As a cannabis accountant, I speak with many new cannabis business owners who have worked extremely hard to get their license, but then need a lot of help running their business.
If you receive calls from cannabis business owners, you may have discovered that they have a written business plan, but don’t always understand how to use it. Other times they wade through their finances without understanding how to maximize their profits, pay the appropriate taxes, and read what the numbers on their books mean for their overall bottom line.
Because so many new cannabis business owners have so many questions, I’ve rounded up the common questions I hear so you can help potential clients understand how accounting professionals can support their businesses.
The Services Your Cannabis Business Needs
When a cannabis business owner asks you about services they might need, remind them that they want to keep their money clean and focus on scaling efficiently. To do this, they will need the help of professionals:
- A consultant, who will fulfill their license requirements and increase their chances of being approved to open a cannabis store (Read more here).
- A lawyer, who will assist them with compliance regulations and help them with real estate, intellectual property and trademark matters (Read more here).
- A security company to protect their cash and inventory, which they will likely need to keep onsite.
- An accountant, accountant and tax preparer to gain insight into the most critical area of their business – finance.
Many of these roles intertwine. A consultant could come in the form of a lawyer. An accountant can help with cash handling procedures that safeguard their bottom line.
Once you’ve shown them the landscape, it’s then a question of what you can do to help them build a profitable business structure. What advice can you offer for proper inventory systems? Also consider how crucial it is to use the right time tracking software that differentiates between tax deductible and non-tax deductible tasks? There is a lot to sort out. Let’s start with the basics of tax law.
The taxes your cannabis business customer needs to know
Besides federal taxation, there are three main types of taxes your cannabis customer should be aware of. As you already know, these vary from state to state and ultimately boil down to:
- Sales tax — the regular taxes levied on goods sold at retail.
- State taxes — an additional amount of excise the tax imposed on marijuana only, which tends to reach 20-35%.
- Recreational use taxes — some states also tax recreational marijuana. And instead of being based on price, these taxes are calculated based on THC content or weight.
Explain to your client how a cannabis accounting professional like you can ensure compliance with taxes and other regulations, including:
- Tax Code 280E, which prohibits tax deductions on expenses imposed by the sale, distribution, and production of a Schedule I substance such as marijuana.
- Food and Drug Administration (FDA) regulations, which have not yet approved cannabis and are safe and effective, but are expected to do so in the near future.
- Good Manufacturing Practices (GMP) regulations, which are not yet consistently enforced due to the delay in FDA approval of cannabis products.
Your client doesn’t want to deal with audit stress or compliance issues. And with your professional help, they won’t have to, especially when FDA and GMP regulators begin to weigh in to create — and impose — strict guidelines.
What it means to “have their books finished”
“Can you make my books for me? is something I hear a lot. After all, it’s what cannabusinesses think they need, even if they don’t always know what it really means. This is where you just break it down.
You’ll need to help them understand that ‘doing their books’ means more than reconciling every transaction in their business – although this is a crucial part of ensuring the business doesn’t get shut down. It also goes beyond the simple comparison of income and expenses.
The services a cannabis seller needs largely depend on the type of business they own and how they operate it. Do they need point-of-sale setup, systems, or implementation? Some other services your cannabis customer might need include:
- Bookkeeping essential to establish and maintain compliant and clean books, as well as providing monthly or quarterly financial statements and advice on month-to-month or quarter-to-quarter trends.
- Controller or CFO services for in-depth advice on improving your workflows, productivity and profitability, as well as monitoring your internal finances and regular financial reviews.
- Tax preparer services to ensure you get the maximum tax benefits.
Remind your client how outsourced professional bookkeeping services will give them confidence in compliance and go a long way in boosting their growth potential. You and your client’s respective strengths will create something magical.
Cannabusiness Owner Accounting Position
Cannabis business owners probably won’t know that their accounting position will represent 1-2% of mainline revenue or that the actual number may vary depending on their services, tiers and add-ons. Cannabis accountants, like yourself, can help protect your client’s profits by ensuring compliance, performing reconciliation and assisting with forecasting.
One of the biggest questions I get from potential customers is: “How much do your cannabis accounting services cost?” It’s a good question, and the answer depends entirely on their business, its complexity, and their needs – usually a combination of one-time costs like reviews or record set-ups, and ongoing accounting or consulting services. .
Professional accounting services are never a small investment, which can provide a sticker shock to your prospects. Your job, then, is to show them why hiring a professional accountant is essential to protecting their profits and making smart decisions for the future.
How You Can Help With Their Cannabis Business Plan
Your client started with an expert business plan, but now it’s time to assess what they planned to do, compare it with what actually happened, and analyze why. Based on what they’ve learned in their business so far, what do they think will happen next?
So many times people create a business plan to get a permit, but don’t know how to work the plan when it finally comes time to open their doors.
Here’s what to tell your cannabis customer:
Marketing, operational, and financial strategies should translate into achievable tasks that a designated team can reasonably easily complete within a given timeframe.
Together we can determine if your written strategies are usable or not. If your plans are leading you down the wrong path, we can design something new that will help you achieve your short and long term financial goals.
Why do you need all this information about a potential client’s business
Don’t be surprised if a potential customer is reluctant to share details about their business. In fact, expect that.
With competitors stretching thin, people are reluctant to give details of their plans. Those who have been in business before are more likely to understand why you need information to support them, but those who haven’t may need some understanding and a helping hand. to understand why it is important.
Address objections head-on and demonstrate that you understand their concerns and show how you handle sensitive topics and content.
The wind is turning
As an accounting professional, cannabis clients are probably still new to you. Damn they are new to more businesses. They’re new to the scene – which means your services, tailored to the cannabis industry, are also still budding.
You know what else is in its nascent stage? Bank for cannabis businesses. Cannabusinesses will no longer have to jump through hurdles and pay exorbitant fees to secure their money with a reliable financial institution.
The Secure and Fair Enforcement Banking Act (SAFE) of 2021 has proven that there is light at the end of the tunnel, as banks will soon be able to serve cannabis sellers without fear of federal repercussions.
Your client may soon be saying hello to affordable banking while you smile at the new realm of possibilities for their future.
Let’s come back here and now. Cannabis businesses are regularly audited by the IRS, and your role in their financial accounts can make all the difference in whether they are closed, paid legal fees, or allowed to continue operating. .
Don’t be afraid to offer your client an audit at any point in their cannabis journey to make sure they’re on the right track. They will love you for keeping them out of trouble.
Remember, you are a cannabis user’s secret ingredient for big gains. According to one estimate, US cannabis companies could generate $130 billion in annual profit by 2024, which means you and your customer have great earning potential.
It also means that there will be a lot of moving parts in the industry and you will need to help your customers facilitate all of these movements. From inventory management to record keeping to forecasting, you are their go-to for building their portfolio. Lay the right foundation by answering these questions, and both of your wallets will grow!
Monique Swansen, founder and CEO of Automated Accounting Services and Accounting for Green outside of Boston, helps visionary cannapreneurs automate and outsource their financial needs. She also consults with accounting firms looking to get into the cannabis space. To learn more, visit accountingforgreen.com. IG @afgcannabis Twitter @AFGcannabis