The accounting cycle for Cannabis businesses, as for regular business, starts with the procurement or purchasing of goods and services to make your products. Continuing through production and sales of such products. All business maintain some level of common processes. Below is a brief summary of each.
The Order-to-cash (O2C) process affects and is affected by all aspects of your business, which culminates in customers placing orders. Once the order is placed, other aspects of the process take hold such as fulfillment, shipping, invoicing, accounts receivable, and payment. The technology you use in this process is central to your entire business as it most likely is linked to your customer relationship management (CRM), and point-of-sales data analytics. Having the ability to completely analyze your sales makes all the difference in the world when determining how to allocate resources to increase sales.
The Procure-to-pay (P2P) process manages your purchases of goods and services. This process flows from procurement, operations, accounts payable, and is where you maintain your vendors list and sourcing contracts. Large companies may have a fairly formalized P2P process with departmental budgeting, a requisition processes, formal vendor selection, and a Request for Proposal (RFP) process.
The Hire-to-Retire (H2R) process manages all the company’s human resources, payroll and employment related matters. The key sub processes within H2R are:
- Recruiting and Hiring
- Compensation / Total Rewards
- Onboarding and Training
- Employee Performance, Management, Development and Engagement
- Termination
The Record-to-Report (R2R) process is where all other processes financial transactions come together to create the company’s general ledger (GL)-the official books and records. Your finance and accounting team will own this process with the company Controller and CFO leading the way. It is vital for proper reporting to have complete and accurate records, therefore, it becomes the finance team’s responsibility to ensure all other processes are feeding accurate data through. In today’s world having the ability to collect data from all your process is necessary for proper analysis and reporting. This blog is a highly summarized explanation of the accounting processes for all businesses. Cannabis small business owners should work with the management team to properly structure these processes with best technology and people, and with a vision to scale up as the company grows.
