Episode 11 – Cleanup Engagement Workflow
The Cleanup Engagement Workflow
Cleanups are huge in our industry. It’s usually the reason why clients reach out to us in the first place. But, they can take on a life of their own – can’t they? After years of practice, I have developed this cleanup engagement workflow to help streamline the process. Don’t forget if you want to dive in even deeper on how to manage cleanups and really work through those transactions, check out my QBO Cleanup Master Course.
Before you get started with any cleanup engagement, you need to have a clearly defined starting point. Let’s say you are starting with January 1, 2019. Then, you need to make sure all the balances on the balance sheet match what was on the 2018 tax return. You want those starting balances as your starting point.
Now, once we know where to start, let’s move on to the Cleanup Engagement Workflow that you’ll want to follow:
#1 Reconcile Bank and Credit Card Accounts
Why? This makes sure you get all the transactions in the system that have cleared the bank and credit card accounts. We are not too worried about coding at this point, we’ll get to that later. The important part is that we need to know we have ALL of the transactions. Otherwise, we are only cleaning up a portion of the books.
You want to make sure ALL accounts are reconciled. Anything that has some sort of statement can be reconciled in the books. Don’t feel like you are just limited to bank and credit card accounts. Include Loans, Petty Cash, etc if you have some sort of statement.
And remember, something has to happen with the unreconciled transactions. You can’t just keep them in the accounts. These are problem transactions where you need to investigate to see if they really belong in the books. But, I don’t like dealing with them while I’m in the process of reconciling the accounts, so I like to put them into a clearing account called “cleanup”. Once I am done with the main reconciliations, I can start to figure out these leftover transactions. Should they be deleted? Do they need to be updated as part of a cleanup issue?
#2 Cleanup the Balance Sheet
Now, we know we have all the transactions. We need to start making sure they are in the right place. It’s time to go through the rest of the balance sheet. Here is the order I like to go:
- I start with revenue-related accounts: Undeposited Funds, A/R, Deposits, etc
- Then expense -related accounts: A/P, Prepaid Expenses, Accrued Expenses
- Then the other accounts
- Get an understanding of what is in each account
- Are there stale accounts – where a transaction was booked there years ago and shouldn’t be there anymore?
Yes, some of these accounts are related to P&L accounts – but if you listen to the episode, you’ll figure out what we are doing here.
#3 Cleanup the P&L
I start with running a comparative P&L to see if there are any issues from the big picture. Then, I dive into the details. I utilize reclassify transactions to go through the detail of the accounts easily. You’ll want to look for:
- Deposits in revenue accounts
- Negative transactions in revenue or expense accounts
- Invoices in expense accounts
- See if transactions are coded consistently
#4 Final Big Picture Review
Now that we have scrubbed everything, we want to go back and double-check our work. You want to make sure there were no changes to prior reconciliations and your balance sheet balances are still the same. And finally, really look at the financials to see if they make sense. Can you read the story that they are telling? Can you anticipate any questions your client might ask? If so, maybe you need to investigate that area further.
That wraps up my cleanup engagement workflow. If you’d like to get further training on this, I do have a master course on cleanup engagements.
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