The Ambitious Bookkeeper Podcast

95 ⎸ [STRATEGY] How to handle Prior Year Cleanup Issues

April 26, 2023 Serena Shoup, CPA Episode 95
The Ambitious Bookkeeper Podcast
95 ⎸ [STRATEGY] How to handle Prior Year Cleanup Issues
Show Notes Transcript

Listen in to an on-air strategy session with one of my students!

In this episode you’ll hear:

  • How to handle 10k of prior year transactions on a cleanup when the client has already filed those taxes
  • How to have a conversation with a client about compliance issues and presenting multiple options
  • How to handle when a client doesn’t take your advice or can’t afford to hire you to implement

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[00:00:00] 

Serena: Right. Welcome back to the Ambitious Bookkeeper Podcast. Today is another special on-air strategy session with Clarice. So I, if you would like to introduce yourself, what type of clients you help, how many clients you have, all that good stuff. We'd love to hear it. , 

Clarice: sure. again, my name is Claris Williams. I'm with Web Tax Corporation and Bookkeeping Services. Still a small, business. I just got started in 2021, although I've been in the accounting field [00:01:00] for over a decade with the government. So there has been some, Learning hurdles, I guess you can say when you're coming from the compliance side over to helping people stay compliant.

right now we have about, 20 bookkeeping clients and they do range from business consultants to nonprofits. And then, I then my tax clients is a whole nother thing. so that's, yeah. , that's pretty 

Serena: much it about me. Awesome. So what can I support you in today on this call? Where do you wanna start first?

Mm-hmm. And then we can just kind of take it from there. 

Clarice: Sure. So, um, there has been some time since I last put my request in and, you know, when I scheduled this session mm-hmm. And you had mentioned I had. Questions already jotted down, so can you just give me a reminder? What I mentioned that I wanted to go 

Serena: over.

Yeah. Let me pull those up real quick. Mm-hmm. Just edit out the, pause. So, one of the questions, the first question is, how long have you been in business and you answered one to three years. Mm-hmm. Um, what is your biggest. Struggle right now in your business and you answered strengthening your C F O services and obtaining leads.

Oh, mm-hmm. And as for a hope to get outta the call, establishing a standard procedure to help my clients truly use the information I provide them during our quarterly bookkeeping review sessions to be better business owners. So, yeah. So, mm-hmm. Mm-hmm. If you wanna take it in that [00:02:00] direction, we can, or whatever is top of mind for you today, since it's been a while since you scheduled that call.

Mm-hmm. Mm-hmm. 

Clarice: So yes. When you said that, I was like, oh, yeah, I did wanna know, some of that. So depending on our time allotment, maybe we can squeeze a little bit of both in. Yeah. But, just starting. Originally what's, one of my focus for today, I'm actually doing a diagnostic review and I just wanna say, your training is awesome.

It just really helped keep everything in focus. And it helps me show my bookkeepers too. Like, Hey, this is how we're going to do it. This is the flow or the process that we're going to follow. Yeah. So right now I'm dealing with a company who. Has, 10 accounts connected. Some of them are active and the ones that are, are active.

They have not been reconciled since 2020. [00:03:00] 2021. Right. So, interestingly enough though, when I did some reports, some of the numbers did match up to, today's current date. There have been some things going on, but there hasn't been any reconciliations, since last year up until now. Now they are current on a tax return.

So, you know, up into 2021. You know, I guess I would just push that to the side and then try to focus on 2022 and then get them caught up with the this year. But, I guess what would you be, what would your advice be in situations like that where. When another business, they've been doing it on their own, they may not, well, I know they don't really understand what true reconciliation is, what true bookkeeping is, which you offer to still clean up anything in a prior year or just start with the most recent unfiled tax year.

Serena: So what I would probably do [00:04:00] is. are they on QuickBooks Online? Mm-hmm. Mm-hmm. So they're probably accepting bank feeds and categorizing things, but not actually doing the reconcili bank reconciliation function. Right.

Right. Mm-hmm. So I would go back and see. I would still try to reconcile those accounts cuz you can't reconcile the current accounts unless the previous years are reconciled too. So I would still go in and do the reconciliations. Now there might be some outstanding payments or some outstanding deposits that never end up clearing that might be sitting on those reconciliations that I would then take care of in 2022.

As far as like whatever needs to be voided, I would void it as of 2022. As to not disrupt the previous tax return years unless it's mm-hmm. Unless it's something like grossly underreported income or way underreported expenses that they may want to amend for. So, um, what I would do is I would go through the process [00:05:00] of doing all the reconciliations, let whatever is gonna be lingering on those reports, linger right as uncleared, and then.

In January or whatever of 2022, I would, you know, export that list and see what the effect would be on the bottom line before making the adjustments. Mm-hmm. To give that to the client and say, it looks like we, there was some duplicated, for example, maybe. Maybe there's some outstanding unclear checks that could indicate duplicate expenses, right?

Mm-hmm. So I. Total all of them up and say, it looks like in prior years 2021 and before, maybe you can break it out by year two. If there's a lot, and this might not even be the case, it could end up really clean once you. Reconcile the accounts we don't really know yet, right? Mm-hmm. Mm-hmm. But if there was a lot outstanding on that report, I would break it down by year and sh and see like what is the effect on the [00:06:00] expense side and the revenue side, and present that to the client.

So for example, maybe there's a bunch of duplicated expenses, which means in 2021 when they filed taxes, they. They took too many deductions in essence. So then I would show them, it looks like you took, you know, 5,000 in extra deductions in 2021, and I would just let them make the decision and say, are you okay?

You know, if you were to be audited, you would probably lose those deductions. Mm-hmm. Mm-hmm. But when you multiply that by your tax rate, it's not that much. Right. So you present them the option and say, I just want you to be aware, what the effects could be. But if you don't find it necessary to go back and amend, then we will.

You know, clean those up in 2022 and move forward. So that's basically how I would handle it. Now, that may not even be the situation. It could be like one or two really small transactions [00:07:00] that at the end of the day aren't gonna c cause much of an effect. Mm-hmm. But if they over-reported income, that I definitely would be like, Have a discussion about with your tax preparer, or maybe you're the tax preparer, have a discussion about filing an amended return to and see what the, you know?

Mm-hmm. If you could get some money back, if it would be worth it with the fee of the amended return and all those factors, right? Mm-hmm. Ultimately, it's up to the client to make that decision on whether they want to amend. You can give them all the facts, you can give them the numbers and let them. Okay.

Clarice: Yeah. Yeah. It's, it's about $10,000 of, uncleared transactions. 

Serena: Okay. So, mm-hmm. Could be both revenue and expense, or do you think it was, is more It's a mixture of both. Mixture of both, so it could end up a wash in the end, you know what I mean? Mm-hmm. Mm-hmm. So that's where it's like you figure out what, what the actual net effect is on, you know, each year's p and l, [00:08:00] and maybe it is close to a wash, and so you just clear it out in 2022 and move forward.

Sounds good. 

Clarice: All right. Yeah. Awesome. 

Serena: Thank you. I was just, that's how I, we would handle it. There might be people 

Clarice: looking, I was just looking at, yeah, sometimes you wonder like, okay, am I making too much work for myself? What should I really do? What's the best, path forward for you and the client? 

Serena: Yeah. So, yeah, that makes sense.

Clarice: Perfect. All right. Yeah. So then the other question I have is, about, essentially, some of the daily tasks to be done when you are in a C F O role and how you're expanding on it so that the client understands. Because I've actually been told, it was like, Clarisa, I don't, I don't get what you're saying, or I don't know what you're asking me to do or look at.

So I was like, okay, you know, how am I, how can I explain things better other than, You know, a thumbs up at the meeting [00:09:00] or a thumbs down, like, you know, you're spending money too fast or you really need to be mindful of the budget that you put in place. And it, it's almost like, I wish there was a way that, the accounting system can send an alert to say, you're nearing.

So, one of. Clients, they give funding or grant awards and you know, there's a certain amount that they. Are supposed to put activities towards based on the amount that they receive. Yeah. And sometimes that money goes so quickly and it's like, I wish there was a way other than me looking at it daily, you know, to say, Hey, you're really reaching your limit here.

 Because a bank account can send out alerts, but it's not specific to. You know, it's just telling you about the whole bank account, not about what's going out [00:10:00] specifically. So, yeah, 

Serena: yeah, yeah. I'm sure there's some tool out there that does this, cuz I know it exists in the personal finance realm. Like for instance, I use, I used to use Mint for my personal budget.

Mm-hmm. But now I use, now it's called Rocket. Something, it used to be true Bill. Mm-hmm. But I get email alerts every week of like, where I stand against my budget and like how much I spent this week versus the same time last month and things like that. So it's like there's gotta be something like that, especially in the nonprofit sector.

But, yeah. short of you doing that daily mm-hmm. Maybe is the budget loaded into, QuickBooks. Mm-hmm. Okay. So is it something that, have they engaged you to do bookkeeping weekly or monthly? Or what's the status on that? Like your frequency? So 

Clarice: I did propose, increasing my hours so I can keep track more, but they want me to only come in [00:11:00] monthly, I guess in a sense.

And that's the 

Serena: other thing I'm trying to 

Clarice: really. I guess get some of my clients to understand that it's not a quick, whatever they think it is, it's not 

Serena: right. Always more and same for us, like we always underestimate the amount of works. Certain things are gonna be too. So yeah, ultimately like. They either have the budget for you to be able to come in and do that and offer that support or they don't.

So it's kind of having the, discussion with them on how important do they fe like this is how I would approach the client. Okay, client, like, you have this grant award that. Are supposed to allocate a certain amount of money to every whatever time period. Mm-hmm. Right? Mm-hmm. And what I've noticed happening is that you guys blow through the money very quickly and it's concerning.

So we need to come up with a solution to, to help you manage that [00:12:00] better. Mm-hmm. And the one solution would be for me to do. Weekly bookkeeping and let you know when it's done. So you can go in and run your budget report in QuickBooks and see where you're tracking against it, or the other solution is for me to do all of that for you and alert you.

One of them's gonna be much more expensive, but the other one, like either way, they need to have the visibility. So that's kind of how I would approach it and let them know, like, I can do the bookkeeping weekly, it's going to increase my fee slightly. Mm-hmm. But not as much as if I'm running those reports for you and giving you the alerts.

So you let me know what you prefer, or if. You know, if you have no concerns about using up the money too quickly and getting into a pickle, then that's okay. We don't have to even go there. But likely they're gonna be like, yeah, it is an issue and we don't wanna get in trouble and overspend or use up all the money in areas we're not supposed to.

Mm-hmm. Mm-hmm. 

Clarice: Yeah, that is [00:13:00] perfect. I did bring it up. I said, you know, originally I thought this was gonna take about 10 hours a month. It's looking closer to 40. And it was like, oh no, that's, you know, that's too much. And I said, eh, okay. But I do like how you are, how you provided a comparison. You know, either I do it and help you out, or 

Serena: you know, this is what you are going 

Clarice: to have to do to make sure that you're.

Serena: Being compliant. Yeah. And they may choose the DIY option initially and then realize that one, they're not able to keep up with it or two. Mm-hmm. They don't really understand what they're doing. And they would rather pay for someone to just send an email every week that says, this is where you track against your budget.

Mm-hmm. And that's what you could do. You can make it that simple to where you're maybe not even sending, maybe you're attaching the reports, but really it's just like a bullet point in the body of an email. Think like a c e o here. Like this is, this is where I bring in like my corporate experience, like my managers and my [00:14:00] C F O and, and everything.

They did not want to have to open an attachment. Mm-hmm. They preferred. Mm-hmm. Like a screenshot and bullet points in the body of the email because they're always on the go. Right. So that's one of the areas where it would be like, we'll make it simple for you. We'll do all the work in the background.

I'll send you a weekly email on Fridays that shows you. A snapshot of where you are tracking against this budget and like the top categories you're spending in or whatever, you know what I mean? Whatever valuable information would help them. Mm-hmm. Mm-hmm. or like, like we said, you can still do the weekly bookkeeping cuz maybe you're already doing that anyways, just to stay up on your workload and then they can go into QuickBooks on every Monday morning and see where it tracks against it, if you're okay with committing to those like weekly deadlines, you know what I mean?

Well, 

Clarice: yeah, that's the other thing too. It, it's been changing, like, you know, every so often it's like, okay, I thought we could talk monthly. We really need to talk at least every two weeks. Now it's like, oh no, we need to talk weekly. So yeah, it's [00:15:00] definitely increasing. 

Serena: Yeah. Okay. Yeah. So have you found it, difficult to have that conversation of like, are you the one initiating the weekly meetings or are.

Oh, I am. Okay. And it's really just because you're trying to keep them compliant. Mm-hmm. Mm-hmm. And are they appreciative of that? Do they understand the value in that? Oh yeah. I mean, 

Clarice: well they, they understand what I'm doing. I think it's the cost that makes, people pause and. and that's when I wonder if I'm really proving my value.

So maybe that's why I do try to give more than enough information, but, it doesn't help if they get overwhelmed, don't look at it, don't understand it, and then, you know, they, so right now that's what I'm trying to do is find that balance of showing you why I charge the way that I do. And then you also see that, you know, it's, 

Serena: Yeah.

Yeah, yeah, yeah. Have [00:16:00] you had the discussion with the client on like what kind of information they want to see it and maybe how they want to see it? That way you're not doing stuff that nobody's looking at. And maybe doing like a Loom video or something instead of a meeting. 

Clarice: Yes, we did talk about that.

That was originally what I was going to do was do I do video recordings for my other clients, but it's just because, uh, there's been a lot of cleanup for them. So that's another reason why we've been talking a lot too. So, but hopefully we'll get to that point where, It flows a little bit better. I'm still getting adjusted to all the programs that, need to be tagged with certain things.

And once we, you know, fall into a routine, then definitely it'll get easier. And I think that's what they're thinking. Like, oh, it's not gonna be this hard for so long, so we're not going to commit to more hours right now. [00:17:00] But yes, it's, it's definitely 

Serena: a work in progress. Yeah, it's also helpful to have the discussion of like, yeah, this during this period of cleanup, I do need your extra time and attention.

But if we can get a good process in place where they are keeping up with what they need to on their end, then yeah, it would definitely cut your hours back if they can do certain things on the front end. So as long as they're willing to continue to pay the extra hours currently, like while it's act, you know, really needed.

Mm-hmm. Then. yeah, I can, I can understand their perspective on that. Mm-hmm. Mm-hmm. Yeah. Mm-hmm. So, oh, great. Well, was that helpful? Do you have any other questions around that? 

Clarice: Not that I can think of right now. I just really appreciate the time that you took to chat with me about this because, I think I know the direction 

Serena: I'm headed, right.

Okay. Keep me posted. Oops. I wanna know how it [00:18:00] goes. Mm-hmm. It's, it's difficult to have these conversations with clients, but I think in the end, they'll respect you more for being able to have the difficult conversation. Mm-hmm. And, ultimately, like they get to decide whether or not they.

The advice of us or not, right? Mm-hmm. That's always the difficult part. You know 

Clarice: what, I did have something else I wanted to chat with you about, but I wasn't sure if I should just post it in the group or not. But, so where I'm at in Virginia, I am certified as a small woman owned business. And recently, or currently there's a, contract out.

For those who are experienced with QuickBooks in different projects, similar to nonprofits. And so I guess my question would be if I am looking for other people who could possibly help me with a contract like this, where would you go? Like what's [00:19:00] your go-to when you have a big project that might be coming up and you are looking for additional resource?

Or support. 

Serena: Yeah. Do you currently have anyone working for you right now on your team? Mm-hmm. Mm-hmm. Okay. I would go there first to see what their capacity is. Um, 

Clarice: oh, well, I, I already know. I wouldn't need, so yeah, they're all just starting out. I have two experienced bookkeepers. Mm-hmm. And right now, they are at capacity with who we have right now.

And then, now all this is all just very, Nothing said in stone. It's just an opportunity to apply for 

Serena: it. But yeah. Mm-hmm. So I would go, I would go to my current, are they contractors or employees? Contractors. So I would go to them and see like if they know of anyone that they would trust to work on a project like this.

Because it sounds like you've already built trust with your own contractors and. you know, their work ethic, so maybe they might know somebody. So [00:20:00] I would kind of start there with like your immediate network and then I would kind of cast a net outside of that as well, and like into the group, right?

See if there's anyone in our group that you know, came from corporate, is just kind of getting started and wanting to, get into this world. Or that they have their own clients, but they're also. Looking for more work. So those are the two areas that I would probably go to. 

It kind of just depends on, this is where it gets like a little bit tricky cuz sometimes people are like, I need help but I don't have time to train anyone. Mm-hmm. Yes. So you're gonna pay more for, pay more and also be a little more unsure of what people's skills are if you mm-hmm. go this route.

So it's kind of like, would it be easier to. Bring on a more junior bookkeeper and have one of your current team members mm-hmm. Offload some of their really easy stuff and have one of your current team [00:21:00] members who you really trust and know their skill level to take on this new project.

That is a great 

Clarice: idea. 

Serena: Wow. Like a backfilling situation. Yeah. You're, 

Clarice: you're ab Oh, wow. Okay. You're absolutely right. Hm. Right, because, um, like I said, I have two really experienced ones and then two who are you know, newer. And actually we can definitely use this time to get them acclimated with the clients that we already have, kind of push that, like you said, some of the easier ones off to them.

Serena: That's great. Yes, you're right. Or even just some of the easier tasks. It doesn't have to be the entire client. It could just be like, log in, do all of our clients and do bank feeds, you know? 

Clarice: Oh, yeah, yeah, yeah, yeah. That's what I was thinking about too. I, so what I have them started off doing is, more like the admin stuff.

Make sure the client gets us everything that we're requesting. If they don't know how to connect their bank account, get on the call with them, show them [00:22:00] how. So that's pretty much a part of what they do, but. Scene I am re I'm happy to know. Thank you. 

Serena: You're welcome. This is why these conversations are like, it's why we need to have these conversations and be able to kinda like talk things through, because you never know, like there's always gonna be something you didn't think of.

Mm-hmm. Mm-hmm. So that's where it's so nice to have the community and. Be able to have these types of conversations, so. Mm-hmm. What else you got for me? We've still got a little bit of time. 

Clarice: Oh, wow. Well, I think I, I tried to make it short and sweet because I know, I have a lot on my plate. This tax season has been, it's been a lot so far.

What I've been finding out is that, and it could be because of social media, but you have so many influencers out there now. Giving out all this advice and something it works, some of it doesn't. Yeah. And then you get the clients who are saying, well, why can't you do this for me? Why can't you [00:23:00] eliminate all of my tax liability?

It's like, eh, don't work like that. The world works. That is not how it works. so yeah. , lemme see. Is there anything else? Nothing that I can think of of right now. The only thing I really wanna do is try to finish this, diagnostic review that I'm doing, trying to get through it. And I actually have two that I have to get through.

So, yeah. Nothing else at the moment. Was there anything you wanted to ask me that I may not be thinking about or. I 

Serena: don't think so. Just what I would encourage you to do as soon as we get off this call is kind of jot down your takeaways and maybe prioritize like, you know, Or even kind of like formulate the conversation that, and it's totally okay to write these out.

Like, this is how I have difficult conversations. I write out what I wanna say. Mm-hmm. [00:24:00] And look and say it out loud and see if it like, does this sound right? So maybe do that with the one client that you're trying to present the options and get them to kind of see the value and what they need to do.

Mm-hmm. Um, and just remember, Ultimately they can say no, and you can continue doing just the bare minimum for your fee that you're doing, and you, you kinda have to let go of, like, the responsibility of running that business correctly is ultimately on them. You've given them options and that's, you know, yeah.

Clarice: Hangs at that point. Actually. I mean, just recently I did have a client who. They were my lowest paying client and they needed so much, but we agreed on this one aspect that I would do. And then just recently, and they was like, well, you know, I need a little bit more, so I'm going to this other person.

And then I was like, wait a minute. Like we had this whole conversation, you know, [00:25:00] about how if you needed more, it will cost this much. So either maybe their price point worked and they did more for less. Yeah. Which is, that's how it goes sometimes. But I'm learning that, , I wanna make sure that, as I get more clients that.

Not just starting out because I feel like, sometimes business owners don't see the value of a bookkeeper until after they've been in business a little bit and they know, they, they absolutely know they needed help instead of just trying to check off a box. Yeah. 

Serena: Yeah. There, there is definitely that camp of, of business owners.

There's also the camp of business owners that have been in business for quite a while. Mm-hmm. And they are still a disaster. 

Clarice: And, 

Serena: and on the other side of that, there's also the business owners that truly do see the value of it, and they really do want a bookkeeper to be their first hire and make or even have a bookkeeper before they open their business.[00:26:00] 

There are those people out there and. That's what all of us can do as an industry, as a whole of like educating those newer business owners and doing, you know, if you have the opportunity to speak in front of a group of entrepreneurs, do it. Like, let them know how important this stuff is. Give them some little tidbits and tips of, of advice.

But, yeah, like, I just like to encourage because. I've been doing some speaking stuff and, and people are so grateful. At the end of it, they're like, I never understood why it was so important until I heard you talk so well. I mean, all of us as an industry need to continue to talk about the importance of it.

Some people are gonna get it, some people won't. It's okay. That 

Clarice: is so true. I think what I've just run into is, people, even if they see the value, they may not be able to afford it as a startup just because they don't have the revenue. To support additional staff or to outsource just yet. So, but you're right.

Getting out there and speaking about [00:27:00] it, it'll definitely build, trust in the community. So, absolutely. 

Serena: All right. Well, with that, if you have nothing else, then I'll let you get back to your day, and thank you so much for sharing this, and I know it's gonna be super helpful for other people listening as well.

Oh, I hope so. Let me posted. Let me know in the group how the conversation with that client goes. Mm-hmm. Mm-hmm. Mm-hmm. I will. Thank you again. Thank you. Talk to you 

Clarice: soon. All right. Bye-Bye.

[00:28:00] 

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