What’s that whooshing sound?

Is it the sound of your staff meetings, sucking the life out of its attendees?  How was the last staff meeting you attended?  Afterwards were you satisfied that you had learned something and that your time was valued, or was your time and that of others, simply wasted? In one of my former “lives”, the CEO of our company had a meeting of the management team once a week.  It started at 9:00 and ended sometime between 12 and 1 in the afternoon.  There was never an agenda, and often we spent time talking about our favorite teacher in school or what kind of animal we would be if we weren’t human. These meetings were brutal because most of us were working 60+ hours a week and to sit in a 3-4 hour, non-productive meeting was gut-renching.  Our CEO thought he was “team building”, but by the time the meetings were over, most of us were ready to annihilate the team and its captain. How do you avoid this kind of meeting?  How do you make your meetings purposeful and productive while using that time to foster a better working relationship among you and your staff members?  It’s not hard, but it requires a little discipline on the part of the person leading the meeting. Let’s start with scheduling.  Impromptu meetings happen all the time, often out of urgency, and that’s ok.  But if your goal is to relay certain information to, or get feedback from, several people at once, it’s best to schedule meetings in advance and regularly.  That is not to say that you should have a...

When is enough inventory, enough?

What is the smart way to determine how much and what variety of inventory I should have on hand?  It’s an important question.  Whether you are a grower, processor or dispensary, inventory is an investment for your cannabusiness.  And like any investment, it’s important to consider how much you will invest and for how long. How is inventory an investment?  For starters, it costs you cash.  You are either paying for seeds, soil, pots, water, and electricity if you’re a grower; cannabis and other supplies if you’re a processor; or flower, tinctures, edibles, and all kinds of paraphernalia if you’re a dispensary.  In addition, you’re paying labor to grow, process and prepare inventory for sale.  Lastly, you’re paying rent or some kind of storage costs until you can get it out to your consumer.  Inventory (or cost of goods sold) will likely be the highest cost you have on your income statement, and may very well be the highest valued asset you have on your balance sheet. One differentiating factor with inventory investment as compared to other types of investments is that it generally doesn’t increase in value the longer you hold it.  In fact, it may reduce in value as time goes by, particularly if it has a shelf life associated with it.  Hopefully you’re not going to have products sitting in inventory for months on end, but it’s definitely something to consider when you start making decisions about when and how much to buy or produce. Acccounting nerds like me have a solution for this and like most things in our world, it requires a measurement.  In...

Turn your org chart upside down

If you’ve read previous blogs you know that I consider staff to be our most important asset.  In my long career I’ve worked with close to a thousand different employees.  I worked with some of them several times, because as I made career changes, I took them with me and they wanted to come.  It’s not because I paid them better (although I do think it’s important for your staff to be well compensated) but it’s because they knew how much I valued them and I treated them accordingly. The typical organization chart for a business looks something like this, in a very simplified manner:               The support staff report to managers, managers report to owners, and so goes the hierarchy. Generally, the largest number of people are at the bottom and they are doing what some may believe is less important work.   In most cases, although certainly not all, the people at the top of the chart are more experienced, or better educated.  For the most part though, the people at the bottom are doing the bulk of the work. I have a lot of experience in healthcare and have worked with lots and lots of doctors.  In the chart above, the doctors are definitely at the top.  Without question they were the most highly educated of the organization’s members, and usually owned the practice.  No doubt, patients could not be treated without the doctors.  But I would argue that it doesn’t always work in reverse.  Could the doctors take care of patients without their staff?  This is not a commentary on...

Your staff – possibly your most valuable asset

Not to steer too far from cannabis accounting, let’s talk about assets. Assets are generally thought of as land, buildings, equipment, inventory, usually something you purchased or leased. Assets make a huge contribution to the success of your canna business and without them, you wouldn’t be in business. So what’s your most valuable asset? It’s likely your staff. How can staff members be our most valuable asset? Everyone is replaceable right? Well, everyone is replaceable but at what cost? How much time and money do you spend on hiring? Running ads, reviewing resumes, interviewing, running background checks are all costly. Then when you get them on board, how much time do you spend training to where they can actually be productive? In theory, it shouldn’t be too difficult to find people who want to work in the cannabis industry. It’s exciting and new for both staff and customers, people want to be a part of it. No doubt many people want in because they are counting on perks in the form of discounted or free inventory. Be very careful with this; for one thing it may be illegal (I’m not an attorney) and for another, you are giving away profits. So that your time and money is not wasted hiring people who won’t be successful in your operations, do a good job of vetting all potential hires. Take time to interview them privately and be cognizant of what you can and cannot ask. Check references. Once you’ve made your decision and your person is on board, be sure they are trained properly and support them as they progress through...

Accounting for Inventory in Cannabis Industry

Accounting for inventory in any business is tricky and the cannabis business is no exception. For producers, processors and retailers like yourselves, it is the main driver of profitability. I once had a client who owned a cookie business. She had a large market and her cookies were in high demand.   Her sales were climbing, yet she was making less and less.  When we delved into the calculation of her costs, everything seemed in good order. She had accounted for labor, materials, supplies, space, equipment, all of the “ingredients” to making her cookies. Each cookie cost $.79 and she sold them for $1.50, around a 47% gross profit. But as I investigated more, I discovered that she packaged the cookies in twos, so in fact the cost of her cookies was double what she thought, at $1.58. Selling them at $1.50 had her losing $.08 right off the bat and as her sales increased, so did her losses. Now that may seem like a novice mistake for some of you. But you can see how a small mistake in calculating the cost of your inventory, could lead to disaster. So what’s the secret to accounting for inventory in the marijuana industry?   A complete understanding of everything that goes into creating the product that you sell. It’s different for each category of sales. A producer has to consider the cost of land or space where they grow plus seeds, water, nutrients, labor to maintain and harvest, packaging for sale. Can they include the cost to maintain an office where orders are taken and bookkeeping is done? Probably not. What about...

“Yeah, we have a budget around here somewhere….”

Likely when you started out with your cannabis business, or were contemplating a start, you prepared some kind of budget or projection, something that you thought would tell you if your idea was feasible. Maybe you didn’t prepare it yourself but had a consultant or friend do it. The budget looked good, and off you went to get started in entrepreneurship. Life got crazy, and you never pulled the budget out again. A budget or proforma (used interchangeably here) is what nerds like me like to call a “working document”. That’s because we work on it all the time. Over the past many years, I started a number of new businesses. The very first step, after the concept of the business was determined, was to create a proforma. A proforma is basically a budget that projects what you expect your business to do in detailed financial terms. I always prepared proformas showing month by month activity and usually projected out 5 years. That document was hugely important to getting the business off the ground because it was the primary piece of information presented to potential investors and to bankers from whom we were seeking financing. The use of the budget didn’t stop after our business was open and operating. I tweaked it constantly throughout the project development phase and well into the first few years of operations. Until the business was clearly on track to meet or exceed the budget, I compared our actual financial results to the budget, to determine where we were on track and where things were not working out as we expected. It helped us...