Tim & Audrey,
Cancelling a reservation causes various penalties for you (financial, blocked calendar, and a black mark on your review page). Considering both you and the guest still want the reservation to take place, I would call Airbnb customer service and ask for their help. Hopefully they will also be willing to remove those penalties, as that will be important for you in the long-term as you work toward building credibility for future guests and in creating your own brand.
Best of luck!
JT