By Simone Cimiluca-Radzins, CPA
2016 has been a busy year for the cannabis industry. From applying to local and state licenses, to meeting the needs of customers and vendors, the pace of the cannabis industry is everything but slow. But as we wind down the year and attempt to meet annual goals, evaluate employee performance, and determine 2017 strategic goals, there are a few things that all business owners should be doing before January 1, 2017.
To make sure you’re business is set up for success to close the books in 2016, here’s a Financial Year-End Checklist to assist your financial operations.
2016 Financial Year-End Checklist
1.) Cash Management
The cannabis industry is an all cash business; making it harder to track transactions in real time and manage an accurate cash balance. On December 31, 2016 count all physical cash on the premises and compare the balance to your accounting records. Investigate any and all variances to determine why the balance is off.It is essential that you document your cash count for audit purposes. If you’ve accepted cash deposits of more than $10,000, you may be required to file IRS Form 8300.
Lastly, ensure that all bank accounts are reconciled against statements received from the bank each month and any variances are identified and reviewed.
2.) Accounts Receivable (A/R)
Review your Accounts Receivable Aging and collections. Review your A/R by customer and determine if the balance is comparatively high or low, if there is work that has not been billed, or if there is a need for increased collection efforts. The end of the year is a great time to consider writing off any old amounts that are deemed uncollectible.
On December 31, 2016 perform a full count of your inventory. Determine all variances between the count and your accounting records, and make an adjustment if necessary. It is essential that you document your inventory count for audit purposes.
4.) Contract Management
Take the last week of December 2016 to ensure all contracts are signed and filed away. This includes contracts related to employees, customers, vendors, partners, alliances, and regulators. File these contracts away for audit purposes.
5.) Human Resources and Payroll
Utilize the year-end to assess employee performance against key performance indicators (KPIS). This is the time to review their performance and develop a plan for growth next year. Document your conversation and assessment with your employees and store them in their personnel file. Performance evaluations will help you determine whether you’ll pay a bonus payout.
On January 31, 2017, you will be required to report to the IRS Form W-2 for the wages you paid for each of your employees during the year. You will also need to file Form 1099-MISC for each of your landlords, attorneys, and independent contractors.
6.) Accounts Payable and Accruals
Before the year end is over, confirm your outstanding balance with any vendors against your accounting records and ensure that all bills are documented. Input any bills or transaction you are missing.
7.) Taxes and 280E
Perform a 280E Analysis to determine your 280E exposure for the year. This includes evaluating all potential inventorial costs, including direct and indirect materials. After you’ve performed your 280E Analysis, ensure that you have enough cash to pay your balance to the IRS.
8.) Analyze Performance
After all accounts are adjusted and reconciled, review your financial statements and assess your company’s financial performance for the year. Look for any amounts that seem out of place and investigate them. This will be an opportunity to analyze your inventory turn, vendor spend, return on investment for marketing versus selling expenses, and other major expense categories.
9.) Ask for Feedback
As part of the financial year-end process, follow up with your largest customers and vendors. Reach out for their opinion on what may change in their business over the coming year. Take an opportunity to speak with each of your employees individually to get their opinion on the year and where the company could improve. This can also be done through an employee survey.
Knowing your numbers is fundamental to the success of your business as you move into the new year. After you’ve completed this checklist, it is recommended that you develop your 2017 yearly goals, targets, and benchmarks. Ensure that you track your progress throughout the year, to make 2017 even more profitable than 2016!