How to review a client's Xero books before you quote

By Peter Edwards ACMA CGMA · Chartered Management Accountant in practice

Every cleanup engagement that goes wrong goes wrong at the quote. You price for bookkeeping, open the books properly in week two, and find the job you actually took on: a stock figure nobody has counted since 2023, a suspense balance everyone stopped seeing, margins that are arithmetically impossible. The work doubles; the fee doesn't.

The fix is a structured look before the number leaves your mouth. You don't need access to their Xero — three exports are enough: a Trial Balance (two, at different dates, if you can get them), the Account Transactions report for the last year, and the Aged Receivables and Payables summaries. Here are the seven places the surprises hide, in the order I check them.

1. Cost of sales with no stock account

REDIf a trading business shows meaningful cost of sales but no stock or inventory line on the balance sheet, purchases are being expensed on the day they're bought, not the day they're sold. Reported gross profit is tracking buying patterns, not trading — and it moves pound-for-pound with unsold stock that should be sitting on the balance sheet. This single finding usually changes the reported result more than everything else combined, and it means a stocktake is part of your scope whether anyone wants one or not.

2. A negative or impossible gross margin

REDA genuine business cannot sell goods for less than it pays for them and stay open. A negative gross margin on the trial balance is almost never real trading — it's the stock problem above, or purchases coded into the wrong period. Either way, the P&L cannot be relied on until it's resolved, and your quote should say so.

3. Suspense, clearing and "unknown" balances

REDA suspense account should always be nil. Any balance is a count of transactions nobody could categorise — and both the P&L and balance sheet are wrong by an unknown amount until each one is recoded. Price it per transaction, not as a guess: pull the account listing and count.

4. The director's loan account

REDA large DLA balance is where three different problems hide under one name: genuine director funding, misposted personal costs, and inter-company balances that were never meant to be a loan at all. Each has different tax consequences (s.455, benefit-in-kind, or reclassification). Until it's substantiated in writing, treat it as unpriced risk.

5. Balances that never move

AMBERThis is why you ask for two trial balances at different dates. Any accrual, prepayment, provision — or worse, stock — that is identical on both dates has been rolled forward without review. It's a plug, not a figure. The real number is now something else, and nobody knows what.

6. Manual journal reliance

AMBERFrom the Account Transactions export, look at how much of the ledger arrives by manual journal. When journals run at a large share of revenue, the books are being forced to a result rather than flowing from source documents — and every one of those journals is a place an error entered with nothing behind it.

7. The aged listings' quiet confessions

AMBERCustomers sitting in credit mean unallocated receipts or credit notes against nothing — allocation work, and sometimes duplicated income. A debtor book concentrated in the oldest bracket means stalled collection or stale disputes awaiting write-off. And one supplier dominating the creditors is very often a related-party balance filed among ordinary trade creditors, where it doesn't belong.

Turning findings into a price

Two rules keep the quote honest. First: scope the project and the retainer separately. The one-off corrective work (stocktake, suspense clearance, DLA substantiation) is priced from what you found; the ongoing monthly work is priced from transaction volume. Blending them is how cleanups end up subsidised by you. Second: write the findings down and give them to the prospect — what's wrong, why it matters, what you'd need from them. A prospect who has seen the list rarely argues with the number, because you're no longer quoting a price; you're quoting a diagnosis.

Related: The suspense account that won't clear · Negative gross margin: what it actually means