When You Have a Client Whose Record Keeping Is a Mess

Do you have a new business accounting client in your PA accounting practice who has not been keeping good records? You can help your client develop a sound financial recording system with just a few simple changes. 

What’s most important for your client?

If your client is a business, the most important concern is staying in business and making a profit. The next most important concern (perhaps it’s a tie) is providing records to the IRS at tax time. A client who has not been keeping good records may still be staying afloat – for now – but will not have an easy tax season and may be at a higher risk of being audited. 

Closely tracking income and expenses can provide you, as your client’s accountant and financial expert, with the necessary information you need to provide advice that will help the business make a profit and continue to grow. The most important metrics you’ll need for this purpose are accounts receivable, expense reports, cash flow, the P&L statement, profit by client, profit by service or item sale, and project profitability. Accurate tracking of income and expenses are critical in order to generate this information. 

Where to start

Your first step is to sit down with your client and learn about the business and the challenges your client may be experiencing. Does your client sell items or offer service? Is he or she on the road a lot or mostly in-office? Are there employees generating expenses out on the road? Are there many small clients or a few larger clients with repeat purchases? Are the services long-term, such as a construction company, or once-and-done, like a nail salon? Knowing these factors will help you define a simple record-keeping system that works for your client. 

Tracking expenses

The biggest challenge for most small businesses is tracking expenses, especially random receipts. So much that can be expensed gets lost or forgotten, costing your client a lot of write-offs that could really improve financials and save on taxes. Unrecorded expenses mean your client is spending way more than he realizes. This is most common when a client is on the road or has employees on the road or when your client’s business and personal expenses are not separate, for instance, using the same credit card or the same car for both business and personal use. 

In this case, you may advise your client to get a mobile app especially for recording receipts that can digitize the information and make it easy to download and record. QuickBooks offers an app that seamlessly integrates into the QuickBooks system. If you can get your client started with some of the basics in QuickBooks and get the employees using the QuickBooks receipt-scanning function, you’ve easily and painlessly solved a huge problem. Expensify is a great option for clients and their employees who do business travel, making travel expense reports a breeze. Some apps can track expenses on a business credit card. There are a number of others, so find what’s best for your client. 

If the company doesn’t really generate a lot of random receipts, the company’s employees could take a picture of the receipt and submit the receipt and the picture to you. These can then be easily input into an Excel spreadsheet or accounting software. 

Of course, all other general business expenses and accounts payable will need to be captured. Your client will need to collect them in a single file and submit them to you at least every other week. You can also arrange to have the company input them into the spreadsheet or accounting software themselves. 

Tracking and collecting accounts receivable

The next biggest issue is invoicing for sales and services. It’s amazing how easy it is for a busy entrepreneur or small business to forget to invoice a client, or to invoice once and forget about it until it’s paid – if ever. So much income is lost this way. Critical to your client’s success is getting paid for products sold or work done. You should work with your client right from the start to develop a simple sales tracking system that records every transaction.

If the business is a storefront or a service in which payment is due upon purchase, such as a nail salon, chances are the client isn’t billing people and there are few accounts receivable. That’s great for them and for you. If there is a register that is ringing up sales, you should have a good record of receipts.

However, if the business invoices customers, you’ll need to develop a professional system to track sales and invoices on a timely basis and monitor the aging of accounts receivable. You’ll also want to discuss with your client a payment timeframe and perhaps some incentives to speed up turnaround. For instance, an invoice should include words such as “Payment due within 30 days of receipt.” If you want to include an incentive, such as 5% savings if paid within 10 days, the invoice should include a calculated discount price and date. 

Continuing to improve

Once your client begins to track expenses, income, and A/R properly, you will undoubtedly find ways they can save money and grow their business. Plan to meet regularly to review the progress. In this way, you will not only straighten out a client but you’ll develop a long-term, loyal client because of the service.