5 signs that you’ve hired an average (or worse) cannabis bookkeeper
1) They aren’t performing bank and credit card reconciliations on a monthly basis.
Why does this matter?
Bank reconciliations represent a key control and a critical review step for the bookkeeping process. Without a bank reconciliation, you don’t know if your ending cash balance or credit card balance is correct. You also don’t know if you’ve appropriately recognized all the financial transactions that took place in a given period.
What good are your financial statements if your bank balance is wrong and your missing, or have double-booked transactions for a given period? You will not be able to interpret and make key business decisions based on incomplete, and unreliable financial statements.
How can you see if your reconciliations haven’t been done?
If you use QuickBooks Online, then navigate to “Accounting” on the left hand menu, and select “Reconcile.”
On the next screen, towards the top right, click “History by account.” This will take you to a screen that lists all of the prior reconciliations for a given account for a given period.
Under the “Account” dropdown, select each of your bank and credit card accounts and see what information populates in the window below.
You should see a list of all prior month-end periods under “Statement Ending Date” and a corresponding date for “Reconciled On.”
Ideally, the “Reconciled On” date will be no more than 10 or so days after the Statement Ending Date (e.g. for the 06/30/2023 statement, you’d hope to see it was reconciled by 07/10/2023).
Also, check to make sure that nothing shows up in the “Changes” column, as this represents that something was changed in the books after a reconciliation was completed (not always bad but should be addressed by your bookkeeper).
2) Bank reconciliations that carry a long history of uncleared transactions.
Why is this important?
This is one of the biggest indicators that a bookkeeper doesn’t really know what they’re doing. This is a worrying situation because it can appear like they know what they’re doing, but your books can be just as incomplete, and inaccurate as the books of someone who isn’t doing a bank reconciliation at all.
The reason for this is that if you follow the steps from Point 1 above, it will look as if your bookkeeper is doing regular bank reconciliations, but if you investigate further, you’ll see that what they’re actually doing is not a true reconciliation; instead, they’re simply forcing the bank reconciliation to work.
The entire reason you do a bank reconciliation to begin with is that it ensures that your ending bank balance and credit card balance in your financials matches the ending balance according to your bank. To the extent the two don’t match, the difference should be explainable with valid “reconciling” items.
For example, let’s say you wrote a check in June but that check hasn’t cleared yet. You rightly recorded that check payment in your books, and so your book’s bank balance is reduced, but that payment won’t yet appear in your bank statement since it didn’t clear. When you go to do the bank reconciliation at the month-end, your bank balance in QBO will be less than your statement balance, and that check will be listed as an “uncleared reconciling item.”
That is how it should work. But, what happens when someone doesn’t know what they’re doing? When encountered with a balance that doesn’t match at month-end, they will just include a bunch of incorrect transactions as uncleared and or reconciling items.
For example, they may have expense payments, or even revenue, double-booked, which will cause the bank balance in your books to not match your statement balance. Instead of identifying the duplicate transactions and fixing them, they simply get listed as uncleared transactions, and the bank reconciliation gets complete. Below the surface, though, you are now looking at inaccurate financial statements that tell you a false narrative about how your company did last month.
How can you tell?
Navigate to the Reconcile tool in QuickBooks Online like you did in the first point, and pull up “History by account.” Select the account you want to check from the dropdown and this time actually click into one of the listed reconciliations.
At the top of the reconciliation, you’ll see a Summary. Look at the “Statement ending balance” amount and compare it to the “Register balance as of X” balance. If the two match, then you’re good. If the two don’t match and there’s an amount listed next to “Uncleared transactions as of X,” then keep looking.
Scroll down until you see the details of uncleared transactions that make up that “Uncleared transactions as of X” amount. If that list contains recent transactions that were true reconciling items, then you’re good, but if that list contains a bunch of old transactions that have still never been cleared, then chances are that your financials are wrong and your bookkeeper is less than adequate.
3) Your Balance Sheet is hiding significant errors
Why would this be important?
After checking for bank reconciliations, the Balance Sheet is one of the first places we look to determine if a prospective customer’s books are a mess. Most people focus all of their attention on their P&L and don’t even think to look at, or care about the Balance Sheet. But, your P&L can be wildly inaccurate even if your bank reconciliations are good. The errors are all hidden in the Balance Sheet. For example, you may have transactions that should be expenses on your P&L, but instead they’re being booked to a Balance Sheet account.
How you can tell?
Navigate to the Balance Sheet report within the Reports section. For the Report Period, we like to select the preceding 12 months (E.g. if we were doing this right now, we’d select 7/1/22 to 6/30/23), and then change “Display columns by” from “Total Only” to “Months,” and click “Run report.”
This will give you a trended, month-over-month view of your Balance Sheet for the prior 12 months. Search account by account and look for oddities.
Some of the best indications of errors are negative balances, rarely should you ever have a negative balance on your balance sheet, or stale balances for a given account that doesn’t ever change, this can sometimes be valid but oftentimes indicates an error.
4) You have a long history of uncategorized bank transactions, or transactions forever parked in “Uncategorized” or “Ask Accountant” accounts.
Why is this important?
This should be fairly obvious. If transactions aren’t being categorized regularly, ideally weekly, but at least monthly, then your financial statements won’t give you any meaningful information with which to make decisions.
The point of hiring a bookkeeper is to furnish yourself with financial insights to drive business decisions. This is a whole topic on its own, to be discussed in another post.
How you can tell?
Go ahead and navigate to “Banking” and look at the transactions listed under the “For review” section. If there are transactions with dates more than 1 month old there, then that’s problematic.
Additionally, navigate to your P&L and Balance Sheet reports and look for transactions that are coded to “Uncategorized Income/Expense” or “Ask Accountant” accounts. It is okay to use these accounts as temporary placeholders, but if your bookkeeper parks transactions there for long periods of time and never resolves them, then your financial picture is incomplete at best. Possibly, inaccurate at worst
5) Your bookkeeper uses the built-in system chart of accounts and/or the built-in system financial reports
Why is this important?
Unless your business is brand new, there’s no reason you should just use the built-in chart of accounts and financial reports. The primary purpose for good bookkeeping is not to simply satisfy your tax CPA and the IRS with accurate financials; that’s just a byproduct. The primary purpose is to give you critical financial insights so you can manage and grow your business.
There is a reason that successful companies pay a premium for high quality finance and accounting talent. If done correctly, finance and accounting is an investment in your business, not just a necessary evil for tax and compliance.
But, to reap all of those benefits, the foundation has to be level, and there is no way you are getting the customized reporting you need to actually evaluate your business if you are using the built-in reports.
There are many other indicators of bad bookkeeping, but these are the key ones in our opinion.
Did you pick the wrong cannabis bookkeeper?
If you are still unsure whether your bookkeeper is taking good care of you, always feel free to reach out to us. We are more than happy to jump on a call and help you assess the state of your books free of charge. You can read more of our Bookkeeping services services on the button below.
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