The 15th is for Financials

In almost every organization, regardless of size, industry or location, a monthly financial reporting package is delivered to the CEO/Owner and leadership team by the 15th of each month.

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The cannabis industry is not new. What is new is that cannabis is legal, in some form, in 47 states. The ever changing, highly regulated, complex industry that has emerged with legalization is new. Business is still being conducted in cash and the black market continues to thrive. Otherwise, cannabis businesses are the same as any other organization; hiring employees, purchasing insurance, leasing property and equipment, generating revenue, incurring expenses, paying taxes, etc. Like other businesses, cannabis CEO’s are obligated to be fiscally responsible and to have a thorough understanding of the financial health of their grow/farm/processing facility/dispensary/delivery service.

What is the best way to achieve fiscal responsibility and understand “the numbers”? A monthly financial reporting package, one that ties back to the Trial Balance and is supported with detailed workpapers. A basic set of reports will include an income statement (profit & loss statement/P&L) and a balance sheet. A more robust package adds a statement of cash flows and a rolling cash forecast. Businesses with great accountants and/or larger finance teams will also have a management dashboard with key metrics, variance analysis versus budget and other custom reports that provide insight and information to make informed decisions.

Each month you should review the reports, ask your accountant/controller any clarifying questions and then discuss with your leadership team. What are your challenges? What are your opportunities? Where do you need to focus? These discussions can be one-on-one but having the whole team understand each of the main drivers of the business and how they can support each other is much more effective.

There is a significant number of cannabis CEO’s and management teams that are not getting these monthly reports. They’re having a friend, family member, budtender or sometime even the CEO themselves, maintain QuickBooks, Xero or an Excel spreadsheet. If they’re lucky, they have a great bookkeeper who prints reports and gathers everything at year end for a CPA. Around January/February there’s a scramble to connect with a CPA to “get the taxes done”. This is when many CEO’s find out that traditional accounting firms either won’t work with cannabis businesses or don’t know how to do the cost accounting necessary to maximize cost of goods sold (COGS) under IRC 280E. Even worse is when they find a cannabis friendly CPA firm only to find out that unless you are doing GAAP financials every month you can’t take the maximum COGS. Once a year cost accounting at tax time is going to put you at risk when (not if) the auditors come around.

I know, your current bookkeeper/accountant/friend is inexpensive, experienced, nice and professional, but unless they know Cannabis Accounting and are providing you with these important reports, you’re putting your business in jeopardy; for fines, cash flow issues, license revocation, loss of valuation at exit, disillusioned investors or being shut down.

What to do? Reach out to a cannabis-exclusive accounting firm.  Learn how we can help. Find a qualified business partner who will provide complete financial support, from monthly reporting and proper cost accounting to setting up and maintaining a perpetual data room for all legal/financial/HR documents. Be 100% confident in your financial data and prepared for investors, auditors, regulatory agencies & potential buyers.