBooks Online account. Get a feel for what they have been doing or where they may have messed up. From there, figure out the scope of what you are going to need to clean up.
For additional guidance, check out Veronica’s free checklist that you can download to help get you started. You can also purchase Veronica’s Colossal Cleanup checklist that goes much more in depth on the clean up process.
#7 - Get started cleaning up the books!
Once you have the issues figured out, it’s time to get started. This is going to look a little differently for every single client. I will give you some tips for how to start the clean up process.
One Thing at a Time
Find a place where your client’s QuickBooks account matches his bank account and start from there. If the undeposited funds are an issue, you could work on that first. Then you could move on to things that are miscategorized or personal and business expenses that are mixed.
Wherever you start, make sure you focus on one issue at a time and clean it up before you move onto the next issue. Check out Veronica’s class, Complete QBO Clean Up System, to learn more about how to create a system as you complete a clean up.
Ask My Accountant
Drop any questions you may have in the Ask My Accountant tab in order to get further clarification from your client’s tax preparer. You can also send your client’s tax preparer reports. I find this to be a helpful tool when doing clean ups. You can watch my video on it here: How I use Ask My Accountant to be more productive in QBO.
Check Images
Check images are very helpful. If you have a lot of checks and you can’t figure out what they are for, you can log into your clients bank account and get the check image. Sometimes you can also find the check image on the bank statement. Another option is to ask your client if they keep a paper ledger copy of their checks. This will be helpful in order to categorize the checks in your clients account.
As a bookkeeper, you have the flexibility to choose the type of client you want to work with and what services you provide. Someone like Veronica, who has a really good system for clean ups, can bring in a lot of business by providing this service.
I have done many clean ups and have realized that they are not my favorite service to provide. My sweet spot is completing my clients’ books monthly and doing it fast and efficiently.
I hope after reading this, you now have the confidence to dive into a clean up. It’s going to be challenging sometimes and you’re not always going to know what to do, but you can always find the answer somewhere!
