CannaBlog: Financial Data and your Cannabusiness

Is your Cannabusiness Getting the Most from your Financial Data?

CannaBlog by Rachael Aronson, CPA, Accounting Manager with

Bridge West CPAs & Advisors

Cannabusiness owners know and understand the importance and value of their operational data.  Whether it is yield per plant for cultivators, THC content per batch for processors, or average sale per customer for dispensaries, collecting and understanding the operational data is imperative to the success of their businesses. Just like operational data, financial data summarizes the performance of your business and is the key to understanding the financial health of your business.

Given the fast-paced and ever-changing nature of the cannabis industry, the accounting function is often viewed as an afterthought.  However, it should be viewed as an integral part of operations and is the source to obtaining the most from your financial data.  The basic accounting functions are to collect, manage, and interpret the financial data.

Below are strategies to assist with implementing your accounting function.

Understand your workflows

The key to collecting financial data is understanding how your money is being received and spent — your workflows. This step seems like a ‘no brainer,’ but identifying cash inflows and outflows translates to each accounting function.  For example, your cash outflow for packaging expenses relates to accounts payable, inventory, and cost of goods sold, and these cash workflows can be traced to operations. In this example, it is likely that packaging expenses were ordered by the packaging manager who can identify how orders are placed and how bills are received.

Create and define your processes

Once your workflows have been identified, create processes to collect and remit the data to your accounting software.  Identify opportunities to improve the operational workflow.  Using the same packaging expense example above, instruct the packaging manager to submit purchase orders that are prepared by accounting.  When goods are received, the packing slip and invoice should be provided to accounting to be applied to the open purchase. It is essential to identify how often the process should be performed, inventory controls, such as purchase approvals, how the data will be reviewed, and how the supporting records will be retained.  It is highly recommended to retain a digital copy of all bills, receipts, sales invoices, etc. and attach these records to the corresponding transaction in your accounting software. Audits are a recurring theme for the cannabis industry, and cannabusiness owners should maintain updated records.

Develop cannabis-specific accounting policies

It is essential that cannabusiness owners realize that cannabis accounting is completely different than any other industry.  It is imperative to understand the implications of various federal and state tax codes and methods of cost accounting depending on your business activities. Your accounting policies should be developed in accordance with your tax and costing approach.  Model your chart of accounts to align with your accounting policies and be sure to establish tracking for each department, such as cultivation, extraction, packaging, etc. If you have multiple locations performing similar operations, consider tracking by location within each department.  Your policies will be the guidance for the application of the financial data processed in the previous concept.  If you are unsure of the cannabis accounting that is specific to your cannabusiness, do not hesitate to  contact us.

Develop a monthly reporting package

The ultimate goal for accounting is the development and implementation of a monthly reporting package, which summarizes your financial data and provides insights to the activities of your cannabusiness. Management will be able to analyze performance, develop key performance indicators, establish budgets, and forecast cash flow.  Having access to this essential information is critical for supply data to potential investors and lenders in a timely fashion and assists with the management of your cannabusiness.  Reporting packages can be customized to your specific target market and users.

Final Recommendations

Developing and implementing your accounting function is recommended from inception of your cannabusiness. In addition to preventing headaches in the long-run, this vital step gives management the tools to make data-driven, strategic decisions.  Whether your cannabusiness is in the critical start-up phase, or has been operating for years, we recommend consulting with cannabis industry experts to get the most from your financial data.  As accounting and tax advisors serving the cannabis industry since 2009, Bridge West serves more than 400 cannabis and hemp clients, including cultivators, processors, transporters, dispensaries, management, and intellectual companies, throughout the United States. Our Outsourced Accounting Services Group provides customized services, whether your cannabis business is a startup with limited resources and no accounting and bookkeeping staff, or an established cannabis business with an internal accounting team.  Through our in-depth knowledge of the cannabis industry, we have developed standard chart of accounts, methods to minimize 280E, properly account for inventory, and Key Performance Indicators. Bridge West’s clients rely on our cannabis experts to implement and maintain their financial data so they can focus on their growth and operations.

To learn more about Bridge West’s Outsourced Accounting Services Group, contact Rachael Aronson, CPA Accounting Manager with Bridge West at 512-529-0603
or r.aronson@bridgewestcpas.com.  If you would like to schedule a complimentary consultation with a member of our Leadership Team, please contact us.