Your Financial Statements Should Be Telling You More

I regularly talk to dispensary owners who are successful operators but have very little understanding of their own financial statements. They may know how much they did in sales last month and how much cash is in the bank, but ask them what is happening on the balance sheet, what their actual margins are, or what their cash flow will look like three months from now, and the answer is often less clear.

That can become a very expensive problem. I had a client that was using a management company to operate the business. The management company was not paying the sales and payroll tax liabilities, and ownership was not being told how serious the problem had become. Had ownership been regularly reviewing and understanding the balance sheet, they would have seen those liabilities continuing to grow. Instead, by the time the problem became impossible to ignore, the business was forced into a fire sale to deal with the debt.

That is an extreme example, but I see smaller versions of the same problem all the time. Financial statements should not simply be something your accountant prepares for the tax return. They should tell you what is happening in the business and, more importantly, help you decide what to do next.

Start with accrual accounting and real inventory numbers

For a dispensary, that starts with robust accrual accounting and proper inventory management. If purchases, inventory, COGS and sales are not being recorded correctly, it becomes very difficult to know what you are actually making. Once those numbers are reliable, management can begin looking at trends, margins, cash-flow cycles, budget-to-actual results, basket information and inventory movement. We can also begin projecting forward instead of simply reporting what happened last month. Our Client Accounting and Advisory Services work is built around exactly that progression, including KPI reporting, cash-flow forecasting, POS and run-rate analysis, margin and inventory analysis, and financial modeling.

When can we take the next distribution?

Cash projections are usually where owners become much more interested. Everyone wants to know: when can we take the next distribution? A good financial system should help answer that question. It should also help answer how much cash needs to stay in the business, what upcoming obligations need to be funded, whether an expansion is affordable, and how much flexibility ownership really has.

Building a Freedom Map

I sometimes refer to this as building a Freedom Map. For many business owners, the ultimate goal is not to spend more time working in the dispensary. It is to build a business that produces reliable cash flow, has management infrastructure, and eventually does not require the owner to be involved in every decision. You cannot build that map if you do not know where you are today or where the business is heading.

If your financial information is mostly something you look at around tax time, there is probably a lot more information available to you than you are currently using. That is the focus of our Client Accounting and Advisory Services. We help dispensary owners move beyond basic bookkeeping and use their financial information to make better decisions about cash flow, profitability, growth and eventually getting themselves out of the day-to-day operation of the business.