Accounting Services for Cannabis Businesses
How Can an Accountant Help Your Cannabis Business?
Your cannabis business has complex accounting, tax, and compliance issues that we can help you with. Here are just a few that we’ve helped our cannabis clients through.
Preparing for Investors
If you need to get your business compliant to prepare to take investors, we can help you get your financial records caught up so that you can file any necessary federal and/or state returns.
Support for Your Controller
A cannabis company controller often needs outside expertise to stay in compliance, optimize financial results, and build strong internal controls around the cash handling of the business. Having seen and advised many cannabis businesses, we can provide best-practice advice and strengthen your accounting department in our support role.
Vault Controls and Internal Controls
Cannabis business accounting functions often lack the internal controls and procedures to help prevent fraud, theft, and other risks to your hard-earned assets. That means your business assets, from cash to inventory to receivables, could be at greater risk of being mis-handled.
A special need of cannabis businesses is cash handling and protection. That’s where vault controls come in. We can set those up and provide cash handling manuals for you so that you cash is protected.
We can also review the duties of each bookkeeper and make suggestions to procedure changes that will lower your risk and help you better protect your business assets. We can also perform a full risk review and make suggestions to reduce your business risk and strengthen your accounting controls.
One of the most challenging tasks of cannabis business owners is that much of the business must still be done in cash. In addition to the vault controls mentioned above, there are many other ways we can support you. A few banks and credit unions are accepting cannabis businesses now; we can help you connect with them.
We can help you manage the cash aspects of your cannabis business so that compliance is upheld and risk is reduced.
The amount of tax calculations for city, state, federal, excise, and cultivation taxes can be overwhelming. We can help to streamline your accounting system so calculations and report preparation to file taxes are easier and less time-consuming.
Should You Incorporate?
We can help you select the right entity for the stage that your cannabis business is in now. We explain the benefits and disadvantages of each type of entity and make a recommendation based on various factors, such as legal risk, tax reduction, recordkeeping requirements, and more.
Handling Transactions Between Entities
Many cannabis owners that we work with have multiple entities. One might have one type of license while the other may have another type of license. In these cases, we can help you master the accounting and explain all of the implications of the inter-company transactions.
There is a lot of strategy behind these business transactions, and we can help to simplify this area for you.
Navigating Legal Landmines
We are completely up to date on the latest court cases involving tax and accounting issues in the cannabis industry. Currently, we are watching for potential leniency regarding deductibility of operating expenses with the new code section 471 and its interplay with section 280E.
Accounting System Selection, Setup, Customization, and Training
Having the right accounting system can make all the difference in the world. We’re familiar with many accounting software options and can help you find the best fit for your business. If you’ve outgrown your current solution, we can recommend professionals who can manage the transition without missing a beat.
One secret in boosting accounting productivity is to make sure your accounting software is set up and customized correctly. We can recommend professionals who can learn your requirements so that they can tailor the accounting software to your business and reporting needs. Plus, we can also recommend professionals who can train your staff on the new system so they can be up and running in no time.
Process Development and Improvement
The accounting function is necessary in every business, but it shouldn’t be cumbersome or inefficient. We can recommend professionals who can take a look at areas within your accounting system that are costing you more than they should be. These could include areas of duplicate data entry, time spent on manual reports, and bottlenecks in general. We’ll suggest improvements that can save your time and money and keep your bookkeeping bill as low as possible.
Are there any areas in your accounting functions that are undocumented? We can recommend professionals who can help you write a procedures manual for those areas. Good documentation is the key to good training, consistency, and controls.
Do you wonder which product or service line is the most profitable for you? We can perform an analysis of profitability by location, product, employee, or whatever grouping is meaningful for you. This information will help you make better decisions about your revenue mix and make your business more profitable in the long term.
While most accountants stick to cursory expense reviews, we prefer to go deeper. We can help you identify costs that may be outside your industry norms, discover areas where your pricing might not cover your costs, and root out profit margins that should be higher.
We can help you with inventory management and optimization, including lowering carrying costs, determining out-of-stock conditions, and identifying obsolete items.
Planning, Budgeting, and Metrics
Do you know exactly what you want your business to look like in three to five years, but are not sure how to get there? We can help you make sense of the financial piece of planning so you can achieve your dreams.
In the short term, we can also help you create a budget for your business so you can control expenses and see where you stand relative to your goals.
If you love scoring high on video games, just wait until we set up goal scores for your business. These are called key performance indicators (KPIs), and it’s great fun when you can hit or exceed them.
Real Estate and Equipment Acquisition
Planning a large investment? We can help you compare and evaluate your options from a financial standpoint so you can make an informed decision.
If you don’t have the time or expertise to train your accounting staff, we can provide the training they need to become proficient in their accounting duties.
It can be difficult to find good advice when you are in business for yourself. Friends and spouses who are not self-employed don’t often understand the decisions we make. As a fellow business owner and cannabis aficionado, we can act as a sounding board for your business ideas and provide a fresh, experienced perspective.
Finding the Perfect Blend of Accounting Skills and Expertise
Every cannabis business is different when it comes to the type and level of accounting services needed. Some small businesses may only need bookkeeping services, while others benefit from many layers of accounting skills from bookkeepers to Chief Financial Officers.
If your business is in the small to mid-market range, generating $500,000 to $20 million in annual revenues, it may not make sense to have a full-time CFO, a full-time controller, and multiple bookkeepers with all the full-time salaries and benefits in your accounting department.
The good news is you can still get the advice of these high-level accounting skill sets while paying only for what you need. We work with business owners like you to create a customized package based on your company’s unique accounting needs.
What Are the Levels of Accounting Skills Available?
Companies generating more than $5 to $10 million in annual revenue may need the expertise of a Chief Financial Officer. While a controller manages the historical financials of a business, the CFO is forward-looking and strategic. A CFO’s responsibilities include:
- Executive level decision-making and advisory services
- Strategy work, including setting business direction
- Entity selection and organization
- Preparing for investors
- Raising capital including managing an IPO or negotiating debt acquisition
- Working with investors, board members, and C-level executives
- Contract negotiations
- Compensation program design
- Complex financial regulation compliance
- Monitoring and interpreting court cases related to tax law
A cannabis business earning more than $1 million in annual revenues is ready for controller-level services. This includes bookkeeping which is either outsourced or done in-house by full-time or part-time employees or contractors. An oversight function is included where an accounting manager reviews the monthly work and discusses financial reports with the owner.
In addition, some advisory services may be included:
- Budgeting and forecasting
- Cash management including vault controls
- Cash flow projections
- Investor package creation
- Tax filings for excise, cultivation, income, and other federal, state, county, and city taxes
- Intercompany transaction handling
- Compliance oversight
- Insights into where you can reduce expenses, increase revenues, decrease risk, and/or benefit from financial opportunities
- Accounting process setup, improvement, and documentation
- Accounting system selection, setup, customization, and training
- Chart of accounts optimization
- Inventory setup, reporting and analysis
- Internal control review to reduce the risk of fraud and other management risks
- Key performance metrics selection, setup, and review
- Financial training to elevate skill sets of employees and owners
- Financial report review and guidance
- Compliance with financial reporting rules and regulations
- Audit assistance and coordination with an external auditor
- Hiring or supervising accounting staff
Many of these advisory services will not be needed every month. A great accounting team will be proactive and suggest services that will have a positive impact on your profitability.
Bookkeeping + Light Advisory Services
For cannabis businesses generating roughly over $500,000 per year in revenue, bookkeeping work plus some advisory work is prudent. An accounting professional needs to make sure the books are “done right.” The business owner may need help with cash management and control, accounting software questions, setup, cleanup, adjusting entries, payroll compliance, or workflow efficiencies.
An experienced bookkeeper or senior accountant is right for this level of service. This is the first level of accounting service where you may see a return on your investment in accounting services due to accounting process improvements and training efficiencies.
In very small cannabis businesses (revenue under $500,000 per year), a bookkeeper codes the transactions, reconciles the cash, and generates monthly reports. The bookkeeper can be a part-time or full-time employee, a contractor, or a bookkeeping business that provides this service. Cash collections are usually done by someone in the office, in the field, in the store, or online via an automated shopping cart.
Almost all businesses start out with a recordkeeping function which is done part-time by anyone available or outsourced to a vendor. The minimum is done to get the tax compliance handled.
These five levels above are the core levels of accounting expertise. The smaller the business, the more they blend together. We’re happy to put together a packages of accounting services that will be perfect for your business.
How to Get Started
The perfect synergy between a cannabis business owner and the accounting team occurs when two things happen: 1) the accountant gains a deeper knowledge about your specific business, and 2) the business owner grows in their financial knowledge about their business. This is when the magic really starts to happen for the business, and it improves over time.
Our goal is to become a true partner for your cannabis business by providing you with the right mix of accounting services for you and your business. To take the first step, give us a call or email us to see how we might best work together for mutual benefit.