With changes to cannabis banking laws stalled in Congress, cash management remains a primary operational and financial concern for cannabis business owners. The key to managing your finances and limiting opportunities for fraud is implementing standard operating procedures that create documentation each time you receive or disburse cash. In the following we’ll provide details around the essential accounting functions needed to complement an effective cash log to optimize the daily operations of your cannabis business.
What is a cannabis cash log?
A daily cash report, also commonly referred to as a daily log, is used to track a business’s inflows and outflows of cash. The report provides detail of the cash position of the company by monitoring both earnings and payments. It gives a clear description of the running balance and dates of transfers between the company and vendors. If you’re working with a good cannabis accountant, they will insist you keep a detailed record of all cash expenses and income. Since banking regulations are stringent for cannabis business owners, it is critical that you maintain excellent cash records. Your accountant will need this information when analyzing your financial records for tax payments, COGs, revenue, etc.
Steps for creating a cannabis cash log
Step 1: Choose a cash reporting template
We recommend that cannabis business owners use Quickbooks or a similar accounting system. In the worst case scenario (and only for an absolute start-up) a notebook, pencil, and calculator can do the job. The key here is to make it as easy for yourself and your staff as possible, as the more work involved the more likely this task will be avoided or mistakes will occur.
Step 2: Gather all-cash transaction documentation
During the course of daily operations you’ll need to collect and store all receipts, bills, invoices, etc. This is another instance where having a technology platform will help you store and organize documents.
Step 3: Start with cash at ‘start of the day’ total
This amount will always be yesterday’s ‘end of day’ totals. Or, if you’re starting this process for the first time, count the cash you have on hand at the beginning of the day.
Step 4: Calculate all incoming cash
Add up all cash that comes in throughout the day, shift, etc.
Step 5: Specify any debit/credit card or check sales
Add up all debit/credit or check sales separately and subtract from totals as this is not actually cash money coming in and, therefore, is not listed on the log.
Step 6: List cash expenses
Add up all cash going out that day.
Step 7: Calculate the ‘end of day’ cash totals
Subtract cash expenditures from the total amount of cash you calculated in step 4.
Step 8: Count cash and compare with recorded totals
The amount of cash on hand should match your recorded totals and inventory. Make adjustments as necessary to certify accounts balance with what you have on hand for that day.
Step 9: Upload or input into the system
Confirm that information is correctly updated regularly to ensure running tally matches with your actual cash on hand.
Use the ‘end of day’ cash total for the next day’s ‘start of day’ and complete the same steps again the next time you reconcile. When creating a cash report for a retail location, we recommend making a separate entry on the daily cash log for each register. Individual entries help you identify which employees had a shortage or overage on their cash count and follow up with errors accordingly. It can also help you identify any fraudulent activity when it comes to poor cash handling.
Requirements for cash reporting:
- Date of transaction
- Description of transaction
- Payee or Payor
- Cash in
- Cash-out
- Running total balance
- The employee who ran the transaction
Multiple templates are available online, and GreenGrowth CPAs provides clients with additional accounting templates for easy reporting. Here is a sample we have provided to clients looking for a simple way to get started.
| Date | Description | Payor/Payee | Invoice/Reference Number | Money In | Money Out | Running Total |
| Example: | $ – | |||||
| 5/1/21 | contribution of cash into safe | Sam | $5,000.00 | $5,000.00 | ||
| 5/1/21 | purchase of growing supplies | Harbor Freight | 4857571 | $50.00 | $4,950.00 | |
| 5/5/21 | employee pay | John Smith | pay period ended 5/4/21 | $400.00 | $4,550.00 | |
| 5/6/21 | collecting customer payment | Distro Inc. | 125 | $4,000.00 | $8,550.00 | |
| 5/7/21 | transfer of money into the bank | $3,000.00 | $5,550.00 | |||
| 5/31/21 | cash count adjustment | $2.00 | $5,548.00 |
How Often Do You Have to Reconcile Cash Counts?
Most state regulations require cannabis companies to perform cash counts on a bi-weekly or monthly basis. Be sure to update information in the system after performing your cash count to ensure a satisfactory record-keeping schedule. Performing cash counts at the same time each month helps with analyzing historical data trends and future needs. In addition, it can alert you to any unusual transactions that require your closer attention. Your employees should get in the habit of automatically providing all customers with a receipt every time you receive a cash payment. By the same token, all-cash disbursements should have an invoice or bill associated with them.
Check out our Outsourced CFO service for more tips on getting started or cleaning up your current cash reporting process. We can help you set up new procedures for cash counts and review best practices for simple methods that comply with state and IRS regulations. We even provide bi-monthly reminders for our clients to complete their cash counts.
Why is it important to keep a current cash log?
There are many reasons why maintaining adequate cash records is so vital to the success of a cannabis organization:
- Supports the cannabis business owner with keeping a current tally of the cash on hand and planning for future expenditures.
- Improves financial control of the company.
- Facilitates compliance with state and IRS regulatory procedures.
- Mitigates risks associated with working in a primary cash industry.
- Assists with reconciling inventory counts.
- Improves identification of potentially fraudulent activity.
How to track petty cash
A petty cash fund is a small amount of company cash kept on hand to pay for minor or incidental expenses, such as change for cash transactions, supplies, or employee reimbursements. Some cannabis owners decide to use petty cash to limit employees’ access to cash in non-retail locations. If your cannabis business requires a small cash fund, this is a great way to limit employees’ access to money while still having access to small amounts of cash when necessary.
Steps to tracking petty cash:
Step 1: Purchase a lockbox and assign responsibility – We recommend using a small metal box that can easily fit into a drawer or other small area. Be sure it has a combination or lock to guarantee access only to assigned personnel. Anyone with the combination or key should be a trusted employee and purposefully access the lockbox as needed.
Step 2: Store the petty cash box in a secure location and set a reasonable limit for your business (this may vary based on your needs). The secured area should be readily accessible for employees. We recommend selecting a maximum transaction amount to support the decision of how much to keep on hand for your cannabis business.
Step 3: Deposit cash into the petty fund. Your first deposit should align with the limit you set in step 2.
Step 4: Create a simple transaction log to record transfers. The transaction log should contain basic information for cash reporting. We recommend using a simple ledger similar to the sample provided in this article.
Step 5: Track the fund on the accounting records system. Account for all transactions (big or small) and regularly track to avoid mistakes in your system.
Cash is the fuel driving cannabis businesses
There are many reasons cannabis organizations should understand the basics of using a cash log, mainly because it can help businesses increase short-term liquidity. Navigating the cannabis space creates complex processes companies must continue to develop. Cannabis business owners who regularly meet with a financial team of experts can identify cash and accounts receivable issues before it becomes an ongoing problem.
Our financial experts at GreenGrowth CPAs are here to help your cannabis business succeed. We provide a variety of services focused on helping cannabis businesses improve their financial and operational health, including tax preparation and planning, outsourced CFO support, and a variety of management consulting services. For recommendations and assistance getting started, schedule a consultation or contact us at 1-800-674-9050.
