You know from reading my first post that I believe a strong, professional accounting & finance is essential in building a successful cannabis business. What does that mean? What’s involved? Who’s involved? How do I make it happen? Below I outline what I believe are the four basics components of any accounting & finance “department”; reduced to its simplest form for small to midsize organizations (farms, grows, dispensaries, delivery services, extractors, edibles manufacturers, etc.).
1. Functions – Accounting is more than just accounting. Depending on the type and size of the company there can be a few specialty areas, or a dozen. Every business needs these areas covered:
a. AR (Accounts Receivable|Billing|Collections) – Money owed by clients and customers for goods supplied and/or services rendered but not yet paid for, usually in the form of an invoice. The invoice is to be paid within an agreed upon timeframe, i.e. 30/60/90 days. Often times there is a discount offered for early payment.
b. AP (Accounts Payable) – Money owed by the business to suppliers and/or creditors. Similar to AR, there will be payment terms and potential to negotiate a discount for paying early, i.e. paying in 10 days on 30 day terms.
c. Payroll – Money paid to employees including hourly wages and salaries, payroll taxes withheld and the cost of benefit programs. Includes employee records and the calculation of wages and taxes due.
d. Tax – Money paid to various local, county, state and federal tax authorities. Depending on location specific taxation rules payments are made monthly/quarterly/annually. Also includes the filing of forms and license/permit renewals.
e. Records Management – Creation, organization and maintenance of all important documents (leases, invoices, receipts, partnership agreements, monthly financials, permits, tax payments, etc.).
f. Accounting/Finance - Broad term to include the oversight of the above functions and the day-to-day fiscal management of a business from bookkeeping and monthly reporting to cash forecasting and budgeting.
2. Tools – Basic technology that needs to be put in place to get things done correctly and efficiently.
a. Quickbooks/Xero/AccountingSuite – The three main bookkeeping software being used in cannabis. I recommend QB Desktop; most widely known, extensive community for technical support and solid reporting capabilities. Client purchases and works with accountant on implementation and training.
b. Swizznet/Summit/Right Networks – Remote hosting applications for your bookkeeping/accounting software. This service is paid by client and set up by client and accountant.
c. Drop Box/BOX – Cloud based storage for your records management, or “perpetual data room”. Client purchases the service, creates a folder, i.e. Tiny Trees Dispensary_Financial, and gives access to their cannabis accountant and any internal employees who will be involved in the financial side of the business. Within this folder the accountant creates a well-organized, easy to navigate set of folders for all legal, HR, licensing, partnership and operations documents. This is also where client site employee(s) will upload receipts, invoices, inventory sheets, etc.
d. Slack/Asana/Basecamp and Zoom – Team communication tools to eliminate inbox overflow and videoconferencing with screen sharing capabilities for a low price. It is especially important during the initial on-boarding process, and during tax season, that there is an easy, efficient way for the client and cannabis accountant to communicate.
Depending on the type of business (cultivator, processor or dispensary) the client may also need inventory software, a POS system, seed-to-sale tracking, CRM, etc. When deciding how much time and money to invest there are three goals; meeting immediate business needs, ensuring regulatory compliance and supporting longer term growth.
3. Team – If you don’t identify and hire/partner with the right resources at the start you are going to be playing catch-up for a long time. Many small and midsize businesses are not going to be able to staff a full accounting & finance department. That’s ok! Few of these functions are full time positions, and most can be done by trusted employees that have some financial acumen. Once trained by a cannabis accounting firm, front desk staff, managers and operations folks can easily do the basic bookkeeping, scan and upload documents and facilitate communication. You absolutely need:
a. On-Site Admin – the front desk staff, general manager or bookkeeper that is employed by the client, physically works at or near the farm/facility and is going to handle the day-to-day QuickBooks (AP, AR, assist with Records Management and possibly do Payroll).
b. Cannabis Attorney – full service firm or individual practitioner to guide entity selection, assist with the licensing process, advise on compliance issues, deal with any regulatory violations or criminal charges.
c. Cannabis CPA – full service firm or individual practitioner to file your business and personal tax returns. They will also advise on the latest IRS regulations, court cases, etc.
d. Cannabis Accounting Firm – this is your part-time CFO. They review QuickBooks each month, prepare monthly financial reporting package, maintain the perpetual data room, do your annual budget/mid-year forecast, provide a rolling cash forecast, file quarterly tax estimates, assist with tax planning and act as a liaison with the attorneys, CPA’s, bank and investors. They’re your right hand (wo)man for everything financial. Some, including myself (SHAMELESS PLUG) offer full financial solutions from bookkeeping to tax returns.
4. Deliverables – How your investment in Tools and Team adds Value. Whether business is going well or not, cannabis CEO’s must have accurate, up-to-date books and records to make informed decisions. Yes, you are tracking everything in Excel, no your business isn’t that complicated and we know you just spent your last $5k on yet another licensing fee. It doesn’t matter, you still need to have good reporting, your taxes need to be paid on time and documents accessible at a moment’s notice for investors or auditors. At a minimum your accounting and finance “team” should be providing you:
a. Monthly Reporting Package by the 15th of each month (Income Statement, Balance Sheet, Statement of Cash Flows and associated workpapers)
b. Cash Forecast (ranging from 90 days to 9 months)
c. Updated Records (all backup associated with financials, new contracts, revised lease agreements, etc.)
d. Quarterly Tax Filings
e. Year-End Tax Planning
The most important deliverable is the peace of mind a client has knowing they are managing their cannabis business in the same fiscally responsible manner that “regular” small and midsize businesses are. Having confidence in their financials and records when it comes time to exit or expand. Learning that the investment in a trained cannabis accountant provides returns in the form of improved cash flow, increased compliance and a true understanding of the financial health and potential of their business.