Why Cannabis Entrepreneurs Need To Keep Their Records In Order
It might seem like common sense, but for many business owners, records retention is one of the first things to slide. This is a big mistake.
Your company’s records are the most reliable way to prove business growth and regulatory compliance. While you might claim that your company has experienced exponential growth, you need evidence to back it up. Savvy investors (the kind with whom you want to business) aren’t going to take your word for it alone. Nor will the government. But both will require proof, which makes a strong records retention process a critical piece to any cannabis operation.
So, what needs to be recorded, and how do you take the pain out of the process? Here are four tips for successful records retention.
1. If money’s involved, keep a record.
As a rule of thumb: Any financial transaction conducted by the company should have an associated receipt. This includes vendor transactions, payroll, business purchases, and sales. When it comes to record retention, it’s better to be safe rather than sorry. Save everything to avoid missing essential documents when the IRS, accountants, or investors, come calling.
Understandably, you would much rather spend time building your business than organizing an ever-growing pile of receipts and records your company creates. But taking the time to set up the necessary processes for records retention will go a long way toward ensuring as much of your time is spent on other tasks going forward.
2. Keep personal and professional records separate
Set boundaries between personal and professional finances. Relying on your memory to determine where each transaction belongs is unreliable, confusing, and can eat up hours of your precious time. In short, personal expenditures should come from personal accounts only, and business expenditures should come from business accounts only. That way, you will have all electronic deposits, payments, and other transactions recorded, neatly, in one place.
3. Explore receipt management options
Organizing receipts is easily one of the most cumbersome aspects of record retention. But, there are some useful smartphone apps designed to free up the time that would be otherwise spent sifting through piles of paperwork. Expensify and HubDoc are two of the leading apps for on-the-go business professionals; both allow you to scan, upload, and create easy-to-read expense reports seamlessly.
4. Find a good vendor management system
You and your vendors need to have a way to record all interactions easily. There are several cloud-based options that allow you to both view and pay invoices. Just be sure to find one that syncs with your accounting software.
Because of existing banking and financial limitations on the cannabis industry, many transactions in the industry are conducted in cash. That makes record retention more challenging since cash transactions don’t automatically generate an electronic receipt. That means you have to create your own. A good way to get started is by keeping an audit log — even if it’s just a notebook showing how much, to whom, and when — of any transactions and deposits as soon as possible.
Save yourself from record-level headaches
Record retention is a necessary responsibility for any company, no matter the size or the industry. Some record-keeping is better than nothing; start by downloading one of the smartphone apps mentioned above, start a spreadsheet or at a bare minimum, break out a notebook and pen to record by hand.
And remember: Procrastination makes things worse. As dull as it can be, records retention shouldn't be put off for too long or you risk having it become a bigger and more complex task, taking more time to resolve down the road. Ultimately, your company might appear unprepared or unsophisticated to potential investors. Even worse, it could make you vulnerable to fraud or cause major headaches during an unexpected audit.
As a business professional with an ever-growing list of responsibilities, it’s easy to sweep record retention under the rug. But if you’re not even sure where to start — and a mountain of receipts keeps appearing in your nightmares or on your desk — it’s helpful to recruit an experienced, tech-savvy accounting firm to straighten things out.