are crucial for businesses in the cannabis industry because many states impose very high fines and penalties for failure to keep accurate books and financial records. Although state requirements vary, the requirement for accurate financial records is consistent. Take for example Oregon’s state accounting requirement;
“Financial and Business Records in addition to any other record keeping requirements in these rules, a marijuana licensee must have and maintain records that clearly reflect all financial transactions and the financial condition of the business. The following records must be kept and maintained for a three-year period and must be made available for inspection if requested by an employee of the Commission: (1) Purchase invoices and supporting documents for items and services purchased for use in the production, processing, research, testing and sale of marijuana items that include from whom the items were purchased and the date of purchase; (2) Bank statements for any accounts relating to the licensed business; (3) Accounting and tax records related to the licensed business; (4) Documentation of all financial transactions related to the licensed business, including contracts and agreements for services performed or received that relate to the licensed business; and (5) All employee records, including training.” -Stat. Auth.: Sections 2, 12, 14, 15 and 16, Chapter 614, Oregon Laws 2015 Stats. Implemented: Section 46, Chapter 614, Oregon Laws 2015
Good Cannabis Accounting and Reporting Increases the Value of Your Business
In addition to state accounting requirements, financial institutions that work with the cannabis industry also often require detailed quarterly financial statements and supporting documents. Fortunately, with cloud accounting you can provide the detailed accounting and reporting necessary to keep your company in compliance. Beyond complying with state licensing and accounting requirements there are other reasons accurate financial records are important to your cannabis business.
One of the most important benefits of accurate accounting and financial record keeping is that it will increase the value of your business when you can provide documentation that demonstrates the financial stability of your company.
- A strong finance function that includes software specifically capable of handling the operations and accounting for the cannabis industry niche that is scaled to the size and complexity of your specific business. Consider best in breed for this – a strong central financial operations system combined with your seed to sale solution of choice. As the industry changes, the technology supporting it will continue to evolve, and you want to be able change quickly if need be, which keeping your financial system stable.
- Accurate, timely, and complete financial statements, that include absorption cost accounting
- A robust internal control system that clearly defines the proper segregation of duties and safeguards key assets
- Detailed accounting policies and procedures
- Electronic storage of all documents (invoices, sales receipts, bank records, etc.) that are readily available (consider attaching them to the appropriate accounting transactions in your accounting system.)
- An effective dashboard and key performance indicators
- A timely cash and tax forecasting system
When your company has these elements in place it will be in a strong position to perform any due diligence, access capital, and build productive investor relationships. When it is time to sell your company is likely to receive higher valuations.
Better Cannabis Accounting can Lower the Burden of an IRS or State Audit
It is a well- known fact that cannabis related businesses are prone to IRS audit flags so you should see to it that you are prepared for an eventual audit. Usually the audit notice will arrive and will cover a period of time two to three years prior to the notice date. That is why it is critical to have a strong finance function and accounting software that can safely store and back up all of your records, as well as make pulling reports for the auditors easy for your team to handle.
Good Financials Help the CEO Make Better Strategic Decisions for Your Cannabis Business
Accounting is often said to be the “language” of business and yet many CEOs place low importance on the accounting, finance, and reporting functions. With cloud accounting it is no longer strictly about the numbers. Analytics are improving forecasting and enabling accounts to dig deeper into the data to provide CEOs with better business intelligence and insights to facilitate better strategic business decisions.
Increase Your Cannabis Operation’s Value at Exit
At some point, you will want to exit your business. Maybe it will be a full company sale, or maybe you just want to buy out or sell to a partner, or life circumstances might be forcing an exit. At the time of the exit the business will need to be valued, and likely audited. All of these actions will require extensive due diligence. If you have detailed, accurate, complete financial records and systems, this will be a straight forward exercise that will help you maximize the value of your business.