Clean up a Law Firm Client Messy file

Hi there, Linda Artesani, Artesani Bookkeeping. So for this week's post, I'm finally back from taking a few weeks off for— and repurposing some of my other videos and posts because I had some ones that were real popular that I wanted to redo. And then there were some that were relevant to year end. But as promised, I said I would come back in here this week and post a video on how to close the books down on a law firm. So law firms are very similar. You'll find a lot of similarities with other businesses. As I mentioned in, I think, last week's post, we have new features in QuickBooks since I did the other post, right? QuickBooks Online is always evolving. It's one of the things I love and hate about the product. Sometimes I like Monday when we had it down, I was like, furious because it was down and I just wish somebody had sent me a memo and said, hey, go work on other stuff. Typically it doesn't go down that long, but this Monday was pretty rugged. And then I also had the internet go down on me twice this week, which was not fun either. So add all that in, it was almost like I should have had this week off as a vacation. But I digress. So let's pop into a law firm. So the scenario around this is I've been hired by a company called Law Firm. To review their books, make any corrections. They use Lean Law, so that's my niche. That's what I use as my app, use with my app stack, and they use it already. And I want to figure out exactly what needs to be done. I've already sent them a quote and a bill, and they've hired me to do this work. I'm going to show you how I would methodically go in here. What I want to do is I'm going to keep these videos short and just take you into one segment at a time each week. So that way it'll keep it more bite-sized. So if someone is actually trying to follow me and follow the steps that I take, they're going to be able to just pick and choose and not have to watch a really long video. So let's hop into LeanLaw because that's the first place I would go. And it depends on what page, and I'll take you to that setting at first. So part of setup, you can pick the page. So starting tab. So I'm in the My Info tab in LeanLaw. In the law firm account. So if you have an accountant's version of LeanLaw and you've got that, you get your free account, you've got the LeanLaw here, you'd be able to pop in here and I can pick my starting tab. So I can pick time entries, billing, or matters. I'm going to pick matters. That seems to be my favorite one to go to. So now when I log in on this client, the first page is going to take me to is the matters page. Now what I really want to look at here as part of the work to fix this account is the trust page. So in order to get the trust page to populate— I wish it was populated automatically— I have to hit billing and then it comes up. So it's going to bring up my trust page. And once it populates here, I'm going to see the balances. So my bank balance says $69,338.50. And clearly my liability and client balances match, which is great, but they don't match this. So the 3-way reconciliation would be your bank statement and the bank balance. And then obviously the liability, which is you want the total one to match the parent. Sometimes that's off too. So sometimes I've seen all 3 off. So let's go into the QuickBooks file and see if we can figure out the difference and what's causing it. So here I am in the QuickBooks file. So I'm fortunate to be beta testing not only the Bookkeeping Review, but the Business Performance page. I'll get you a little sneak peek at it. And I will get into those features as well, because That's going to fall more into the advisory services. But we're going to— for going to— for working with attorneys and working with law firm clients, or any client really, when you get that messy file that's brought to you to fix— and this is the messy file season, right? January, February. Typically, you'll get the clients that didn't do anything in their books all year last year. They know they're a mess. They entered what they needed to to get by. And you'll find some of the things that you're going to see right here on the screen. So this wasn't available in the past products that we had, and you might not have it yet. This is one of the new features they announced at QuickBooks Connect. So I love this because it shows what's been reconciled, which you can find in your accountant tools. I'll show that as well in case you don't have this feature. But your general business account was reconciled through 12/31. Like, that's great. I find that with attorneys, most attorneys They're professionals. They pretty much stay on— they know the importance of staying on top of their records. It's rare to find that really giant messy file. Now, does it happen? Yes, I've seen it. My business partner Sarah had to go back and like pull green grid sheets apart for like 4 years worth of work. So you do get those clients on occasion, but for the most part, most of the attorneys try to stay on it. They know the importance of the trust account. And how important it is to keep those records pristine. If they don't keep them pristine, they can lose their license to practice. So that's a pretty big hammer to land on top of you if you don't do the records right. And of course, you've got to prove like that you're mismanaging— they have to prove you're mismanaging the funds and not just negligent in taking good record keeping. But in any case, we want to make sure the records are good for our client, right? They've hired us for that. So the petty cash account has $500. It's reconciled. Beautiful. Now I get into the Visa card payable. And I noticed here, it kind of stacks them funny. And this is something that I'm going to report to feedback because it's not— if I have— and I looked on the records, if I go into the balance sheet here, and we'll just open another, another tab. I'll pick Reports. I'm going to pick Balance Sheet. And in here, I would just take a look. And you can see here in the credit card that I've got a MasterCard payable with a balance, but I've also got this Visa card payable, which has subcards. So it's got a parent and then the subcards not hooked up to the bank. And it looks like we've made some payments to the credit card, but there's no transaction. So I'd have to go back to the client and say, hey, you've got this credit card, it's got some payments. So you took money out of the operating to pay the credit card, but you show no expenses, no transactions coming in. So that'd be something you'd want to look at with your customer. You would come into We see we have some payroll liabilities, and these payroll liabilities could very well be that these are balances from the end of December that are paid in January of 2020, so that they might be correct, but it would definitely be something I would look at. You would look at also here, I can see I've got a line of credit, but I also see a client retainer account. So it's got a negative amount. So to me, that's something that's not correct, right? Because client retainers are going to show up If you're using LeanLaw, they're going to show up in the trust accounting. So I could probably come into one of these accounts and show you that if you go into the actual client account, and this is how your book should be. So we've got funds held in trust. I've got Mary Jones. So if we just go into Mary Jones's account, you're going to see that here's when you see source, Mary Jones paid with a check, blah, blah, blah. This is a retainer. And that's what it should look like. It should not be held in the funds for retainer. So we can go into that account here. And where did that go? Client retainer account and find out what's this $1,525 and why is it there and should it be. So there's a whole bunch of stuff for matters in here. So we need to find out why these are here. And perhaps this all belongs in— And maybe they started using LeanLaw part, part of the way, but we need to find out why these are here. It's an invoice, it's account receivable. We want to find out why this is in this account and how we can get this out. And this could be just a matter of they had it set up that they were using items on their invoices instead of doing the billing in lien law. If this was prior to them using this accounts, we'd want to find out why that stuff is here. And really take a look at why this balance is here and then move it where it belongs. So if this all belongs in the matters, right, this Michael Bennett stuff should be in Michael Bennett's account. And we know our balance is off. It doesn't appear to be this is the issue. But you can see here that maybe— and I talked to the client and find out, was— were you using another method and then you switched to lien law at a specific time and then things moved? So you can see this was zero. So we'd have to talk to them because these really— these Cindy matter and William Cindy matter and these other matters should be posted under the subaccount of the parent trust account. And that'd be just a matter of going in here and changing them and moving them. So it'd be something you'd notice in the scope when you were giving the quote. And so first thing I would do is actually come into the chart of accounts and take a look at it. It's an area that most clients tend to make a mess out of. And then we clean it up for them. And I tried— I wish we had a lock so that we could lock out the chart of accounts from the client and have to have them reach out to us when they start to make some of the crazy accounts that they make. But yes, you want to make sure that the trust accounts and that all the accounts look the same. If you've got numbering here, you want to make sure that they're numbered properly. You've got a lot of things that they're not using, you want to remove them. Of course, you can't remove any uncategorized stuff. That is stuff that is part of QuickBooks bank feed functionality. You know, your rewards from credit card income, that should really be in other income. And you might actually have this pretty big chart of accounts. It'd probably take me a while to clean this one up. But it should definitely be done. And I think I'll do that in another video. So I would look at the balance sheet, I would look at this overview page, and take a look and see where there's issues and things that need to be done. Obviously, the Visa card's never been reconciled, but it's zero. So it might be just a matter of just going in and reconciling the zero account. We'd still do that, I would reconcile it to the end of the year. MasterCard payable, these subaccounts belong under the Visa card, actually. So we'd have to find out where the transactions are there. Trust accounts not right. So we know that hasn't been reconciled since 8/31. So we need to reconcile that to the end of the year and then really start to drill down in lien law. Why is it off? It's off by an oddball amount. We need to find out what that is. And, and I searched for that. You'd see down here you've got some common issues. I like that how this is set up. You can see undeposited funds has 96 uncleared transactions in it. Now I know I read somewhere on Facebook that that's a bug right now that's sitting there. They're obviously not uncleared because they're not in the bank deposit when you go in there. So I would not worry about that at all right now. If you don't see anything on this page, there's nothing hanging waiting. Don't worry about that. We have— It's not usually an account that I reconcile either. So you can go into the AR and the AP, maybe have a discussion with the client. Hey, you've got 8 transactions equaling $3,942.50. That's more than 90 days. So you might want to talk to them, maybe help them just try to collect that money or write that off, whatever. If they're doing cash basis, obviously just credit memo. If they're doing accrual base, you can write it off to bad debt. Find out what the opening balance equity is, find out what that $8,000 is and properly account for it. You want to put in the right account. Any negative asset liability accounts, you definitely want to see, and that's that— those credit card accounts and then accumulated depreciation. And this is if you do billing and things like that, where you actually do a transaction volume and see what, how many transactions you have, and you do that kind of work for your figuring out the cost per month to do this job. You can definitely come in here and put your date range in. One of the things, I don't do my work that way. A lot of times I look at a file. If somebody wants a cleanup, a good tip that I feel for me has worked, and I had this happen because it happened to me, was I did a client— I was doing all these cleanup jobs a couple years ago, and I had them kind of coming at me at rapid fire, and I had a team that was doing the work, and I would look at the job and say, okay, this is $995 to fix this smaller account that had issues in it. And I went back to the client, I said, okay, now per month to do the work going forward, it's going to be $250 a month. And he looked at me and said, then I'll see you next year. And he said that to me, why? Because simple math, right? I'm telling him it's going to cost $250 a month for me to keep his books accurate, real-time books for him to have his records. And he looked at it and said, well, if I'm going to pay $995 to do this annually, what is the benefit of me doing it monthly? So now when I look at a cleanup job, I'll take a look at it because sometimes there's really big issues, especially when you deal with attorneys, you want to make sure that you really inspect the records well when you're going through all the balance sheet accounts and see how bad the difference in the trust accounting is and how much— how long it's going to take you to really— and how much effort you're going to have to put into it. But also look at what you think you would charge that client per month to do the books. So if it's a $500 a month client, then I would multiply that by 12 and then give them a number to clean up the books similar to that. So the incentive is just to keep going with the records. If I do it for cheap, then they're never going to hire me ongoing because they're going to feel like that's too much money. So if you start to work with the smaller clients, this is kind of why I shifted my practice to working with the larger ones. You work with the smaller ones, they're very price sensitive. So no, keep that in the back of your head as you're starting to put your pricing together. That you don't want to give them a bargain on the cleanup, unless you want to give them the bargain, say, here's the bargain on the cleanup, but this is what it's going to cost per month later. And we're giving you this for less because we're getting the ongoing. That's fine. But a lot of people just do the cleanup. And then they give them a price for monthly, which is a reasonable amount of money. The client's like, whoa, wait a minute, I don't want to pay that. I'll just see you next year. And you just want to avoid that altogether. So those are some of the steps I would go through to start to take a look at the records, definitely looking at the balance sheet. Seeing where it is. One of the things we have as accountants is these report options. So I actually put in last year and this in here. So anytime I pull a report up, it's going to pull up the report with this date range. So I don't have to keep changing the date range. In here, it gives you a real quick look at what's completed, what's been reconciled. Really important, kind of lets me know that I need to reconcile the trust account. Client advanced client costs is an account you need to reconcile minimally at year end. If there are costs in there, and depending on the type of law firm, if you're working like with a workers' comp attorney, there might be costs sitting up in that advanced client costs on something that they've already billed out, or something that maybe never became a case. And it needs to be written down and actually expensed on the client's books because they're not going to be billing it back to their customer. They're just— they paid it, it didn't— they didn't have the case. So for whatever reason, a lot of times we have that happen with workers' comp attorney. You'll find that a lot of times they write down the differences because the insurance only pay a portion. So that more falls onto writing down a bad debt or writing it down or credit memoing it off if it's a— if it's a client that does cash-based accounting. So you'll need to find out that. One of the important tools, and we'll do— I'll do a video next week on cleaning up this chart of accounts. One of the important tools here is to find out exactly when you get into the equity accounts, what kind of business is this? How do I know? It says owner's investment, owner's drawer. That's telling me that it's either a sole proprietor or it's a— basically telling me it's a sole proprietor. So how do I know? Well, a lot of times the clients don't fill this box out, but you can come here and I can see right from here that it's, it's here as a partner. This is set up as a partnership or limited liability account. So even though it's called Law Firm, it probably should be called Law Firm, LLC. And it's still, it's a partnership. So this would be, I'd have to go back to that chart of accounts and make sure that the chart of accounts reflects that. So it would come in here and actually change the name. of the account to be, you know, partners' capital, partners' investment, partners' draw. Owners' billable time, I would just remove. I don't see a purpose for it. So you can see here I've got owners' equity do not use, and that's the account that had the $8,000. So clearly they did not follow those directions. But I would definitely come in here and clean this up, and I'll do that in a future video so you can see how I clean up a chart of accounts. They tend to be messy. This is one of the first steps I go into when I do a cleanup. Is that, and then I'll tie the books to the tax return. So that's the next step would be tying the books to the tax return. So I'll do that in a future video to show you exactly how to do that. I have a small LLC that I own, and I will show you how to do that off my own records. So that is for another one. So we'll do the chart of accounts and then we'll get into the doing the books, tying the books to the tax return itself, which is important. It's an important step to, to learn how to do because it's so important that the books match the tax return for your client. And then we'll get into figuring out what's wrong with this trust account balance because it's definitely not the right balances. They don't match. So I'm off by a couple thousand dollars here. So I want to find out what's the difference and, and figure out why the trust account itself has more money. So some monies either have been moved out or we just have to see what's going on in the trust account and really start to figure it out. I already put the difference in, did the math, did the difference, and I did not find one transaction in QuickBooks. So it's probably multiple transactions that are wrong. We just have to figure it out. And maybe just reconciling this bank account is going to figure it out right off the bat. Maybe when I get to the year end, it just needs to be reconciled. Maybe there's something missing that's not in here that I don't— I'm not aware of. So that's really the steps that I wanted to go through. I know that was a little bit longer than I thought. But I wanted to get into these few things that are important in closing down the books on your clients' records. So I hope that's helpful. If you have any questions, please feel free to reach out to me. You can find me on my Facebook group, or you can find me by just going into my business Facebook page. Also, I'd love to have you join us in our Facebook group, QB Community Live. We're very active. We add content all the time, like this video, and also You'll see us doing once a week Facebook Live, picking topics that are in our group, or even just helping and taking some questions off the Intuit community. So if you're interested in that, please join our group, QB Community Live. We'd love to have you. And on that note, I hope you all have a great week and Happy New Year. It's my first week back. Bye now.