What Your Monthly Financial Statements Should Tell You About Your Cannabis Business

Your financial statements shouldn't just sit in a folder. They should help you run the business.

Every month, cannabis business owners receive numbers.

Revenue.

Expenses.

Assets.

Liabilities.

Cash.

Inventory.

But numbers alone aren't enough.

The real question is:

What are those numbers telling you?

Monthly financial statements can provide a regular view of your company's financial position and performance. Redbud Advisors identifies monthly financial statements as an important part of its cannabis accounting services.

Here's what business owners should be looking for.

Start With Your Profit & Loss Statement

Your P&L helps answer one of the most basic questions:

Is the business generating a profit based on its accounting results?

But don't stop at the bottom line.

Look at how revenue is changing.

Then look at COGS.

Then look at operating expenses.

A growing revenue number means very little if your costs are growing faster.

Look at Your Gross Margin

Gross margin helps you understand how much remains after accounting for the cost of the products or services sold.

If your gross margin is shrinking, ask why.

Are production costs increasing?

Are purchasing costs changing?

Are prices too low?

Is your product mix changing?

A month-to-month comparison can reveal trends before they become larger problems.

Look at Your Balance Sheet

Your balance sheet gives you another perspective.

It shows what the business owns and what it owes.

Pay attention to:

• Cash

• Inventory

• Accounts receivable

• Accounts payable

• Loans and other liabilities

• Owner's equity

A business can have strong sales while carrying too much inventory or too much debt.

The balance sheet helps reveal those issues.

Don't Ignore the Cash Flow Statement

Cash flow answers a different question:

Where is the money actually moving?

It can help you understand whether cash is coming from operations, being consumed by inventory, being used for investments, or going toward financing.

For a growing cannabis business, that information can be critical.

Compare, Don't Just Review

One month's numbers tell you what happened.

Several months of numbers can begin to tell you what is happening.

Compare your financial statements over time.

Look for:

• Increasing expenses

• Declining margins

• Inventory changes

• Cash-flow patterns

• Revenue trends

• Unexpected variances

That's where financial reporting becomes a management tool.

Your Financial Statements Should Lead to Better Questions

A good financial report shouldn't simply tell you what happened.

It should make you ask:

Why did this change?

Is this trend sustainable?

What should we do differently next month?

Can we afford our next investment?

Where are we losing margin?

Where are we performing well?

That is the difference between having financial statements and actually using them.

Need More From Your Financial Reporting?

Redbud Advisors provides cannabis-focused bookkeeping, GAAP accounting, cost accounting, inventory reconciliation, and monthly financial statements designed to give business owners greater financial clarity.

Contact Redbud Advisors to discuss your accounting and reporting needs.