Managing a cannabis business requires more than keeping track of sales. Business owners also need to monitor expenses, inventory, cash flow, payroll, outstanding payments, and other financial activity that can affect day-to-day operations.
Regular cannabis accounting can give owners a clearer view of how the business is performing and where financial changes are occurring. Reviewing key numbers each month makes it easier to compare results, identify unusual activity, and understand whether the business is meeting its financial expectations.
A consistent monthly review can also provide useful information when planning inventory purchases, managing expenses, evaluating profitability, and making other business decisions. By keeping financial records current and reviewing them regularly, cannabis business owners can make decisions based on a clearer picture of their company’s financial position. At GreenGrowth CPAs, this type of financial clarity can help support informed business planning throughout the year.
Why Monthly Accounting Matters for Cannabis Businesses
Monthly accounting gives business owners a regular view of how their company is performing. Instead of waiting until the end of the year to review financial information, operators can monitor important numbers throughout the year and identify changes while there is still time to respond.
Cannabis businesses may deal with significant inventory costs, multiple operating expenses, payroll, vendor payments, and changing sales patterns. Keeping financial records current can make it easier to understand where money is coming from, where it is going, and whether the business is operating according to expectations.
A consistent monthly review can help owners:
- Monitor revenue and expenses
- Track changes in profitability
- Review inventory and related costs
- Monitor cash availability
- Identify unusual expenses
- Check outstanding receivables and payables
- Compare actual results with expectations
- Prepare for upcoming financial obligations
- Make better-informed business decisions
The specific numbers that deserve attention can vary based on the size and structure of the business. However, establishing a consistent monthly process can give owners a clearer picture of financial performance.
Review Monthly Revenue
Revenue is one of the first areas business owners should review each month. Looking at total sales can show whether the business is growing, remaining consistent, or experiencing changes that require further investigation.
Owners can compare current revenue with previous months to identify trends. A single month of lower sales may not indicate a long-term problem, but several consecutive periods of declining revenue could warrant a closer look.
Revenue can also be reviewed by meaningful categories when the business has sufficient data to do so. Depending on the operation, this may include product categories, locations, sales channels, or other business segments.
Monthly revenue reviews can help answer questions such as:
- Are sales increasing or decreasing?
- Which periods generated the most revenue?
- Are certain products or categories performing differently?
- Are sales meeting expectations?
- Have there been unusual changes compared with previous months?
Revenue should not be reviewed by itself. Higher sales do not automatically mean higher profits, so owners should compare revenue with costs, margins, and cash flow.
Track Operating Expenses
Expenses can change significantly from one month to another. Reviewing them regularly helps business owners understand whether costs are remaining within expected levels.
Common operating expenses may include:
- Payroll
- Rent and occupancy
- Utilities
- Marketing
- Insurance
- Professional fees
- Software and technology
- Supplies
- Repairs and maintenance
- Vendor expenses
Comparing monthly expenses with previous periods can help identify unusual increases or recurring costs that deserve attention.
For example, a higher-than-usual expense may result from a one-time purchase, while a gradual increase over several months may point to a broader change in operating costs.
Owners can also compare actual expenses with their budget. This provides additional context when determining whether the business is spending according to plan.
Monitor Cost of Goods Sold
Cost of goods sold, or COGS, represents costs associated with the products a business sells. Monitoring these costs alongside revenue can provide a clearer view of gross profit and margins.
If sales increase but COGS increases at a faster rate, the business may not see the improvement in profitability that higher revenue might suggest.
Monthly reviews can help owners identify changes in:
- Total COGS
- COGS as a percentage of revenue
- Product-level costs
- Gross profit
- Gross margins
- Purchasing costs
Understanding these figures can help owners investigate changes in product profitability and determine whether costs are moving in line with sales.
Check Inventory Levels and Costs
Inventory can tie up a substantial amount of business capital, making it an important area to review each month.
Owners should compare inventory records with financial records and investigate significant differences when they occur. Monthly inventory reviews can also help identify products that are moving quickly, products that are remaining on hand longer, and changes in inventory costs.
Important areas to monitor may include:
- Inventory quantities
- Inventory costs
- Purchases
- Cost of goods sold
- Inventory turnover
- Slow-moving products
- Changes in inventory value
Inventory should also be reviewed in relation to sales and cash flow. A business may have strong sales while still having a significant amount of money tied up in inventory.
Keeping inventory information current can contribute to more reliable financial reporting and help owners make more informed purchasing decisions.
Review Cash Flow
Profit and cash are not the same thing. A business can report revenue or even a profit while having limited cash available to cover upcoming obligations.
Monthly cash flow reviews help owners understand how much cash is coming into and leaving the business.
Areas to monitor can include:
- Cash received from customers
- Vendor payments
- Payroll
- Rent and other recurring expenses
- Inventory purchases
- Loan payments
- Capital expenditures
- Other significant cash transactions
Owners should also consider upcoming obligations when reviewing available cash. A healthy cash balance today does not necessarily mean the business will have enough cash to cover expenses due later in the month.
Regular cash flow monitoring can provide more time to prepare for periods when available funds may become tighter.
Check Accounts Receivable
Accounts receivable represents money owed to the business. If customers or other parties have outstanding balances, owners should regularly review when those amounts are expected to be collected.
A monthly accounts receivable review can help identify:
- Current outstanding balances
- Past-due amounts
- Delayed payments
- Changes in customer payment patterns
- Balances that may require follow-up
Keeping track of receivables can improve visibility into expected cash inflows. It can also help owners identify collection issues before outstanding balances become more difficult to manage.
Review Accounts Payable
Accounts payable represents amounts the business owes to vendors and other parties. Reviewing these obligations each month can help owners understand upcoming cash requirements.
Monthly accounts payable reviews can include:
- Outstanding vendor invoices
- Due dates
- Past-due balances
- Recurring obligations
- Upcoming large payments
- Changes in vendor costs
Knowing what the business owes and when payments are due can help owners plan cash use more effectively.
Reviewing accounts payable alongside accounts receivable and cash flow can provide a more complete picture of short-term financial obligations.
Reconcile Bank and Financial Accounts
Account reconciliation is another important part of the monthly accounting process. Reconciliation involves comparing accounting records with bank and other financial account records to identify differences.
Regular reconciliation can help uncover:
- Missing transactions
- Duplicate entries
- Incorrect amounts
- Unrecorded fees
- Timing differences
- Other discrepancies
Resolving these differences regularly can help keep financial records current and improve the reliability of monthly reports.
Waiting several months to reconcile accounts can make it more difficult to determine when a discrepancy occurred. A consistent monthly process makes these issues easier to identify and investigate.
Review Payroll and Related Costs
Payroll can represent a significant operating expense, particularly for businesses with multiple employees or locations.
Owners should review monthly payroll costs and compare them with previous periods and the business budget.
This review may include:
- Wages and salaries
- Employer payroll costs
- Overtime
- Bonuses or commissions
- Changes in staffing levels
- Payroll-related obligations
Significant changes in payroll expenses may be expected when staffing levels change. However, reviewing these costs regularly can help owners understand how labor expenses are affecting overall financial performance.
Payroll should also be considered alongside revenue and profitability rather than evaluated as an isolated expense.
Compare Actual Results With the Budget
A monthly budget-versus-actual review can show whether the business is performing according to its financial expectations.
Owners can compare planned and actual results for areas such as:
- Revenue
- COGS
- Payroll
- Inventory purchases
- Rent
- Marketing
- Operating expenses
- Capital expenditures
Not every difference requires immediate action. Some variances may result from timing, seasonal changes, one-time purchases, or other temporary circumstances.
The purpose of the review is to identify meaningful differences and determine why they occurred. Over time, these comparisons can also help improve future budgeting and forecasting.
Need help keeping monthly financial records organized? Schedule a consultation to discuss your accounting process, accounting support needs, financial reporting, and the areas of your business you want to monitor each month.
Review Profitability and Margins
Monthly profitability reviews bring several financial areas together. Owners can evaluate revenue, COGS, operating expenses, and other relevant costs to understand how much the business is retaining.
Gross margin can be particularly useful when reviewing product or category performance. If margins change significantly, owners can investigate whether the cause is related to pricing, product costs, purchasing, or other expenses.
Net income can also provide a broader view of whether the business generated a profit or loss during the period.
Looking at profitability over several months is generally more informative than focusing on a single reporting period. Trends can help owners determine whether financial performance is improving, declining, or remaining relatively stable.
How Monthly Numbers Can Show What Is Really Happening
Consider a cannabis business generating $400,000 in monthly revenue. If COGS and operating expenses total $350,000, the business has $50,000 left before considering other financial factors. Reviewing the monthly results can help owners understand whether the remaining amount is consistent with previous months or whether changes in costs or sales are affecting profitability.
Looking at the numbers together can also reveal issues that may not be obvious from revenue alone. If sales have increased but margins have declined, for example, management can review COGS, purchasing costs, operating expenses, and other financial information to determine what changed.
Look for Unusual Changes
Monthly accounting reviews should not focus only on expected numbers. Unusual changes can provide useful signals that deserve additional investigation.
Examples may include:
- A sudden increase in expenses
- A significant decline in revenue
- Unexpected inventory changes
- Higher-than-normal vendor costs
- Changes in payroll expenses
- Unusual cash activity
- Large differences between actual and budgeted results
An unusual number does not necessarily indicate an error or financial problem. It simply gives management a reason to look more closely at the underlying transaction or business activity.
Identifying these changes early can make it easier to determine what happened and whether any action is needed.
Keep Financial Records Current
Monthly tracking is most effective when the underlying accounting records are kept current.
Delayed entries, unreconciled accounts, missing documentation, or inconsistent categorization can affect the accuracy of financial reports. If the underlying records are incomplete, owners may have difficulty relying on the numbers when making decisions.
Businesses can improve recordkeeping by establishing consistent processes for recording transactions, reconciling accounts, reviewing expenses, and maintaining supporting documentation.
Cannabis accounting services can also provide ongoing support with bookkeeping, reconciliations, financial reporting, and other accounting functions. The level of support needed will depend on the business’s size, accounting system, internal resources, and financial complexity.
Use Monthly Accounting to Support Business Decisions
Monthly accounting is not simply about recording what happened in the previous month. The information can also help owners evaluate what to do next.
For example, an owner considering additional inventory can review sales trends, current inventory levels, cash availability, and purchasing costs before making a decision.
A business considering new employees can review revenue, payroll expenses, cash flow, and projected costs. An operator evaluating a product category can compare sales, COGS, inventory levels, and margins.
Financial information does not replace management judgment. Instead, it gives owners a stronger factual basis for evaluating their options.
A Simple Monthly Accounting Checklist
A consistent checklist can help business owners make sure important areas are reviewed each month.
Revenue
- Review total monthly sales
- Compare revenue with previous periods
- Investigate significant changes
- Review performance by relevant categories
Expenses
- Review major operating expenses
- Compare expenses with previous periods
- Identify unusual increases
- Compare actual costs with the budget
Inventory
- Review inventory quantities and costs
- Check significant changes
- Monitor slow-moving products
- Compare inventory with sales activity
Cash Flow
- Review cash received and spent
- Check upcoming obligations
- Monitor available cash
- Identify potential cash flow pressures
Receivables and Payables
- Review outstanding customer balances
- Check overdue receivables
- Review unpaid vendor invoices
- Monitor upcoming payment obligations
Accounts and Records
- Reconcile bank accounts
- Review transaction records
- Check for missing or duplicate entries
- Resolve discrepancies
Profitability
- Review gross profit and margins
- Review net income or loss
- Compare results with previous periods
- Investigate significant changes
Budget
- Compare actual results with planned figures
- Review significant variances
- Determine whether estimates need adjustment
How Often Should Cannabis Businesses Review Their Accounting?
A monthly review provides a useful baseline for many businesses, but some financial information may need to be monitored more frequently.
Cash balances, sales, inventory, and outstanding payments may require weekly attention depending on the size and activity of the business. More detailed financial reporting may be reviewed monthly or quarterly.
The key is to establish a process that matches the business’s operations and financial needs.
Regular reviews make it easier to identify trends, investigate unusual changes, and maintain current financial information. Waiting until the end of the year can leave owners with less visibility into when changes occurred or what may have caused them.
Want clearer visibility into your business finances? Talk with a cannabis accounting specialist about your current records, reporting process, and the financial information you need to make more informed business decisions.
Frequently Asked Questions
What happens if monthly accounting is not kept up to date?
If monthly accounting is not kept up to date, owners may make decisions using incomplete or outdated financial information. This can make it harder to identify rising costs, cash flow problems, unusual transactions, or declining margins. Keeping records current gives management a more reliable basis for evaluating the business and responding to financial changes.
Should a cannabis business review its accounting before making major purchases?
Yes, reviewing current accounting records before a major purchase can help a cannabis business understand whether the expense fits its financial position. Recent cash flow, expenses, outstanding obligations, and profitability can provide useful context when deciding whether the business can comfortably take on the additional cost.
Can accounting records help identify cash flow problems?
Yes, accounting records can help identify cash flow problems by showing changes in cash, expenses, receivables, payables, and other financial activity. A business may have strong sales while still experiencing limited available cash. Reviewing these records together can help owners investigate why cash is becoming constrained and where financial pressure may be developing.
When should a growing cannabis business consider professional accounting support?
A growing cannabis business may benefit from professional accounting support when transaction volume increases, financial records become harder to manage internally, or owners need more detailed reporting. Additional support may also be useful when the business adds locations, expands operations, changes its accounting systems, or needs more reliable financial information for planning.
What financial information should an owner have ready for an accounting review?
An owner should have current financial statements, bank records, transaction records, inventory information, payroll details, outstanding receivables and payables, and recent budgets or financial reports available for an accounting review. Having these records organized can make it easier to identify discrepancies, discuss financial trends, and determine which areas require closer attention.
Build a Consistent Monthly Accounting Process
Monthly accounting gives cannabis business owners a consistent way to monitor financial activity and understand how the business is performing. Reviewing revenue, expenses, COGS, inventory, cash flow, receivables, payables, payroll, profitability, and budget variances can provide a clearer picture of the company’s financial position.
The value of monthly tracking comes from looking at these areas together rather than relying on a single number. Comparing results over time can also help owners identify trends and investigate unusual changes before they become more difficult to address.
A consistent accounting process can make financial information more reliable and useful for day-to-day management. Cannabis accounting services can help businesses maintain accurate records and keep financial information organized for regular review. Whether the business is reviewing expenses, planning inventory purchases, evaluating profitability, or preparing for future growth, current financial records provide important information for making those decisions.
Contact GreenGrowth CPAs to discuss the accounting and financial support your cannabis business may need throughout the year.
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