Managing cash flow effectively is crucial for any business, but in the cannabis industry where cash transactions are the norm, it becomes even more critical. Without proper cash flow management, even a thriving dispensary or cultivation operation can run into financial trouble. Cannabis businesses in Los Angeles (and across the country) must juggle large amounts of physical cash, which presents security risks, compliance headaches, and financial planning obstacles. It’s like running a business in the Wild West, but instead of tumbleweeds, you’re navigating through a maze of tax regulations and security threats.
As a CPA firm that works closely with cannabis businesses, we are here to help you keep your cash flow steady, your business secure, and your compliance on point. And you can do it all without breaking a sweat (or the law)! Below, we explore best practices for handling cash, implementing security measures, and planning for long-term financial wellness to keep your business running smoothly.
1. Prioritize Cash Handling Best Practices
In a cash-intensive industry like cannabis, improper cash handling can lead to inefficiencies, losses, and compliance issues. Bookkeeping for your cannabis business must be a daily, meticulous task. Here’s how to stay on top of it:
- Use dedicated cash registers – Ensure that each employee working a shift has their own cash drawer to track transactions accurately and avoid mix-ups.
- Reconcile daily – Count cash at the beginning and end of each shift, verifying that recorded sales match the actual cash on hand. Any discrepancies can be identified early and handled right away.
- Limit cash access – Restrict cash-handling responsibilities to a few trusted employees and ensure proper oversight.
- Train staff regularly – Provide training on proper cash handling techniques, recognizing counterfeit bills, and spotting fraudulent activities.
- Implement a POS system – Using a robust point-of-sale (POS) system that tracks cash flow helps maintain accuracy and efficiency.
2. Strengthen Security Measures
Handling large amounts of cash makes cannabis businesses prime targets for theft. Protecting your assets is essential for long-term stability. Consider these security measures:
- Invest in a secure safe – Store excess cash in a high-security safe with limited access.
- Hire professional security services – Trained security personnel can help deter theft and ensure compliance with regulations.
- Use armored car services – Instead of transporting large amounts of cash yourself, work with a reputable armored cash transport service.
- Install surveillance systems – High-quality cameras, alarms, and motion detectors can enhance security and serve as a deterrent.
- Establish cash transport protocols – If you must move cash between locations, vary your routes and schedule to reduce the risk of making your ‘pattern’ evident to observant criminals.
3. Implement Strong Financial Planning Practices
Even though many cannabis businesses operate as cash-and-carry businesses, financial planning remains essential for sustainability and growth.
- Create a cash flow forecast – Track incoming and outgoing cash to anticipate shortages and surpluses. While federal banking restrictions remain, explore alternatives like online payments to reduce reliance on physical cash.
- Separate business and personal finances – Avoid the temptation to mix business cash with personal funds. This will help to maintain clear financial records.
- Work with a CPA experienced in cannabis – A CPA familiar with cannabis tax laws and regulations, like our team at 420-Accounting Services can help you navigate compliance issues and optimize tax strategies. Read our client testimonials here.
- Stay on top of taxes – With 280E restrictions limiting deductible expenses, cannabis businesses often face higher tax burdens. Planning ahead and setting aside funds for taxes can prevent financial strain.
4. Maintain Compliance with Regulations
The IRS and California’s Franchise Tax Board (FTB) will not accept “I lost my records” as an excuse! Staying compliant is crucial to avoiding fines and legal trouble. Los Angeles-based cannabis businesses must comply with California state regulations and local ordinances. Regularly reviewing the latest updates for the cannabis industry from the California Franchise Tax Board (FTB) and other regulatory bodies ensures that your financial practices align with legal requirements.
Final Thoughts
Managing cash flow in the cannabis industry presents unique challenges, but with the right strategies in place, your business can stay compliant, operate securely and efficiently. By implementing best practices for cash handling, security, and financial planning, you can safeguard your revenue and position your business for long-term success. The key is staying proactive—because the last thing you want is for your cash to vanish faster than a fresh batch of edibles at a weekend festival.
Need help managing cash flow and ensuring compliance? Our team at 420-Accounting Services specializes in cannabis accounting for businesses in California, and beyond. Let’s talk and keep your money where it belongs—in your business, not in the hands of the taxman or lurking security risks.
Contact us today to learn more about how we can help you optimize the financial strategy for your LA, California cannabis business.