Dana Cawthon: Solid Cash Control, Accounting Policies Can Help Cannabis Businesses Head Off Problems

By Dana Cawthon

Due to the recent banking setbacks in the cannabis industry, all dispensaries and edibles kitchens must take extra measures to document cash activity while still maintaining accrual methods of accounting.

It was hard enough to keep accurate records before the banking pullout. Now, given the changing situation, it’s more important than ever for you to implement sound cash control policies, or you’ll pay a much higher price down the road.

As someone who’s been in accounting and finance for over 20 years, I can say that there are several bookkeeping problems prevalent in every industry. The most common and correctable one is when the income statement shows increases in revenues while the cash is reported as a loss on the balance sheet. When you notice this “red flag,” it typically will be traced to poor cash management. An average retailer loses 2-4% due to cash mishandling. Obviously, the percentages for the medical marijuana industry are much higher due to the ease of theft and lack of industry standards.

Fortunately, many simple and inexpensive methods may be used to significantly improve cash management.

First of all, it’s wise to have more than one person handling accounting duties. Do NOT allow just one employee to be in control of handling cash and recording all transactions in the books. This exposes you to an increase in employee theft and gives personnel the capacity to “cover their tracks.”  It’s much safer and more profitable to have one person physically handle the cash while having a different employee audit the sales reports and enter the transactions into your books. In addition, holding more than one person accountable for cash management discourages theft.

Another way to strengthen your cash control is to use a customized accounting software program. I recommend Adilas because the system can be uniquely specialized for your business. Other viable and effective systems are also available, and I encourage you to find a product that works for you. Each of these accounting systems should be used immediately whenever cash activity is going in or out of the business.

A reliable accounting software program is a necessary tool to help you tightly control inventories. Dispensaries and edibles manufacturers deal with large product lines that have various expiration dates. Using reliable IT sources provides a great way to analyze buying trends, set pricing, mine data and monitor cash activity as well. Anything you have to throw out is money down the drain and kills your bottom line. Maintaining accurate and well-managed accounting software will also help organize your data to guide you in the difficult decision-making process on a daily basis.

Here are a few more easy cash management tips I advise my clients to use:

1)      Banking Procedures

Banks make mistakes; therefore you need to reconcile at least once a month. Analyze your deposits to make sure your money has been debited to your account (if you still have a banking account). A line-by-line evaluation ensures no deposits are missing and each one is entered accurately.

Bank deposits should be made daily, and you should attach deposit slips to daily cash reports as supporting documentation.

2)      Accounting Procedures

– Have a written policy and supporting forms to help employees record refunds given to customers and credits for mistakes made. Forms should include time, date and amount and include the customer’s signature.

– Limit access to the safe and ensure it’s locked at all times. Most safes have envelope-dropping features. A key and combination access log for the safe should be used. Keys should be numbered and assigned to designated employees.

– Refunds and payments to vendors should be deducted from a petty cash fund and not from the cash drawer or daily deposits. Summarize the transactions for the accounting department with the time, date, vendor bill and employee signature.

3)      Cash Register Procedures

– Perform a cash drop for each shift. One person should be responsible for each shift deposit. Have them enter the amount of the deposit, total sales for the day, date, time and sign it. Next, put this information on an envelope to be dropped into the safe.

– Only use cash registers with an accumulative reading. This will keep a running total of the sales, specials, coupons, etc. Incorporate these readings into your daily sales reports.

– A cashier should be responsible for his or her own cash drawer. During each shift, cash in the drawer should be removed and counted by a manager or bookkeeper.

– Use a register that has the transaction visible to both the cashier and to your customers. This way, secret shoppers take note to help ensure the employees are not under-ringing sales. Sales should be rung up at the time of purchase and a receipt given to the customer. I can’t tell you how many times I have visited a dispensary as a secret shopper and the cashier hits the “no sale” button. I left knowing that the employee would be pocketing the cash at the end of the shift.

-Have the same amount of cash on hand each day to make change for customers. It’s important the money is counted at opening and closing, dated and signed by the employee. Cashiers should place the customer’s money on the register’s ledge until the change is made. This way if the customer says he gave a larger dollar amount, the cashier has it right there to confirm it.

– Cash registers should not be left unattended. Money should not be exchanged between registers if multiple registers are used.

– Do a Z reading each day to clear the register of the previous day’s sales. Attach it to the daily cash report as supporting documentation.

All retailers and manufacturers need to pay close attention to their cash management practices. I’m not singling out the medical marijuana industry; it’s just that our exposure has recently become much greater. My hope is that anyone who reads this will benefit and use these tools to help fight back against current market conditions.

Dana Cawthon is chief executive officer and co-founder of Corporate Results, a consulting firm specializing in the needs of dispensary owners, MMJ manufacturers and supporting doctors.

8 comments on “Dana Cawthon: Solid Cash Control, Accounting Policies Can Help Cannabis Businesses Head Off Problems
  1. Dr. Fusion on

    I dont neccessaryly agree with this. As someone that has been in accounting many years as well you can utilize Quickbooks accounting software and have an accurate PNL knowing exactly where cash flow is coming in and out of the business. If you are hiring quality people there should be NO issues of theft or anything else for that matter. There are plenty of people in this industry for the wrong reasons and will mishandle business matters no matter if its in this industry or high end retail. This is a very basic article that anyone that has ever run a business would know. FIRST – Know your staff. (Have policies and procedures in place prior to any hiring) SECOND – Invest in Quickbooks and do the tutorials. THIRD – IF you cant afford accounting software use Excel. Pretty simple no matter what industry.

    Reply
  2. Dana on

    Charlotte,

    http://www.Adilas.biz, the software mentioned in the article above, has features any veteran CFO/controller and/or staff accountant would marvel over. It makes our life much easier while maintaining efficiency within management and financial aspects of the business.

    Adilas is a program for business owners that have outgrown Quickbooks. As I stated, find a software program that works for you and your business.

    I enjoy features that allow me to integrate the grow, retail, accounting, and overall management with one system.

    I will be at the conference and happy to share my experience with several programs I have used. Or you can contact me at [email protected].

    Dana

    Reply
  3. john holmstead on

    I would like to invest in the cannibis trade. This is stricktly for making profit – I’m not interested in pot generally speaking; however, have some money to invest.
    Let’s make some money together in thi sfastly growing market!

    Reply
  4. Pete on

    @John Holmstead – First off, if you’re serious about this industry let’s learn to spell cannabis, just saying…

    Secondly, while cannabis indeed can lead to increased profits, it’s not about how much money you can make in this industry. That’s exactly what gives this business a bad name and gets unsuspecting individuals like you a bad name. Get educated, get involved in fighting prohibition, and get with the movement, then seek to service the community from that place and not from a standpoint of profits and gains. Only then can you succeed and make a difference. Why do I say these things? because as a dispensary owner/operator for years I’ve learned that the only true way to gain is by being altruistic as a principle. The materialistic will come as a byproduct.

    To health, happiness, and freedom from opression.

    Pete

    Reply
  5. saul meshach on

    One of the biggest problems I have had running a dispensary is employee consuming to much inventory. I had to fire one employee who brazilling admitted to smoking 5 grams a day. do the math. $50 a day times 30. That’s $1500 a month. Multi that buy 2 or 3 employees and you get the point. So it is highly suggested that you weigh all your dry goods once a week. Then weigh all grams that are sold per day. Then weigh any new products that come in. do this once a week to make sure you dont have inventory leakage. The Red Emperor Collective

    Reply

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