Reviewing the file and pricing your work

Hi there, Linda Artesani from The Accountant's Law Lab. We're going to move on now from the discovery call and move on to pricing the work. So I'm gonna assume that you had an amazing discovery call and that your client or potential client has agreed and signed your NDA and they're, they're really happy with moving forward. They gave you all the documents you requested, bank statements, you've got it all. So now you're gonna start to look at the work, and this video is gonna kind of walk you through what you need to do to go through the work meticulously, so you can come up with the right pricing. So just a word about pricing. Pricing's an art form. And so you want to be sure that you price it properly, but know that it's a little bit of a give and take. You start to do some, and you do really well, and sometimes they don't go as well. So let's dive in. So here we are in my demo file. And just know that when you look at the work that's in here, it's kind of a hot mess because I make it messy so that we actually are able to help people in the Accountants Law Lab, our private group, learn how to fix some of these things. So just don't know that part. One of the first places I go to to see if the accounts are reconciled is I'll come over to the report options that's up in the accountant tools. We used to call it the accountant's briefcase. It's now called accountant tools. Lots of good stuff in here. In fact, Reclassify Transactions is another great one. Let's just check in here to see how well we are reconciled. Because if you ask that question in the discovery call, you might have, like, gotten that answer, "I really don't know." This is going to tell you where it's been. So I'm actually going to show you data from 2021 because that's my most recent data in here. So we can see that this hasn't been reconciled since 12/30/2020. So that's an issue, and that the Advanced Client Cost also hasn't been reconciled. And everything else looks like never been reconciled. So that's our first stop where we wanna take a look and see how things are. Let's pull up a financial statement. This is how I like to go through it. We do have books review. I guess I should show you that first. So books review, I've got it set to cleanup by default. It's gonna default to monthly, which is gonna give you a little bit different view. But this one's pretty much how you would see it normally, and you just switch it to cleanup because we're going to probably do a cleanup. 99.99% of the people that will call you actually have problems in their files. And in order for you to price it properly, you're probably going to need to do cleanup on the file. Most likely the best place to start with cleanup is the chart of accounts. That's not included in here. I think there's a review button. It just kind of tells you that, but it doesn't really have a method for you to do it here. But this is like a high-level thing. Honestly, I don't use this probably because I'm just set in my ways. I've been doing this a long time and I usually just pull up a balance sheet and pull up a profit and loss and go through the financials, which I will show you in a couple minutes. But this is pretty good because it's gonna show you the setup. You're gonna see the company settings. Does it say Office of Lawyers? And there's a few other lawyer ones in there. You want to look at that. Look at the tax entity, see if it's set up the way it's supposed to be. If it's a partnership, you want to see partnership. Solo, you know, if they're a sole proprietor, you want it to say that. If they're a— they could be an LLC acting as an S corp, or they could be an S corp or a corporation, you know, professional corporation. So there's a lot of different ways. Actually, I should put in the article where I can ping you to the different ones that are actually on my personal website. The different variance ones you might see, the variety of them you might see. And then you can see at a very high level sales tax is enabled. Why? And we would ask that question. It's QuickBooks Advanced. So now you know which product that you're in. There's no payroll turned on. So maybe they don't have payroll, or maybe they're doing it another way. If you know they're paying an employee, take a look at that because there's no payroll turned on. There's no QuickBooks payroll. So they could be doing it with Gusto or some other product which would push in as a journal entry. But you want to ask those questions. A lot of these firms have somebody working that is an employee that works in the office, whether they're a receptionist in LA, a legal assistant, paralegal. You want to see how they're paying them. Sometimes they pay them as subcontractors. So you want to see how they're doing that. And then, of course, here's all the apps that are included. They're using QuickBooks Time. You can see that they're using QuickBooks Time and then Mammoth HR. So that's possible that they're in a different payroll product. Now, as we get down here, it gives you a pretty high-level opening balance adjustments. I don't ever— I would never use this, but you could use this to figure things out. I don't think this actually changes the balances in QuickBooks, but will give you— this is a nice place to go when you're tying the books to tax. So you can actually do this, and it's gonna do the, the difference for you. So you know how to put that journal entry in. Potential issues are here as well. And then you can see accounts without activities. We're gonna have a lot of that because I haven't been in this file since I dumped all the data in. And here's that section about make sure the chart of accounts has industry-specific accounts, and then they even give you a link to it. So we could actually go over and see, is this got a chart of accounts that's really tailored toward law firms. You want to look and see how it's set up. I like that they have it set up with a parent for the operating and then they sub it out. It's going to help you when you're starting to look at the accounts to see if they're balanced, especially if they've done the trust accounts separate. And if they have multiple trust accounts, you want to see them listed here so you can collapse it down and see if the liability account totals out to the totals that are in here. We'll get to that in a moment. The accounts receivable, they have a lot of money sitting in there. It's something you might want to discuss with them. This is all part of discovery and things you might want to put some notes aside for because this is an opportunity for you to get this client and to help them get some cash flow in their firm. They've got a lot of money sitting in accounts receivable, maybe half a million or so. You want to make sure that you can help them. They do use advanced client costs. Sometimes you'll see that this is not there. And they use billable expense income and billable expenses. That's an old-school method that the IRS doesn't really like to see. In the IRS's view, they want to see that you recognize it as advanced client costs or mini loans to the client. So remember that. And then looks like they have some evergreen. They've got some accounts payable. They've got a credit card. Just trying to look here to see, but really to get into the the gist of it. You want to see if they've been IELTS interest clearing. That's good. And we're going to get into all the trust accounts here. And then it's kind of mixed in with sales tax, which is weird. And they actually owe sales tax. You might want to ask, you know, what do you have in sales tax? What is taxable at your firm? Because services aren't taxable and they don't sell products per se. I would ask that question. Why is there sales tax due? And then you just get down here and they've got shareholder distribution. So when it says shareholder, but you're looking at something that's a partnership, that might be that it's an LLC acting as an S corp. It's a great question to ask because now you will understand that they have to have payroll. If they are a— if they are acting as an S corp, they have to have payroll and they have to have it set up that the payroll pays them reasonable salary. So you want to see that. Now, as I slide down here, I'm seeing that there's money here and money in here for the partners. It can't be both. You either are an S corp or you're, you're LLC acting as an S, electing as an S, or you are a partnership. So that might be a problem. Get that tax return. It's gonna give you that answer when you look at that balance sheet section. Legal fee income. So this is set up very nicely for a law firm. So we, we know the answer on that. I would pop over now to reports. And I like to start with the balance sheet. You can look at the balance sheet. I'll do a balance sheet comparison. Actually, I'll just do a regular balance sheet. I'm gonna pull this up, and I'm gonna change the dates because, like I said, the data is actually in 20— 2021. Well, there is data here. So We can look at the amounts here and start to look. I see this a lot on files where they've got credit cards with subaccounts set up, and the subs aren't tied back to the payments, and the, and the balances look a little strange. Obviously, this one's very strange because it's got— AMEX is at -22. That's an indication that the credit cards being paid by the bank fees, you're seeing it come through that an Amex payment happened, but the Amex card's not set up and not pulling in the transactions for the expense side. So you're just seeing payments, which is making it have a credit balance. So it's got a parent credit card account. We probably wanna know what that is. And then you've got Bank of America and Chase, and those all have positive balances. This one would probably be tied in some way to the Chase partner, but this should be a parent account because there's 2 cards there. That's something I would fix. And then you can see the trust liabilities, and they've actually got the expanded view, which is one of the ones we recommend. You want to see at a high level the parent account, which is this trust account one, and then you want to see underneath that— see how I could collapse that? Then you want to see underneath that the subaccounts. So we'll get through that as well. We get down here. We already spoke about this, that we know this is a mess, that there's shareholder distribution 3. So they've named a few accounts, you know, they're not together. It's really messy. So you know that there's problems right in this balance sheet. And don't forget, the balance sheet is your lifeblood of your company. It exists from when you begin to when you close the firm. It's an ongoing balances. So This is important to get put and made, made accurate and make it aligned to the tax return. Now, if I'm trying to figure out, is this balance to the trust? One of the tips we have is we're gonna set this to group this by month. I'm gonna rerun the report. Why I like to see this all collapse together is I want to see this trust account, and there's my total trust account. So not this balance down here. I'm looking at this balance here, and then I'm just going to close down some of these other accounts so we get down to this client trust. So we can see right off the bat the trust accounts $119,893.60, but the trust liability is $127,000. So it's off by $6,000. So we know there's something wrong in there, and obviously— It will be a later video where I can kind of dive in and show you all the different ways to fix this. But now, you know, the trust isn't balanced. And then I would actually go up here to double-check to see, and I would actually change these dates to be— let's just go to 2021 and see if maybe its balance is in 2021, because you're going to talk to the client and say, I see that your balance is off, and I, I see that there's a problem here. Do you want me to help you with that? So we can see here that the trust balance is $43,129.37, $43,129.37. We're beautiful there. And I think in this file, if you go all the way to— it doesn't start to come out of alignment until you get into the month of May. So now I'm really looking at a short period of time that I have to fix it. Not so bad, not so hard to fix when it's just a short amount, if you know what you're doing. So let's go to my next report that I would go to. Profit and loss. And this is one that I would kind of want to come through and look at. I see we have billable expense income set up here. Merchant services. So these are some of the accounts you're gonna see with having lien law also, like seeing this with lien laws would make sense because they do put this fees in there once they come out. And this is actually Think 2021. Let me just back it up a year. I think that's where all the data lives. Let's run this. I really need to fill this up. Okay. So now here in a profit and loss, just disregard the date, pretend it's last year, and then take a look. And you can see here that there's money in the header, which shouldn't be in the header here. This is a parent account, shouldn't have anything in it. So that's a problem. Expert fees income is here. You wanna look into why that is. Unapplied cash payment, uh, income is a pain. It's an account that's kind of a pain because I'm showing these as a cash basis. So we wanna check into that. So this is just some of the accounts you'd wanna look at. And then you can also run reports like a profit and loss comparing last year to the year before. So you're looking at it and seeing the variances in there, because that sometimes will give you a big— red flag that you know that something's not booked in properly. Now, I mentioned reclass tool. This is the best. It's one of the best places that you can go looking to see where the transactions are in the wrong buckets. And I'm just gonna leave it here as is so you can kind of go in here. Actually, let me change it back to that 1 year so I can show you on that one that had the— stuff in the parent account. I can show you that one that's wrong, and then I can show you how to fix that. So I'm gonna hit Find Transactions. You can filter this down even to one account. So that was the income account. So let's go to the income right here. So here's the parent account. It's got $30,000 in it. And then you can see one of the things I like to do, and obviously it's income. So it's invoice-driven. So If they're not using software, they're probably pointing it towards the parent account. The parent account is where your software would push it, your LeanLaw, your Clio. That makes sense. And then why would you have these unless the client wants to see the income coming out of the bank, coming out of the— on the profit and loss segmented out by practice area. That means that all of this would need to be booked down to the proper, proper account, the subaccount. I don't ever like to see that. You don't need to do this. If they have a— if they have the software, this answer will come to me in LeanLaw. I don't need to have to move this monthly. It's just extra work. So know that it's not necessary. They can do— they can track their practice area in their legal tech software. They don't need to do all of this work here. You can come down to anything that looks kind of odd and just take a look. One of the places— and they could find a place where there's a lot of transactions in here. Like I said, this is an older file. Something that's further down. Let's look— lawyer salary. That should all be coming from payroll. There you go. Payroll corporate ACH. So you'd want to look into this because it looks like they're just dumping the salary into one category, and that's not correct. Payroll fees. I can see that says Intuit Payroll, but it's not turned on. But you can sort by this column and put everything together. Another thing I like to do in some of the columns that are really large and you have like a long running list, like maybe dues and subscriptions, I'll definitely sort that one. I will sort some of the other ones where you see— a lot of transactions. Office supplies is another one, even merchant services. And I will sort it by the net amount just to see if there's something big. And office supplies is a great one because sometimes I'll see $7,000 transaction that the client bought a desk and the desk is, is not— if it's over $2,500, now you're looking at the asset. So you want to make sure that you take a good look at how those records are sorted through. We're actually doing the work that the tax person would do. If you want your records to look perfectly beautiful and tied in a big shiny bow, these are the steps you have to take to make sure that these records look good. That's the service you're providing that most, most lawyers don't get this kind of service with a general bookkeeper. You're going to want to track that advanced client cost with the external software and reconcile it. You're probably going to find that it's never been reconciled. You're going to want to fix that trust account and put them back into compliance. Those are the biggies. That's the big two. And then you want to provide them with that three-way reconciliation, which surprisingly, even though it's part of compliance, a lot of times you'll find they haven't ever done it. And they've just been lucky that they haven't been audited. So those are the things you really want to look at. So in the article attached to this video, it goes through step by step by step everything you need to do to check through the file and get a good idea of what you need to fix. For pricing, sometimes I tell everybody, take it— it's especially if you're new to this, take a look at that job and say, what would I charge monthly? And if you're looking at a big body of work of cleaning up trust, that's a whole different story. But if you're looking at just a normal cleanup, how much would I charge a month to do this work and add a little bit to it for a cushion? I didn't get even into and show you on here. Is there stuff sitting in undeposited funds? Is there stuff in the reconciliation that's left over that's hanging that's never been addressed? Is there a lot of open trust when you get it fixed? Is there gonna be a lot of open trust with, like, 25 cents $35 on matters that have closed, part of your work, and you're gonna really show your advisory skills by sitting with the client and saying, "This is what's left over. Let's get this back out. Let's follow the rules of the state and the State Bar and get this money either reissued to the client or put, you know, get it brought up to the unclaimed money in your local jurisdiction." So these are the things that really will set us apart. Another thing that will set you apart is if you join our Accountants Law Lab group, you can mastermind and learn all these different things from us. We have a course called Fast Track Legal Accounting. If you're really new, really brand new to this, and you want to really get your feet wet and get going, this is a faster way to get self-taught to the course. And if you want to meet us and work with us every week, we meet every Friday, and we'd love to have you join our group. And on that note, I wish you all a wonderful, wonderful week. Bye now. Bye.