Client Stories to Share
Good morning, afternoon, or evening, or whenever you are listening to this episode. I have had a request from a listener to share more specific situations that clients have been in before they were recommended to me to clean up their bookkeeping. So, I thought that was a good idea and will share a few more real-life stories with you in this episode.
However, Before we start, just a reminder, please leave me voicemail @ www.bookkeepermensch.com or E-mail at Bookkeepermensch@gmail.com with any comments or suggestions for future episodes. And as always, thanks very much for subscribing and listening!
For many years, I taught QuickBooks (and bookkeeping mixed in every class) at computer schools in NYC, all in a classroom environment. Some people came to the class because they wanted to learn something about QuickBooks and bookkeeping, some came because they were already working as a bookkeeper at a company and the company paid for them to come to the class, and others were small business owners who wanted to take the course to understand QuickBooks and general bookkeeping and accounting principles. At the end of almost every class, people would walk up to me and ask me if I am taking on bookkeeping clients. So, without any advertising, I was building the bookkeeping practice just by teaching, which was the furthest from my intention. So, very early on, I realized that businesses have many different situations that they were in and needed to unravel and get themselves out of those bad situations before they could move forward.
Starting in March of 2020, I pivoted quickly to teach webinars rather than in-person classes when the pandemic started. When I got used to webinars, I cut out the in-person classes completely. I found the same situation in the webinars where I taught “QuickBooks Online” or, “How to Read financial Reports”, or “The Top Ten Tax tips for small businesses”. People would write emails asking me if I am taking on clients. Needless to say, I am always flattered when that happens. And I usually do take those businesses on as clients and 99% of them work out well over a long period of time.
A common theme that new clients tell me is that they were using a pretty large accounting firm that not only was doing their tax-based accounting, but also doing their bookkeeping in their own in-house accounting system. When the client wanted to see their books so that they could make decisions about the company, the books were consistently 7 or 8 months behind. So, the first problem that needed to be addressed was to find a better match between the company and their accountant, CPA or tax preparer. Larger firms tend to get the larger clients done first, and then eventually work their way down to the smaller clients. So, unless the clients were doing some sort of bookkeeping themselves or in-house, they were flying blind.
One such client I met at an in-person class where I was talking about job costing. At the end of the class, a potential client came up to me and told me this story about his accounting firm. Not only could he not see his profit and loss during the year, he was on an extension every year not at his request, but the decision was made by the firm. He was ready for a change. He had and still has an S Corporation. It took weeks for me to get what I needed --- a trial balance, a profit and loss and a balance sheet or a general ledger from the old firm. Since they weren’t using QuickBooks, I had to enter their ending numbers from 2019 and make them beginning numbers for 2020. When I finished the bookkeeping for the year, I suggested a very good tax preparer who would look at the last 2 years of tax returns and make sure that things were correct. Overpayment of some taxes, payroll and shareholder loan accounts not being used properly were 3 things that needed changing in the S Corporation since the balance sheet is reported on a tax return to the IRS. Other things that were found was that the payroll taxes for one year were incorrect and had to be corrected. Overall, though, the taxpayer was paying more money in taxes than they should have. To make a long story short, this client ended up with a refund for the past 2 years which not only paid the fee of the new tax preparer but also left some money for the client to deposit into their bank account. And we moved forward correctly. The client had no idea that the bookkeeping wasn’t what it should be, and the firm who prepared the tax return, obviously, wouldn’t scrutinize the books, so that the numbers in the books just went on a tax return assuming that the in-house bookkeeping was up to par. Granted, this is a complicated set of books in some ways -- Payroll was an issue the way it was being done, and much of the balance sheet wasn’t straight forward, but I worked with the new tax preparer to straighten things out moving forward. We still have some issues since the taxpayer has a very good mind for what he builds, but not a good mind for numbers. So, when I get finished with the books, things still have to be adjusted by the tax preparer after several conversations with the client.
Another relatively recent situation is with a law firm that had their books done by someone who again, wasn’t using QuickBooks. Their new CPA, who I have consulted with many times over the last 20 years and trained him in QuickBooks, showed me the printouts of the balance sheet and profit and loss that were created by the old bookkeeper. There were so many things that we both found that didn’t look right, and the numbers were so large, that I suggested that we do 2021 and 2022 over again in a new database. We matched up the beginning numbers to the tax return the best that we could with some things that were not matching and were on our way. After I had finished 2021, we found that many balances on bank loans that I had in the books did not match the tax returns or the old books. With a partnership LLC, not only is the profit and loss reported to the IRS, but the balance sheet was also as well. It took us several weeks to track down the original paperwork of the loans to enter the correct opening balances in the books.
There was one main operating checking account, and (count them) 6 credit card accounts every month, and some of those credit cards were 8 or 10 pages of transactions. Another two credit cards were being paid for by company money but were actually 100% personal expenses. And every account had to be entered because of ongoing IRS problems. And the cherry on top of this situation was when I finally got the token to log in to their bank account, and I went through the steps to get access, it wouldn’t let me in. It took weeks to figure out why. The reason was because the bank had the wrong tax ID of the client’s company in their system. When the token was set up originally, they gave the wrong tax ID to the bank, but when they set up my token, they gave the right one. So, before I could really get to work, that had to be corrected. And then I found out that there was an offer in compromise with the IRS for back taxes, and the books needed to be accurate and completed in about 40 days. I am happy to say the deadline was met that they had clean books, and continue to have clean books, the tax ID has been corrected, and they have a good relationship with the IRS.
Another client I met at an in-person class that I was teaching before the pandemic in 2020. She was using QuickBooks online for her ice cream shop and trying her hand at bookkeeping. She requested a private training session. Even before we went through her books, she told me that she knew they were a mess and needed work. She was right. I was able to undo every bank and credit card reconciliation for the previous two years, and reconciled them again, at the same time, looking at transactions and cleaning them up either by moving to another category or just filling in the fields that she didn’t. There were also many double entry payments to the credit cards which made the balance sheet balances incorrect. She had an LLC, but filed as an S Corporation, so the balance sheet was reported to the IRS. Her accountant, I guess, hadn’t noticed. Needless to say, the numbers on her profit and loss statement were very different from what the tax return for that same year was. When I was finished with the books, the tax return was amended, and she got a refund.
I have another recent client who I was recommended to by their CPA because they handed him the books and they were so inaccurate, and so obviously incorrect, that the CPA told the client that he couldn’t do a tax return with these books, returned the books to them and recommended me. It turns out that they were importing from their job costing software into QuickBooks online. Many bills, bill payments and other transactions were entered twice. If a bill was $4,000.00, for one example, the bill was being entered, but one payment of $4,000.00 that was on a bank statement was entered as 5 partial payments in QuickBooks along with the full one-time payment. It took me 3 hours to re-reconcile one month along with cleaning up the double entries. After thinking of what a good game plan would be, I decided to ask them to open up a brand-new account on QuickBooks online and I’d start fresh. We set up all the downloads from the beginning of 2021 to the present. There were over 9 thousand Amex transactions to accept, and 5000 checking account transactions. I’m still working on it today, but they will end up with clean, accurate books.
I have also run into situations where the client had a business where taxes were done in a cash based, not accrual method. In cash-based accounting, the Accounts Receivable and the Accounts Payable are not counted. Once I cleaned up the banking and credit card transactions and balances, I started to look at the Accounts Receivable. I ran a report and shared it on zoom with the client. I asked her if the report was accurate, knowing already that it wasn’t. There were payments that went into the bank for a particular client two years earlier, and the transactions affected the money in the bank account and created a negative Accounts Receivable! An entry like that in accounting doesn’t register as revenue. The debit would be the bank account deposit, the credit would be to Accounts Receivable, not to revenue (the way it was entered). There were about 15 thousand dollars in sales that were never counted, since the CPA didn’t even look at the Accounts Receivable, since the client was on a cash basis with their taxes.
My favorite story (and I think I mentioned this in an earlier episode) – is a client of mine who I started with about 8 or 9 years ago was starting a NYC Walking Tour company. He was doing his own bookkeeping and came to me after his accountant recommended me to him. The same story, needing to clean up his bookkeeping and make things accurate, but one of the things that I noticed in cleaning things up, is that he was paying sales tax, but not collecting it from customers. That was the first time that I’ve ever seen that. So, I asked him about that. He told me that he wanted to keep his prices as low as possible, so he would just pay the sales tax and not charge clients on purpose. He assumed that all of his sales were sales taxable. Something just didn’t sit right with me, but I didn’t know what it was. It took about a week, and I woke up in the middle of the night and knew that I had to call the state sales tax division to find out if he should be collecting sales tax in the first place. It ends up that most of the kind of tours that he was doing were not sales taxable at all. I went through his books and added up all the sales tax payments that he made in about 2 years, and it was around $25,000.00. I called the state again, to find out what we can do about that. It turns out the statute of limitations was about a month away, but he would still be eligible for a refund of about 95% of that $25,000.00 that he paid into the state. It was like a windfall of money for him, and he used it to improve his website, and that money has come in handy to help create his successful business that he has today. And he does many virtual online tours now of all kinds.
So, bookkeeping isn’t just entering numbers into categories on the Chart of Accounts. It’s entering them properly, and thinking it through. Remember, you pay the auto mechanic not just to turn a screw to get your car working again, you pay them to know how much to turn the screw to get your car working again. That reminds me of an old joke: How many therapists does it take to change a light bulb? Just one, but the lightbulb has to WANT to change! But I degress.
As I always say, treat your bookkeeper with respect -- we have the knowledge to keep you out of audits and keep your books accurate and help you keep your business running smoothly.
As a reminder, new episodes are up every other Thursday, twice per month. If you have any suggestions for future episodes, please email me or leave me voicemail on the website. I’d love to hear from you! The next episode will be the first interview in this series. (So, bear with me, it’s the first interview for me too!)
Until then, thanks for listening. I’m Paul Rosenblum