505 Accounting Firm Service Breakdown: CLEAN-UP Bookkeeping

Today we're getting into an accounting firm's workflow nightmare. Good old cleanup, bookkeeping. You know that crap you do once a year or maybe you do it right before the business tax return gets done and you lift the lid on that sucker and there's no telling what you're gonna find inside. Is the bookkeeping half done? Is it fully done? Has nothing been done? Did they do a bunch of stuff and I would rather them have not done anything? Today we're talking about how to systematize that work, believe it or not. Is that a thing? It's gotta get done at some point. But do we want to be doing it during tax season? Is it realistic to think we can do 100 of those in January? And how do we put it on a three tier proposal in a way that will make it feel like it's a little more premium? Take the same work, make it twice as profitable by dressing it up a bit, making it feel more premium. We're going to talk about how to do that today. Let's get into it. Okay. We are in our summer service systematization series going through the most common services for accounting firms and how to standardize them, how to build them into a repeatable process. Rather than just hiring a bunch of accountants and telling them, you'll figure it out, just go do it however the client wants you to do it. Because doing that, doing that, that is a recipe for disaster. And one example of where you can create a complete mess for yourself in terms of the annual cadence of how you serve your clients is letting a whole bunch of clients just rock up and bring their books in, whatever state they're in, and then expect you to make magic of them. It's why a growing number of accounting firms, they say, if we're going to do your tax work, we have to also do your books. Because then we've got total control over what goes into the tax prep process. As opposed to letting clients just rock up with whatever they've got, try to like iron out the issues and then put it in the tax return as a very hard thing to build standardized processes around, or any expectation of like, how much is this going to cost me? And you're like, well, tell me how crap your books are this year. Now, as part of a series that we're doing this, digging deeper into the service library framework, all that information is linked in the show notes. This is going to feel kind of arcane if you haven't gone through that before. But it's kind of like my best resource I can give you for how to systematize work inside of your accounting firm over. I think almost 4,000 accounting firms are using it now. But cleanup bookkeeping is defined separately in the service library that than bookkeeping because it's a whole different ball of wax. And most tax firms right now we're actually having tax pros do cleanup bookkeeping even though that has absolutely nothing to do with tax work. And I can tell you early on in my career, the number of hours wasted having tax pros who aren't super comfortable with accounting systems because it's not what they spend most of their time in, trying to figure out how to fix stuff in accounting software. Oh, you can make a lot of messes real quick. And so this is something in my firm that actually over time started to get peeled apart into different teams and even into different times of the year. The cleanup bookkeeping versus the company's tax prep. Now the other context where you're going to do cleanup bookkeeping is when you are taking on a new bookkeeping client. So no matter what, when they're coming in the door, you're going to have to sign off on whatever the state of things are before you start your month over month work. And this I also would call cleanup bookkeeping. It is a simple separate line on the proposal. There's a whole different conversation with the client than whatever the ongoing fees are because just something that's, that's gotta happen. So what we're trying to do here, the whole exercise is prevent the members from my team from like going off and doing this stuff however they want to prevent the clients from being able to dictate our process to us. It's like, no, we're the experts, we're going to set the process. And you can see how if you started an accounting from tomorrow, you're like, yeah, no, all this is going to be systematized. We're going to do all the work the same way, easy peasy. But if you are like me in my firm, I'm like, well I love that for you, but I already got a whole bunch of clients and don't judge me. But we're not doing all the work the same way right now. So I need a flexible framework that can kind of shove all that stuff into as common of a system as possible. But also give us a shared language to get it to trend to be more similar long term and to do this inside of the the service that I would call cleanup bookkeeping. We've got six service items or six variables and how we will service different clients in getting this work done. Those six variables, they are the source platform, that is the accounting platform, where the information is coming from there is the platform we'll use going forward. Because those are not always the same thing, right? They may bring me something in Excel, I may put it in QuickBooks Desktop or QBO or 0 or something like that. Third service item, months that we need to review. Fourth service item, the number of months we need to enter or like complete from scratch. Fifth service item, the, the accounting method and six, the speed. In our case we used weeks until expected completion. Now got some other potential service items you may, that may make sense for you to use. And then we're going to talk about how to make this work more profitable, how to present it in a three tier proposal. But first, going a little deeper on each of these service items, one source platform, what is the accounting software that's currently being used? Like, how is that information being provided to you? This is where uh, we can be flexible. It's where we can lock things down to say like, oh, you're on intact. Um, let, let me tell you, I got a great referral for you. Let me have you go talk to this person. It's also probably a pretty big driver of price and like your excitement for whether you want to do it to begin with. Now the second variable here, the platform you will use going forward. Normally this is going to funnel into the handoff to your like entity tax prep team or your bookkeeping team, if this is now going to be an ongoing bookkeeping project. But again, the goal of all these variables here is for a collection of variables to bubble up to like, you know, cleanup bookkeeping 2 and that having its own task template in our practice management system so that when a client accepts an engagement with cleanup bookkeeping 2, all those tasks get pushed to the practice management system. And my team knows exactly what to do, obviously what platform we're going to be doing the bookkeeping. And that's an important variable there. Third variable, months to review. So how many months are we going back and reviewing, reviewing the bookkeeping, Especially with new clients, this can be a tough one to nail down. Like how into the weeds are we really going to get, you know, beyond 12 months back? Sometimes you need to really dig into that, other times you don't. Sometimes you will start and realize, okay, we're going to be amending some returns here and hopefully this comes up actually in the discovery process when you're doing some initial poking around on the books and the return. But the number of months that we're going to review, this has to be defined. And normally it can't be an infinite number of months. It's something we actually have to communicate to the client to say we're going to look back to here. We are not like assuming responsibility for your books back to the beginning of time. Like we will go back here, but no farther. Next variable, the months that we're actually going to complete from scratch. It is one thing for somebody to bring you cleanup books that that are quote, unquote done through December. It's another for them to bring you ones that are quote, unquote done through June or not done at all. Fifth, the accounting method. Obviously this can be a big driver of complexity and how much work this is going to be. For me, it was a driver of who on my team this work went to as well. So if it was pretty straightforward cash basis stuff, we had a lot of folks that could do that. If it was harrier accrual stuff that went to some other select members of the team. And then the last variable we used was speed. That was how much time it was going to take us to do it. Foreshadowing. This can be a driver of, you know, what you have in your gold package versus what you have in your bronze package. How long is it going to take to get this stuff done? Where am I in the queue? So those are the six drivers for how I would talk about different ways we can deliver this service to a client and how we systematize those tasks on the back end internally. Other potential variables you could have here. One, info intake method. Can we self service and get all that stuff ourselves or is it going to be a bunch of work? Do we have to go to the client's office, stuff like that. Another, the number of stakeholders involved in uncategorized transactions. I have some situations where I'd have to go to 20 people in the company to figure out what was this or what was that. And that vastly impacts the work that goes into getting the books down. If I have to chase down that many people, class or location tracking, transaction volume, account volume, even budgeted hours. The goal is to get to the most relevant set of variables that describe all the different ways that you do cleanup bookkeeping for clients, people, and hopefully over time getting them to be a little more similar. But at a minimum having like that internal language with your team so that everybody understands what it means when you talk about cleanup bookkeeping too. Or here's how many months we're gonna have to enter. Well, how many months do we have to review? That's a, that's a number that we need. Also, am I going back and looking at all the months three years back, or do I only care about these 12 months? This episode is sponsored in part by by Ignition. Come, come, come, come, come. Here's the thing. Here's the thing about client billing. You can't bill for the time you spend billing. You can't, you can't. It is pure waste. And we're bad at billing because it's, it's icky. You let things slide, you don't get paid, you waste time. Waste time chasing people for money. That's not what I did. I would just, I didn't want to waste time chasing them and so I would just, I just eat it. Don't do that. This is where Ignition comes in. The leading revenue generation platform for accounts and product professional services. When I was running my firm, Ignition wiped out our ar. It's true. And significantly reduced the time spent billing clients, saving our partners over a thousand hours in the first year because they didn't have to build all that stuff manually. Man. With Ignition, we want more business with impressive online proposals. No more hustle and hustle and PDFs and Word docs. We automatically pulled payment upfront or at the end of a job when it was done. No more dialing for dollars. We transitioned our firm to more recurring revenue and, and better managed scope creep. No more leaving money on the table. Ignition is making thousands of firms more money and genuinely made us more profitable. Check out why over 7,000 of the smartest businesses run on ignition@ignitionapp.com. i'll put a link in the show notes. This episode is brought to you in part by Client Hub, the practice management system. If you are considering a new practice management system, there's no way that you're not overwhelmed. Let me give you the TLDR on who are the people that need to be exploring Client Hub. Specifically, Client Hub started out as a really good sort of two sided task management system for bookkeeping firms. So you've got your own tasks to manage. But we also push tasks to clients when they're holding us up and we need information from them to get that stuff done right. Cloud Hub is one of the kind of the client portal, first PMs that makes that as smooth as possible for your clients. But increasingly they're getting into all things with workflow, specifically your bookkeeping workflows. And so if there's one thing it does really well it is for folks that don't want to have a standalone like month end close automation platform, but then a totally separate PM over here. Client Hub might be the best marriage of those two things in a single place. So if you want more like power user month end close automation stuff, but a version of that that is like inside of your practice management system, worth giving Client Hub a look. Check out the link just in the show notes now. One sneaky benefit of carving cleanup bookkeeping out from just bookkeeping. Because I actually used to approach cleanup bookkeeping as just bookkeeping, but ultimately we, we started talking about them as two separate things in our firm because the times that we wanted to do each looked different. We got to the point where we would do cleanup bookkeeping for very, very few clients during tax season. We did a, we did a lot of, of once a year, 1040 work. So our tax season, there is no way around it. It was very, very busy that time of year. But what you found as folks brought you their entity books during tax season was the last thing in the world that you wanted to be doing in January, February and March was cleaning up people's books. And so increasingly we put pressure on people. This either needs to happen before year end or it needs to happen after April 15, like in the summer. And we oftentimes don't treat cleanup bookkeeping for the monster that it is completely distinct of business tax prep. It's a project that can actually be done at a different time. If we're in there in November, if we're in there in December, the prospect of cleaning it up is vastly different than if we're just finalizing things. So getting into what are all the ways that we can present cleanup bookkeeping in a three tier proposal with the goal of the difference between the tiers not being differences in scope, but rather differences in how premium it is delivered. So gold is first class on the airplane. Bronze is the main cabin, silver is is business class. This is not a Southwest flight. That's actually a great analogy for how we historically approach our work and how we sell it to clients. And I mean, and as me like I'm culprit number one is you let everybody on the bus for the same price and then expect them all to kind of find their seats and hope when they get off the plane that they're happy. I am reeling at how good of an analogy that is. And I realize Southwest is changing now they're going to assign seats. But I've talked about this concept so many times and that might be the best concise framing is we're trying to get from being southwest to being something else. I don't know, Delta and even has some positive connotations from like. Yeah, no, I would, I'd rather identify as like Delta, not southwest, where everybody's argy barge and down the, down the gangway and man, they just like put some straw down in the back of the plane and that's all you get. So. So to that end, how do we dress up cleanup, bookkeeping so that there is a gold plan that feels more premium, a bronze plan that feels less premium. Obviously the upsides to having a gold option where folks can Pay, you know, 2x, maybe 2.2x as much, but it's not all that much more work for us. The benefits of that are obvious. But the benefits of the bronze, sometimes we don't think about enough is the benefit of knowing who will self select two bronze and we might have an idea of who might go with the cheapest option. You've got those C and D clients who you mark the bill down and they still complain. Letting those people self select and say, hey, here we're all the. The folks who won't pay any more here. And to be clear, this is not always their fault. Like the whole notion of three tier proposals is we are capturing both a client's willingness and ability to pay. Not everybody has the same ability to pay. And that is not always their fault. It is why rich clients are easier to make money on than those that are not. It's why industries where there's an abundance of cash will generally pay better than those that are not. Right now, the reality is somebody's still got to do restaurant books, right? And you could choose to be that firm if you want to. Doesn't mean that those are bad people. But we do also have to be mindful of the trap of being like, I'm the firm that's here for my community and then getting sucked into a bunch of low bono work because that can be a slippery slope to collecting the cheapskates and convincing ourselves that we're helping people out when it's like, no, actually these people have money. There's other people that really don't have any money. We're going to help our community. Should we be helping them? But that is a benefit of those of three tier proposals we don't think about enough is having a list of all the people that select bronze that's very valuable because most of the time those are not the folks that you're going to Want to build your firm around. This year's gold is probably next year's silver. Next year's, this year's bronze. They're the guy across the streets. Silver next year. Okay, how do we dress up cleanup, bookkeeping, the big one. What time of the year does it happen? Am I willing to do that during tax season or not? This is really nice that you can actually have a different answer for this every year and take sort of a logical progression where right now maybe you do a ton of cleanup bookkeeping in your busiest season. Maybe that's tax season. Maybe your bookkeeping practice. And that's just January. Like, everybody's hounding you. You got folks that just bring you their books once a year. They're like, I need it in January so I can go take it to my tax accountant. And you're like, buddy, you know I got other things to do in January. Right? So when whatever period of the year you're trying to push that work out of, this is an opportunity to say, like, hey, we've got three seats, not three. We've got 13 seats on the gold tier. These are the only people that we can do during that busy season. You want a seat on the bus? Here's the price. And the beauty here is it is all the same work simply done in a different order, but done in a much more profitable way. I like, mentally, when I'm thinking gold tier, I'm usually thinking 2.2 to 2.5x the price. And so if bronze is what we do today, and let's say the margins on that are 40%. If we're charging 2.2x. Hang on. I just gave myself a much, much too complex math problem to do live. Okay, let's say it's a hundred dollar project, 40% margin. You make 40 bucks on it, right? A 2.2x price increase. That means the project's now 220 bucks, but the cost is still 60 bucks. That means your profit is going from $40 to $160. That is 4x the profit. Maybe the cost is a little bit more. Maybe you're doing a little bit more work to deliver it. But if all we're doing is charging for access to a different place in the queue, isn't that the exact same work in a different order now? It's just made vastly more profitable. Okay, so most obvious thing you can do here. Access to the Admirals Club. Admirals Club members are first in the, in the queue. What level of priority are they assigned that you know, that Actually can be a totally different thing than what time of the year you do the work. So maybe just the golds you will do during the busy season, but maybe there's another level or, or maybe that's silver, where you do the work in your preferred time of the season, not the busy season. But the silvers are at the front of the line that time of the year. Now the thing you actually find as you get more into this is there are levels to this. In fact, you can take this year's golds next year, you can even split up that gold where all those golds go into a three tier option where it's like, well, do you want gold, diamond or zirconium? Wait, no. Is zirconium the fake gold? Platinum. And maybe now platinum is like, I'm going to run a mastermind every quarter and I'm going to let eight people into that. So like this will continue to evolve. And that's why this year's gold is, you know, basically next year's silver. Because your firm offerings are continu to continuing to kind of evolve with those folks that are willing to pay more. There are so many clients on our client list for whom we have not found that ceiling yet. But because we're so fixated on the cheapskates that are at the floor, it keeps us from ever considering expanding what the ceiling looks like. Okay. Other ideas to make cleanup bookkeeping feel more premium. The expertise of the person they have access to. So how senior is the person that they're talking with? That's always a good consideration here. A receipt matching report. So this is something we do in our bookkeeping service. We give them a very clear visual of like, here's the stuff that we have documentation for and here's the stuff that we don't. Sometimes a materiality threshold would be taken into account there. In some ways it's like a visualization of sort of exposure of stuff where it's like, you probably ought to have documentation for this 1099 Readiness Report. What are the transactions that that or the recipients that may need a 1099 W9 outreach. We can do that W9 outreach for you or do you want to do it? We did this for a number of clients. We would reach out to the recipients directly. Say that like we work with the clients, you know, we could copy them on the email or something like that. And we would gather that information ourselves. Even within something that feels pretty turnkey in terms of cleanup bookkeeping, where it's like, how do you dress that up to be fancy. There's a fancy version of everything. And if you look around in the world, it's, it's kind of cool to see once you notice it. I don't know if it's cool. It's, I mean it's like capitalism. But the reality is different. People, like, based on their identities, will look at bronze, silver and gold and not even see the features. And if they see that they're on bronze or they were last year, they'll be like, oh, I don't want to be on bronze because I don't identify as a bronze person. I'm a winner. And especially if you work with entrepreneurs, many of them successful people, which most of the folks on our client list like, by normal standards, they are very, very successful people. Most of those people, they're not hanging out at the, at the gate at the airport with all the plebs. They're at the lounge, they're Ultra Zirconium rewards members. But because oftentimes we aren't wired that way, we don't think of delivering services that way. Right. But man talked to so many people or when you flip the switch on this, it is like an instant bottom line boost and actually gives you a very logical path to moving forward to how you will build out these packages year over year and identify the clients that you can probably help to find a new home because they're not like taking your firm in the direction that you want to go. I super recommend if you do clean up bookkeeping, be very mindful of the times of year that you're willing to do this. Three tier proposals. Actually, if you are blocked at the notion of like cold turkey not doing any cleanup bookkeeping anymore during tax season, three tier proposals are a great way to start splitting up what you're willing to do and the price that you're willing to do it at. Now don't make the mistake. I mean, it's better than not doing it. But there's a world where you can make the mistake here to say, ah, we want to do less cleanup bookkeeping during busy season. And this is so many people are going to do this and you'll say, here's bronze, silver and gold. Only on gold will we do your cleanup bookkeeping during busy season and you charge 2 1/2 x as much and everybody says yes to it and you're like, well, crap. And again, this is better than nothing because you're now getting paid 2 1/2 x what you got paid last year to do the same work that you did last year. But the even better version of this is to say, hey, we've only got like 15 seats, 15 companies we can do this for, or 500 or whatever that looks like for you. There should be a real capacity constraint there because even that drives more people to buy. They're like, oh, I don't want to miss out. I got to get this now. And it's actually, it's real scarcity. Like, it's, it's reflective of how much you actually have the time to do. So rather than like hiding that and keeping that capacity to ourselves, let's put that capacity out there where people can see it because it will also drive buying behavior very much. Recommend you think about that though, like the times of the years when you're willing to do cleanup, bookkeeping and when you won't. And then think about how all this funnels into your practice management system and your task templates and then the expectations that get communicated down to your team. Maybe you're a little stressed about being able to deliver on all the different things we're carving out in the Bronze, silver, gold plan. That for sure needs to be part of our project deadlines and the tasks as they're communicated. But in a world where this work is 30 to 40% more profitable, investing in, you know, an admin that can help with some oversight or making sure that like all the flying, the, the planes are flying on schedule, you can afford to do that. And it's giving you a path towards, like, in the future, just having a fundamentally more profitable firm. If you're the big boss, I encourage you to pull your team into this as much as you can. Share the service library resource in the show notes. Make this a team effort rather than you trying to drive this thing through by yourself. We got a few more installments of this summer series left. This is kind of prime time to like nail down your systems because we got to lock this stuff down to then lead into renewals, which are a big time profit opportunity. Thanks for being here. I'll see you in the next one.