Financial Red Flags: Eight Signs it is Time to Switch Accountants
Your business’ accountant is more than just a service provider. They are, in large part, responsible for the financial health of your business. Accounting missteps or oversights—especially in the highly regulated cannabis industry—can draw extra attention from the IRS and other regulatory bodies and may impact your ability to grow the company.
We get it; accounting isn’t everyone’s favorite thing to do. That’s why you hire an expert to do it. But if you feel like something’s wrong, even if you can’t quite put your finger on it, maybe it’s time to dig a little deeper and ask yourself if your finance team has really got your back.
Eight Ways to Tell When It’s Time for a New Accountant
It’s a pain to switch accountants, especially before tax time. However, if your growth is stalling and they’re not being proactive about helping you turn that around, that minor inconvenience might work out in your favor.
Here are a few ways to tell if it’s time to switch accountants.
1. You don’t know anyone in your accounting firm by name.
If you aren’t dealing with the same person all the time, it could be that the firm has a problem keeping staff. Whether they have a problematic controller or suffer from poor business practices, the result is the same. Without staffing consistency, your business will never get the attention and care it needs to grow.
2. You can’t articulate what they do for you.
Even if you outsource your accounting, that team should be looped into business conversations, especially as they pertain to growth plans. Your accountant should be able to guide and advise you on things like your cash conversion cycle, most profitable sales channels, and cash flow. If you’re losing money, they should be able to tell you why and how to get you back on track. If they can’t do that, they’re not holding up their end of the arrangement.
3. They’re always running behind, and they always have an excuse
When you hire an accountant, the expectation is that they are your financial partner and invested in your company’s success. If they’re constantly late or behind on their tasks and making flimsy excuses as to why that’s the case, you’ll always be chasing your tail. Growth is hard enough. You need a financial partner who has your best interests at heart, keeps you in the loop, and stays at least one step ahead.
4. You need to repeatedly explain how your industry works.
Cannabis accounting is challenging and not for the faint of heart. You can’t realistically hire just any accounting firm as they won’t likely understand the nuances of the regulatory frameworks and the unique tax burden you must carry. Your ideal financial partner will be a dedicated cannabis CPA who knows your industry inside and out and understands what you need to do to stay profitable and compliant.
5. They have an unhealthy attitude towards debt.
As in… they think all debt is bad. Debt is a financial vehicle that can help you get where you’re going. Of course, you don’t want to always be in the red, but there are perfectly good reasons to be there in the short term, especially if you’re investing in the business. Using debt responsibly can help to facilitate growth, and, in many cases, it’s actually smarter than using equity to do so as it provides you with some tax savings. And as every cannabis operator knows, every dollar you can save on your tax burden is worth pursuing.
6. They are obsessed with squeezing the bottom line.
Many accountants like to play it safe, taking a backward-looking approach to finance and always looking for shortcuts. While this might seem pragmatic, it won’t help you grow. What will it take to get you where you want to be? Your accountant should be with you every step of the way, advising you on the best ways to reach those goals, not dissuading you from making decisions that will increase your company’s value.
7. They still prefer a manual filing system.
If your accountant still uses spreadsheets and a paper filing system, it’s time to rethink your relationship. Manual systems may be what they know best, but you simply can’t analyze, forecast, and understand your company’s financial health without advanced tools. Today’s cloud-based cannabis accounting platforms automate and categorize most transactions, reducing time, effort, and errors and putting real-time financial data in the palms of your hands. That data can then be leveraged to fine-tune your marketing strategy, plan equipment purchases, or identify where you spend too much on a service. You would not be able to do that with an Excel spreadsheet and a file cabinet, and you shouldn’t have to.
8. They can’t (or won’t) explain your financial statements to you.
If you have no clue what’s going on in your financial world, it’s entirely possible your accountant doesn’t either. If you ask for an explanation and they can’t easily provide one, you’re in serious trouble. Let’s say you’re looking at your expense reports, and it’s way over your budget, but they can’t tell you why; in that case, you’re flying blind. You need to be able to review your balance sheets, understand your debt-to-equity ratio, and understand what it means so you can make the proper adjustments. As a business owner, you need to review your balance sheets regularly. If it’s not something your accountant brings up at all, they’re probably not the right financial partner for you.
Things to Think About Before You Switch Accountants
Here are a few questions to ponder before you bring on a new accountant.
· Where do I envision my business in 5, 10, or 20 years? Choose an accountant who can help you get there with strategic financial advice.
· What kind of support do I need? Do I need a bookkeeper, a CPA, a controller, or a CFO? Prioritize professionals experienced in the cannabis industry.
· What do I need to do to make my finances more efficient? Review current systems to see where they can improve.
