Benefits of Working with a Professional Bookkeeper for your Cannabis Business
Cannabis businesses should work with a professional bookkeeper and CPA who understand their industry niche thoroughly. Complex tax laws, state legislation, and increased scrutiny require successful companies place a high priority on applying accounting best practices. A professional bookkeeper specializing in the cannabis industry and also knowledgeable of advanced accounting standards can help your business stay compliant and financially forward thinking.
Integrating strong accounting and bookkeeping practices into your business’s operations increases its financial transparency and accountability. For cannabis entrepreneurs operating in this intense, fast paced business environment, a robust accounting system provides even more benefits.
Top 5 Benefits of Working with a Professional Cannabis Industry Bookkeeper and CPA
5) A Professional Cannabis Bookkeeper Can Help with 280E and Financial Compliance
Compliance with Internal Revenue Code 280E requires marijuana (non-hemp) touching businesses follow strict limitations when reporting taxable income. Compliance must be demonstrated consistently throughout the year and incorporated into the overall accounting process.
280E limits the deductibility of expenses for income tax purposes, with the exception of cost of goods sold. It is in the business’s best interest to ensure accounting for cost of goods sold is thoroughly maintained. Working with a professional bookkeeper and CPA who specializes in the marijuana industry helps accomplish this. Implementation of complete record keeping, cost allocation methods, detailed chart of accounts, inventory reconciliations, employee training, workflow management, and adhering to proper accounting standards each effect a business’s ability to fully comply with 280E to their benefit.
Inventory reconciliations are especially important for supporting the correct inventory value and cost of goods sold amounts are correctly reported. Entering inventory purchase and sale information into a point of sale system or state reporting module are great tools. However these acts alone do not ensure a fully compliant inventory accounting environment. A compliant inventory accounting system also provides detail cost allocations and overhead assumptions to inventory value.
Financial compliance is required by most state licensing departments for operating cannabis businesses, both medical and adult use. Michigan’s Marijuana Regulatory Agency requires licensees to adhere to the state’s regulations for operating a marijuana facility, which in part include for regular inspections and audits of books and records. Regulations for businesses operating under Michigan’s Medical Marihuana Facilities Licensing Act (MMFLA) require a review of detail financial information annually. Consistently working with a professional bookkeeper and CPA helps ensure your business’s accounting processes are systematically compliant in all respects.
4) A Professional Cannabis Bookkeeper Offers Cost and Time Savings
Small businesses can rely on outsourcing professional bookkeeping and CPA services at a lower cost than hiring an internal bookkeeper. Bookkeepers lacking experience in cannabis industry accounting often do not apply the correct accounting standards and tax classifications when recording items. Generally, the level of detail record keeping required is also beyond the knowledge of non-industry professionals. This results in risk to the business for non-compliance, and additional costs at year end in order to reconcile the accounting information into the correct format. The business may also face significant additional taxes and penalties that could have otherwise been avoided. For many small businesses, outsourcing professional bookkeeping and accounting services gives them peace of mind that their books are in order. It can also save them thousands of dollars each year in avoidable mistakes.
Larger businesses who rely on an internal controller and accounting staff can also save valuable resources by outsourcing professional bookkeeping services. Professional bookkeepers specializing in the marijuana industry help ensure the accounting information is reliable before it gets to the controller. Complicated accounting journal entries and adjustments, typically reserved for the business’s controller to make, can instead be completed by a bookkeeper with advanced knowledge. Professional bookkeepers and CPAs also provide an opportunity for high level discussion and analysis with the business’s internal accounting staff. It is beneficial for controllers to have an independent third-party resource to turn to for a complicated accounting issue, or cannabis industry specific standard.
3) Professional Bookkeepers Help Ensure Accounting Information is Ready for Financial Analysis and Decision Making
Business owners need to make decisions every day for their businesses to continue to run smoothly. The most important decisions made often revolve around financial considerations. A business must evaluate which products are profitable and which aren’t, trends in their consumers’ buying habits, and long-term financial outlooks for business expansion and development.
Without proper accounting and reporting, intelligent financial decision making is not possible.
The cannabis industry may seem to be a lucrative opportunity for many. Some may look to start a business to support themselves and their family, while others seek larger financial gains. Whatever the goals in starting a cannabis business are, without financial insight most businesses fail within their first few years. High tax and regulatory fees, inventory compliance costs, large capital expenditures, and more require that marijuana businesses be exceptional in their financial accounting and reporting practices. Professional bookkeepers, CPAs, and industry accounting experts help ensure your business’s financial information is complete, available, and formatted for smart decision making.
2) A Professional Cannabis Bookkeeper Supports a Healthy Internal Control Environment
Cannabis businesses, like all cash and inventory intensive businesses, are subject to increased risk of financial fraud and theft. Implementing an accounting environment with well designed internal controls and verification processes is necessary for business operators. Professional industry bookkeepers and CPAs can help design internal controls suitable for your cannabis business’s day to day activities.
Strong internal control environments include accounting controls to prevent and detect financial fraud or theft. When these fail, corrective controls should also be in place. Ensuring strict controls over cash, inventory, and tax compliance are fundamental needs for a cannabis business. A professional bookkeeper compliments a strong internal control system, helping to ensure correctly recorded information and reconciliations. Depending on their experience level, professional bookkeepers and accountants can also help train your internal staff on proper financial accounting processes and act as a 3rd party monitoring control.
1) Business Strategy, Investor Management and Exit Planning are All Made Possible with Reliable Bookkeeping
Managing business strategy and investor relations can be a disaster for businesses who do not make proper accounting and financial reporting a priority. When planning for your business’s future, it is important to understand fully the financial details surrounding it. Courting investors usually requires presenting financial projections and business valuation calculations in order to secure funding. This is not an easy endeavor to undertake. Once the business begins and has actual financial activity occurring, investor demands become even more intense. A business owner will need to provide complete and reliable financial reporting information and strategic planning opportunities for business growth based on these financial amounts to investors on a regular basis.
As the cannabis industry continues to evolve, business owners will face a decision of whether to sell their business or continue to grow it into maturity and beyond. For many, this decision is already made and planned for from day one. When an exit scenario is planned, potential buyers will scrutinize every financial detail. Deals often turn sour or don’t work out as well as the business owner hoped for due to the lack of incomplete accounting records.
In a recent article by Marijuana Business Magazine, a top piece of advice for entrepreneurs planning an exit is to “get your financial house in order”. Buyers often do not consider purchasing businesses without compliant accounting and “immaculate balance sheets”. Future sale or long term ownership scenarios can both benefit from clean, well cared for accounting records. Accounting books and financial records should be in a position to be audit-able and fully relied upon.
We are here to help with professional bookkeeping services!
At LC Solutions Michigan PLLC we provide our clients with unsurpassed accounting support and industry specific knowledge crucial to their business operations. We understand the special purpose bookkeeping, cost accounting, tax compliance, internal controls and industry standards our clients require. Our professional bookkeepers, CPAs and accounting staff take the time to thoroughly understand your business’s operational processes. Through this, we can help design a complete, well rounded accounting environment, focusing on financial compliance and reporting. With our professional bookkeeping services, we will help ensure your business has reliable accounting information ready for review and decision making.
Copyright: LC Solutions Michigan PLLC
September 22, 2019