Modern dispensaries are required to maintain a tidy set of books. Dispensaries that lack a thorough understanding of tax and accounting concepts like section 280e and cost accounting will undoubtedly be less successful than those who do. Many accounting firms have trouble addressing the specific accounting and tax questions that dispensaries have. For many of our clients, working with a CPA firm that specializes in providing accounting services to the cannabis industry is a huge benefit.
The cannabis industry is said to use at least 100 different variations of accounting and bookkeeping software, so there is no shortage of cannabis-specific options for small businesses. However, having a group of CPAs who are knowledgeable about the cannabis industry to help you with transaction setup and flawless financial statement creation is a tremendous asset. Regardless of the software, we are available to help you.
QuickBooks, by far the most well-liked cannabis bookkeeping service, provides accounting versatility that many in the dispensary industry find to be ideal. Our accountants will assist you in setting up and maintaining a chart of accounts that makes sense for you, regardless of how big or small your distributorship is. As a result, transactions will move through the system without any problems. The cannabis industry, particularly in recent years, has experienced rapid growth, driving up demand for qualified bookkeepers and accountants. Although the cannabis industry is prohibited in many regions of the world, more and more states and nations are announcing that it is legal.
Currently, the cannabis industry generates billions of dollars in both legal and illicit markets. Additionally, a variety of legislative scenarios and an increase in auditing are complicating the bookkeeping process. Because of this, many business owners are constantly looking for ways to improve their accounting and beekeeping in order to increase repeat business and profitability.
The secret to effective tax planning and obtaining funding is, in the end, maintaining a clean set of books. There is no doubt that maintaining accurate accounting records will help you save money and headaches over the long term. Why not delegate it to experts?
Bookkeeping Challenges Faced by The Cannabis Companies:
Numerous problems and difficulties are present in cannabis business accounting and bookkeeping. They mostly deal with banking, software, merchant services, and taxation. Since dispensaries have numerous verticals, including cultivation, food manufacturing, chemical processing, labs, and retail, the bookkeeping process is challenging. Even though each of these verticals could present its own set of bookkeeping challenges, you will still need to manage combined and consolidated financials.
In addition to the difficulties already mentioned, the cannabis industry presents numerous additional difficulties with bookkeeping:
- Most of the accounting software on the market has bugs and is frequently unavailable. They offer subpar customer service and many of the features they advertise don’t function properly.
- Additionally, there is a lot of manual work required and this software does not communicate well with one another.
- Many suppliers are reluctant to offer cannabis business owners accounting services like payroll, merchant services, and point of sale (POS).
- There is a lack of work papers, generally accepted accounting principles (GAAP), industrial guides, and charts of accounts. (COAs).
- Utilizing “Seed to Sale” tracking software, which is required in some states, is challenging. With different bookkeeping software, it does not properly integrate.
- Strict, specialized, regulated monthly, quarterly, and annual reporting is desperately needed.
- It is necessary to reconcile cash and inventory every day.
As you are likely aware, marijuana is a Schedule 1 substance, along with heroin, ecstasy, LSD, and other drugs. Cannabis businesses in the United States are not permitted to claim any deductions or credits on their tax returns, according to Section 280E of the Internal Revenue Code (IRC), which is the domestic portion of federal statutory tax law in the country.
On the other hand, cannabis businesses are permitted to use the Cost of Goods Sold (COGS). This is so because COGS is a return of capital rather than a deduction or credit. To maximize their permitted COGS on the business’s tax return, cannabis business owners must follow a complex cost accounting procedure known as Section 471 of the IRC.
For marijuana businesses, cost accounting is essential. You must take advantage of the best resources and tools available because of this. Your company won’t be able to succeed if you don’t.
You will require a variety of tools as a bookkeeper or accountant to work as efficiently as possible in the cannabis industry. The following items could be on a list of the tools you need:
- Document and data storage with a permanent data room.
- Accounts charts for each cannabis vertical.
- a list of the necessary paperwork “PBC (Prepared by Client)” It may consist of letters, invoices, legal documents, etc.
- A precise monthly count.
- a “tie out” system at the end of the month that can correct mistakes, add accruals, handle cost accounting, etc.
- Cost accounting work paper templates that integrate with your COAs.
Why Choose Us for Your Accounting Needs?
Owners of dispensary businesses must keep meticulous records of all transactions, expenses, and payroll in order to maintain compliance. To function effectively, bookkeeping requires cutting-edge software and advanced technology. It is a tedious and ongoing task. Many businesses lack the staff or time necessary to establish and maintain proper internal bookkeeping.
We can assist you with your bookkeeping requirements. We offer businesses timely, accurate, and comprehensive data reports.
When you work with us, you will have an accounting firm for cannabis dispensaries by your side. You will undoubtedly encounter issues if you decide to cut corners with the quality of your accounting. Consequences can include overpaying taxes, going through grueling IRS and state government audits, and fundamentally misunderstanding the profitability of your company. The right approach pays off.
Laws Regarding Taxation of Dispensaries:
Several states impose taxes on dispensary businesses. This complicates the dispensary tax laws even more. While the issue of federal taxation is still up for debate, the IRS continues to monitor dispensary businesses.
The best course of action is to ask a dispensary accountant for assistance. An accountant can assist in ensuring the accuracy of all tax documentation. Additionally, they can assist you in avoiding tax fines and audits.
Higher Chance of an Audit:
Taxation of federal dispensaries is still up for debate, as was previously stated. The risk of tax audits is therefore higher for businesses operating dispensaries. This is yet another factor in favour of hiring a dispensary accountant. They can assist you in avoiding these filing mistakes because they are aware of the common dispensary tax audit causes.
Not Keeping Sales Track:
The dispensary industry is getting more profitable, but if you aren’t accurately tracking your sales, it doesn’t matter. Understanding your profits and losses depends on this. Fortunately, you can get assistance from a Dispensary accountant.
They will keep track of your sales and business expenses and can provide advice on how to cut costs for your company and which tax breaks your dispensary can take advantage of.
Finding Third-Party Bookkeepers and Payroll Experts Is Difficult:
Your dispensary business will also use other finance experts besides your accountant. A bookkeeper, payroll specialists, merchant processors, and other individuals in this category are necessities for any business. Even though the dispensary industry is booming, many businesses continue to ignore it.
A dispensary accountant will be useful in this situation. If the accountant is unable to offer these services, they can recommend other finance experts who are willing to work with and even specialize in dispensary businesses.
Absence of Accounting Software Use:
Even your accounting and finance software for your business is digital. You can create financial documents using this software, input financial data, and manage cash flow better.
Still, lacking the time necessary to maintain your accounting? To ensure the accuracy of your financial and tax information, an accountant uses the software. A modern POS system is one piece of additional financial software you can use in your regular business operations.
Services for accounting:
- Creating financial statements with CPA certification
- Monthly and quarterly financials, preparation of federal and state taxes Internal controls creation Observation, and Development
- IRS Audit Support
- Complete Services for Payroll
- Accounting Services
- Preparation of Federal and State Taxes 280E Tax Reduction Strategic Planning
- Sales, Use, and Excise Financial Aid
- IRS Audit Support
Advisory and Consulting Services:
- Internal Controls Development and Analysis
- Analysis and Strategic Planning for IRC 280E
- Principal Performance Measure Development of a dashboard Budgeting and forecasting
- Assistance with mergers and acquisitions
- Cash Flow Control
- Transition Planning
- Implementation and Analysis of the Inventory System
- Selection and Creation of Entities
- Business Strategy Planning
- Staff Training and Education
Our Accounting and Tax Experience with Dispensaries:
Because of the increased efficiency of their accounting procedures, we can help you increase your bottom line thanks to our understanding of the dispensary industry. Dispensaries face a special set of accounting and tax difficulties. We assist you in negotiating the complex terrain of tax preparation and cannabis business operations.
There are many ways we can support your dispensary business with our services:
- We create the financial statements that must be CPA-attested to verify the sources and capitalization amounts necessary for licensing.
- We provide complete record-keeping and bookkeeping services. We assist in ensuring that your financial and accounting records are accurate and up to date.
- We provide a full range of cannabis tax preparation services, including sales tax, excise tax, and individual and corporate income tax preparation. We can also offer advice on IRC 471 and IRS Section 280E tactics. We also give you advice on processing, retail cost of goods sold, and proper accounting and tax record keeping.
- Finally, as consultants, we can assist your dispensary business in developing and implementing appropriate internal controls, cost accounting standards and procedures, business and financial best practices, and other things. On accounting and tax matters specific to your industry, we can advise and consult.
The Cleaning Procedure:
Perform a thorough, accurate cleanup as soon as you begin working as a bookkeeping representative for a cannabis business. This is because almost all cannabis businesses—99 percent—have disorganized books that do not adhere to legal requirements.
You should think about several factors because of this. Get an engagement letter signed and gather a retainer first. Given that you are unsure of how long the cleanup will take, move quickly through the process. A PBC list with all the due dates for each item and all the legal documents should also be delivered before the cleanup procedure.
Making an action plan with your clients is a smart strategy. The plan may outline the client’s obligations as well as potential consequences for missing deadlines.
Try to compile all the data from prior tax returns if you plan to begin the cleanup process on a specific date. Additionally, downloading the transactions into Excel software is advised if you notice that the books are overly disorganized for your convenience. Unable to access or deliver the clients’ supporting documents is the very first issue bookkeepers run into during the cleanup process.
Effective Bookkeeping for Maximum Security:
The good news is that adhering to legal requirements enables you to lower your tax burden, even though marijuana companies’ legal restrictions require you to provide thorough documentation and legal navigation. Keeping a close eye on your spending will help your company ultimately save a lot of money.
Cannabis retailers have received thousands of dollars in fines in some cases simply because their cannabis-related and non-cannabis expenses were difficult to distinguish. It is advised that you regularly back up your data, make sure that more than one person is aware of the financial information in your cannabis company, use the best software available, and ensure that more than one person has access to it.
Month’s End Actions:
For cannabis accounting professionals, the month-end closeout period can be a busy time.
The following steps will assist in ensuring that accounts are correctly reconciled, and tied out, errors are fixed, accruals are made, and cost accounting is carried out, in addition to using the appropriate tools and wallpapers:
- Inventory and cash counts (last day of the month).
- Seed-to-Sale and POS reports by state (first day of the month).
- Client operations data, a flower calendar, yields by strain, and a % Complete/WIP (work in process).
- Create a file called “Month-End Tie Out”.
- Counts to POS, POS to Seed-to-Sale and accounting system, bank requirements, etc. must all be reconciled.
- Create rolling cash forecasts, financial consolidations, KPIs, and dashboards.
- Tax planning and additional services that add value.
CEOs are willing to pay top dollar for these services because the cannabis industry is booming and because most bookkeepers don’t have the necessary tools or skill sets. Cannabis businesses require skilled bookkeepers equipped with the right equipment to keep them compliant and out of trouble.
We create a standardized bookkeeping procedure that gives companies the resources they need to be successful. These reputable bookkeeping services make use of the most recent technology to ensure a smooth process. Feel free to contact us in case of any queries.