So you’re a Cannabis business owner, having acquired your license, gotten your business all set, all your branding and products just so. You have a Cannabis Accounting system set up and started to make some entries, and think they might be right. You keep hearing about audits, whether they are IRS audits, financial statement audits that your investors are asking for, compliance audits. Frankly, the word “audit” is kind of confusing and if you don’t think about it, maybe it will go away.
Let me tell you–this is the wrong way to approach your upcoming audit.
If you were born at a certain time and went to elementary school in the 90s, you are probably familiar with the Choose Your Own Adventure series. Audits are serious business. The IRS specifically has stated that record keeping is a necessity for businesses. You want your Cannabis Accounting to run like clockwork, especially in the Cannabis industry where you will face intense scrutiny. Ideally, you want your audit to be less than adventurous. In my experience, a “boring” audit is much preferable to an “exciting” audit.
Ready to Choose Your Own Audit Adventure?
Chapter 1: Time to Pick Your Chart of Accounts
It’s January 1! Your store has been open for a few months, you’ve created a ton of buzz on your social media, and you’re excited. You can’t wait to start.
One problem: your investors keep asking you when you are going to get them your Q4 Cannabis Accounting financial statements.
They’ve provided some nice seed money, and they’re very helpful, but they are starting to grow impatient. (You can tell because they started using that annoying exclamation point in their emails they send to you that designates that their email is of “high importance.”)
You’ve mostly been keeping track of things in the default “new business” Chart of Accounts. You think you connected one of your bank accounts to the bank activity feed, although they’re not all working. You went through all the “Start Here” wizards but you kind of forgot what it all means.
You started with the best intentions that you’d keep up with this accounting business, and you did a great job for the first couple weeks. Then you got some new money and weren’t really sure how to handle it. You sent your accountant friend a text a few weeks ago but he has kind of ghosted you on this one.
Now the investors are asking for a financial statement, and you click the “Profit and Loss” button in your QuickBooks. Only, a few problems:
- You realize some of those transactions you thought about are still in “Uncategorized Income” which you aren’t quite sure how to handle them and know your investor is going to have questions about it;
- You seem to remember that webinar you attended a few months ago about 280(e) (or was it something else? How are you supposed to keep track?) and know you should be tracking some things that way, and
- You have a HUGE gain in your total revenue! Which looks great! But, you’re pretty sure that is not right. Meanwhile, there is a HUGE other number on your balance sheet, and frankly this is all feeling really overwhelming.
You close your browser tab and check your Instagram feed where you have some new likes on your latest Instagram Reel. The likes feel good; the numbers do not feel good.
So, you’re pretty sure you’re behind on accounting, and you have a generic Chart of Accounts. Your Cannabis Accounting is off to a rocky start. What do you do?
Ignore the problem with the hope it will go away
Find out where this adventure is going in our next chapter!