Month-End Closing Checklist for Cannabis Operators

Month-end closing processes are a critical aspect of maintaining clean books. Keeping your books updated and organized is essential for any small business, perhaps even more so for cannabis operators.

Companies in the cannabis industry are frequently audit targets for the IRS, and good bookkeeping habits help to minimize the stress and expense that come with them.

Many cannabis companies are small operations. Consequentially, if you own or run one, you likely wear many hats. Anything you can do to simplify the “boring” business side of running your business puts more time in your day and may even help you sleep better at night—and that’s what we’re all about here at Growise.

To that end, we’ve compiled a handy month-end checklist to help you breeze through the task and gain valuable insight into your business’s financial health.

Keep this ten-point checklist handy; go through it step by step, and we guarantee you’ll spend more time doing what you love and less time stressing about financial compliance.

Essential Ten-Point Cannabis Operator’s Month-End Checklist 

1.      Verify all transactions

Verify the accuracy of all income and expense transactions. Remove duplicates and ensure all cash transactions are correctly recorded. Ideally, you’ll be doing this throughout the month, as it’s easier to rectify errors if they are recent.

2.      Review AR/AP

Go over accounts payable and accounts receivable so you can follow up on any late payments and take care of bills before they become overdue. Staying current with accounts receivable keeps your cash flow positive. For AP, you may be able to configure your accounting software to send notifications to remind you when bills are due—one less thing to remember!

3.      Reconcile your accounts

Compare your financial records with bank statements to ensure they line up. Doing so will keep you informed about uncashed checks and help you avoid errors, detect fraud, and ensure your books are always ship-shape. Uncashed checks can impact your spending as you may think you have more money than you actually do. Follow up on any discrepancies and fix issues before they become bigger problems.

4.      Finalize monthly income and expense reports

Go through every expense and income transaction to ensure they are recorded and categorized accurately. Doing so is especially critical considering the stringent limitations of Section 280E. Mis-categorizing an expense may land you in hot water with the IRS or lead to missed opportunities to reduce your tax burden.

We also recommend comparing expense reports to previous months to see if there are any glaring discrepancies or noteworthy trends. Understanding your spending helps you plan better for the long term.

5.      Verify assets (including inventory)

Do a complete inventory, including assets and physical counts, to ensure your books reflect reality. As with the previous step, it’s a good idea to compare it to last month to see if you’ve overlooked anything or if there are ways you could improve efficiency.

6.      Output financial reports

Financial reports give you a high-level view of your business. We recommend running a profit-and-loss statement (P&L), cash flow statement, and a balance sheet. These highly visual reports can give you an at-a-glance reference to discuss with your stakeholders or leverage for planning.

7.      Review your monthly cash flow

Understanding your income and outflow helps you visualize your company’s liquidity (cash flow), allowing you to make better financial decisions and inform plans for the future.

8.      Check financial statements to ensure accuracy

Analyzing your P&L statements, balance sheets, and other financial reports helps you gain insight into how your cannabis company is performing. Without this crucial data, it would be impossible to determine business success. Comparing current reports to previous months helps you identify trends and opportunities so you can move forward confidently.

9.      Look ahead to next month

Planning ahead is the best way to achieve business success. Understanding your business’s financial health enables big-picture thinking and helps you set goals for future growth. For example, if you know you are heading into a slower season, you can look at ways to reduce costs temporarily to preserve liquidity. Conversely, knowing you’re on the verge of a seasonal surge may inform equipment purchases supporting expansion or a change in your business model.

10.                                   Archive past month’s records

Wrap up your month-end tasks by organizing, filing, and archiving reports. When month-end is neat and tidy, it will be easy to refer to for audits or compliance. Excellent financial organization supports transparency, minimizes financial surprises, and helps to make tax time a walk in the park. Relatively speaking, of course!

Additional Month-End Tips

One of the biggest issues with month-end closing is the time it takes and the potential for errors. These problems become even more significant if you still use Excel spreadsheets to run your business.

While you might well be an Excel whiz, the time it takes to maintain and reconcile using this method would be better spent on business-building activities. Implementing a business accounting platform purpose-built for the cannabis industry is an excellent way to overcome this challenge.

Modern cannabis accounting platforms can automate tasks and take care of many daily bookkeeping processes, so all you have to do is review the transactions to ensure they’re accurately categorized. Automation improves accuracy, reduces time spent on repetitive tasks, and lets you devote more time to running your business. Sounds pretty good, right?

If month-end closing still makes you pucker, just know that this checklist should help you get through it faster. Plus, you’ll reap the following benefits:

·      More accurate records. Clean books! Need we say more?

·      Better visibility into your business’s financial health.

·      Worry-free audits! If you’ve already verified the accuracy of your records, the auditor will find nothing amiss!

·      Reduced risk. You’ll know exactly how much money you have and what’s coming in so you can plan and execute reliably.

·      Attract investors. Should you seek outside investment, accurate monthly statements show transparency and go a long way to positioning your business as a viable commodity.

Need Help with Your Monthly Closing? Ask Us!

Growise CPAs are dedicated to supporting cannabis compliance and financial health. Speak to us today to find out how we can help.