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 decisionmaking 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.