How to Choose the Right Cannabis Accounting Firm
Legal sales of marijuana in 2018 are projected to be in the range of $10 billion. That figure is expected to increase to more than $20 billion in the next four years.
The cannabis industry is growing rapidly. With all the money that's expected to be made, your business will need someone to handle it correctly.
Accounting help is beneficial to businesses of all sizes. Outsourcing your accounting, bookkeeping, and tax preparation is a great way to save time and profits. It can also lend insights that only an expert can offer.
But a cannabis business is a special business that requires a special kind of accounting. Keep reading to find out what you should be looking for when choosing a cannabis accounting service.
Every Business Needs an Accountant
There are many benefits to hiring an accountant.
Accounting involves more than just tax preparation at the end of the fiscal year. A good accountant takes care of his clients year-round and offers a host of different services.
Below are some of the ways that every business can benefit from outsourcing their accounting needs, regardless of the industry.
The job of any accounting firm is to to be the expert in tax law.
Taxation law and tax regulations are always changing tax. Accounting professional not only understand all the forms and procedures, but they keep you up-to-date and plan ahead of time.
A firm that specializes in accounting help can assist with everything from bookkeeping to filing with the government. Plus, they do this while ensuring that industry-standard best practices are being adhered to. This isn't always possible for an internal management team that's more focused on the growth of the business.
Save Valuable Time
For any business, but a cannabis business especially, tax forms and other filing necessities are complex. Someone who isn't well-versed in deductions or what they can and cannot claim could be wasting hours of valuable time that is better spent on managing the business.
Outsourcing your accounting needs puts the job of tracking revenue, expenses, deposits, and withdrawals in the hands of someone who has the time and knowledge to do it efficiently.
Proper accounting isn't just about saving your receipts in a box in the case you might be able to deduct it from your expenses later.
As experts in tax law and financial management, accountants know all the ins and outs of what is claimable and what is not, as well as possible tax deductions. They'll find ways to save you money that you couldn't possibly know about, and they'll make sure you're going about it the legal way.
Allow Your Employees to Do Their Job
If you're in the start-up phase of your business, it's likely that you have some employees acting in multiple capacities. For example, do you have an office manager who's also handling payroll?
While this might save you an additional salary, it's inefficient and ineffective.
By seeking accounting help from a firm that provides payroll services, your employees can perform the job they were hired to do.
One of the most difficult things to do during a recession or when your business takes a downturn is laying off valued employees that you can't afford to keep. Having an outsourced accounting department makes those types of decisions far easier.
Using external accounting help also allows you to stay flexible. When business slows, you can opt for fewer services. When business picks up, you can adjust accordingly.
An accounting service provider also has the capacity to scale with you. As you move from your start-up phase to a larger, growing business, their service provision grows with you.
How to Choose a Cannabis Accounting Firm
There are a number of qualities to look for in a great accountant. But what about a marijuana accountant?
Choosing the right cannabis accounting firm can have a big impact on your business. These are the specific things you should be looking for:
First and foremost, your marijuana accounting service provider needs to be a professional that is willing to work with you.
Many Certified Public Accountants's (CPAs) won't work with businesses in the cannabis industry. The regulations governing their profession don't offer them any protection for working with this relatively new industry - yet, anyways.
Some accountants aren't sure how to deal with the abundance of cash transactions and cryptocurrencies that impact your businesses taxes, so they choose to avoid the industry.
That's not just true for accountants - even banks aren't sure how to deal with cannabis companies. Of 12,000 registered banks in the US, only 400 dealt with the cannabis industry in 2017.
IRC 280E Expertise
While some accounting service firms simply don't want to work with the industry, others aren't willing to take the time required to develop the expertise it requires.
On top of the regular tax laws and other information, a cannabis accountant needs to understand the details of IRC 280E and its application in the cannabis industry.
What is 280E?
In the US, cannabis is considered a Schedule I controlled substance.
Under 208E, the IRS can use this classification to stop the cannabis industry from making deductions and claiming business expenses that other businesses would consider ordinary. These include rent, advertising, and employee salaries.
As a result, cannabis companies pay high federal taxes unless they can allocate these expenses to the Costs of Goods Sold (COGS).
Considering the growth of the industry, tax laws and policies are likely to change. Until then, you need a cannabis accounting company with this specialized knowledge.
In the first half of 2017, two billion data records were lost or stolen through cyber attacks. That number is more likely to increase than decrease.
Security breaches can compromise the financial and personal data of clients - and that's not something you want to be dealing with in the cannabis industry.
Cannabis accounting service providers use secure technologies and processes to protect the data that they work with. By keeping client information off your potentially insecure server and on theirs, you're doing the best job you can to protect client data.
The Right Software
Good accountants use high-tech software to help them organize and manage finances. An even better accountant will consistently upgrade technology and software to ensure they are using the most efficient software for their task.
As the cannabis industry grows so does the market for cannabis accounting software. A cannabis accounting service that's on the cutting edge should be using software that caters to this industry.
Intricacies of the Industry
Are you a retailer? A cultivator? Or a distributor?
Depending on what aspect of the industry you're part of, your taxation laws may be different. A good cannabis accounting provider is going to understand those intricacies for you.
For example, as of January 1, 2018, in California:
Retailers were expected to collect an excise tax from their customers. The excise tax is calculated using the average market price of the sale and paid to a licensed cannabis distributor. This tax applies to purchases prior to January 1, 2018, as well.
Cannabis cultivators are required to pay the cultivation tax on cannabis that entered the market to a distributor or manufacturer. This doesn't include cannabis sales prior to January 1, 2018.
Distributors who sold cannabis to a retailer are required to collect the excise tax from the cannabis retailer.
That's a lot of new tax law and detail depending on what part of the industry you operate in... and that's only in the state of California.
If you're operating in a different state or in multiple states, you need someone who understands the laws, knows when they are changing, and what taxes apply to you and your business.
Advice Specific to the Business
Facilities that manufacture cannabis are expected to grow 23 percent over the next three years. If you're a cannabis manufacturer, that means client sales will increase and you'll need to hire more people.
Do you know how to go about projecting for 23 percent growth? A cannabis accountant can help you do that.
Cannabis is a relatively new industry and you need someone who isn't just an expert on tax law, but an expert on the industry.
Marijuana accountants understand the particularities of your business and can offer the best advice accordingly. That means advice on tax savings, future potential, forward-thinking solutions and projecting growth.
A Professional Network
The ambiguity of protections for accountants when working in the cannabis industry can leave them in an ethical limbo. The lack of best practices and established standards that guide them through traditional accounting simply don't exist.
An excellent marijuana accountant will have a professional network that shares what they learn. They work together through challenges. By consulting with banks, attorneys, insurance brokers, and other financial experts, they can gain insight and develop solution-based approaches.
The Service Provider You Need
Outsourcing accounting, bookkeeping, and tax preparation will save time and money while making your business more efficient. But for businesses operating within the cannabis industry, it's the extra specialized qualities of a marijuana accountant that make all the difference in your business's success.
If you're looking for a cannabis accounting service that always acts ethically, honestly, and with transparency, contact us for a free consultation.