Cannabis operators can avoid these five common bookkeeping mistakes by employing various checks and balances throughout their operations.
- The massive amount of cash used in the cannabis industry puts you at risk for human error and fraud in accounting.
- Make sure you are appropriating sales tax correctly to avoid making a mistake on your tax return.
- Strong bookkeeping practices can help avoid many of these common mistakes.
Cannabis businesses are like any other legal business that relies on accurate information and reporting. The biggest difference in bookkeeping for cannabis companies lies in the massive amount of cash being collected, and therefore greater potential for error – or worse, fraud. Successful cannabis businesses can avoid these five common bookkeeping mistakes by employing various checks and balances throughout their operations. The fewer mistakes that occur, the more profit there is to be gained. Here are five of the most common bookkeeping mistakes that cannabis business suffer from, and how you can avoid them.
Actual cash-on-hand does not reconcile with the amount listed in the books.
This is usually due to carelessness and can easily be avoided by performing regular cash counts. A cannabis business that experiences lots of activity – vendor payments, sales, tax collection, etc. – should perform cash counts on a weekly basis. Different schedules should be created for both on-site safes and off-site cash collection. The sooner discrepancies are discovered, the faster and easier it will be to find the missing money and reconcile the books.
Point-of-sale receipts don’t match the sales listed in the books.
Again, this is due largely to human error. Sometimes employees manning the register will make a sale or a return and forget to enter it into the system, or vice versa. This can be avoided by doing daily cash receipt counts and running it against receipts from the point of sale system. You should also run weekly or monthly reports where the point of sale receipts are compared to the receipts that are listed in the books. Likewise, if you suspect this is the result of fraud, have a one person in charge of the cash collection and someone else in charge of reconciliation. Below is an example of a sheet that employees and bookkeepers can use to help them conduct accurate point-of-sale receipt reports.
Sales receipts are also key in practicing good inventory management. This is one of the most common bookkeeping mistakes among new cannabis companies, and one that can be easily resolved using the above calculation and instituting rigorous checks and balances among your employees.
Accounts receivable is not accurate.
When a cannabis business’s accounts receivable is inaccurate, it means that your bookkeeper has not applied your cash receipts to the appropriate account receivable, or could just not be applying the cash receipts to an account receivable at all. The best way to prevent this from happening is to provide your bookkeeper with clear information and write the invoice number on the payment receipt. A weekly review of your receivables and collections could almost instantly provide a clearer insight into your profits.
Sales tax is inaccurately appropriated.
If a cannabis retailer does not calculate the right sales tax amount, the difference in tax will be the cannabis business’ responsibility. Every cannabis business should make it a point to know and understand cannabis excise tax and the law. Avoiding having to pay out-of-pocket is as simple as knowing how much tax to include in your product prices.
Effective January 1, 2018, the sales and use tax varies by locality and is only applied to adult-use cannabis. A great resource you can use to determine your sales and use tax is the sales and use tax finder on the California Department of Tax and Fee Administration website.
Payroll isn’t correct.
One thing to look at when your books aren’t adding up is the payroll. As a cannabis business owner, it is your responsibility to make sure that your payroll expense and payroll taxes are on the same page. If your payroll report from the payroll processor isn’t adding up to your payroll ledger, then something is amiss. It could be that employees are inputting their work hours twice or forgetting to put their hours in. The best way to address this problem is by referring to your payroll processor, checking the submitted work hours of employees, and making sure that all payroll information from the payroll processor is the same as the payroll information in your accounting ledger.
What if you are performing these checks and balances and you are still experiencing deficits in cash flow or problems with your books? There are cannabis accounting firms that you can approach to look into your books, tell you what’s wrong, and provide counsel on how to fix it. Get in touch with one of our team members today and finally gain control of your books. You’re just one click away from building better business practices that will grow your profits and your business.