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Especially in recent years, the cannabis industry is thriving fast and the need for expert bookkeepers and accountants is soaring. Although the cannabis business is illegal in numerous parts of the world, it is being increasingly announced legal in myriad states and countries around the world.
The cannabis business is responsible for billions of dollars both in legal and illegal markets now. What’s more, varying legislative stories and rising auditing is making the process of bookkeeping complicated. That is why numerous business owners are constantly seeking methods to enhance their beekeeping and accounting to turn their customers into repeat ones and increase profitability.
Accounting and bookkeeping in cannabis companies involve countless issues and challenges. They are mainly about taxation, software, merchant services, and banking. The process of bookkeeping in dispensaries is complicated as a result of having many verticals including cultivation, food manufacturing, chemical processing, labs, and retail. While any of these verticals may generate unique bookkeeping issues, you will have consolidated and combined financials to handle.
Apart from the mentioned challenges, bookkeeping in the cannabis industry involves plenty of other challenges to consider:
As you probably know, marijuana is a Schedule 1 drug standing next to heroin, ecstasy, LSD, etc. Section 280E of the Internal Revenue Code (IRC), which is the domestic portion of federal statutory tax law in the United States, says that cannabis businesses cannot benefit from any deductions or credit on their tax return.
On the other hand, the Cost of Goods Sold (COGS) is allowed for cannabis companies. That is because COGS is not a deduction or credit; it is a return of capital. For this reason, Section 471 of the IRC enters the equation; it is a complicated cost accounting that cannabis business owners must do to maximize their permitted COGS on the business’s tax return. This can save the business much money.
Cost accounting is a must for marijuana businesses. That is why you must benefit from the best tools and information available. Otherwise, your business will not be able to succeed.
As a bookkeeper or an accountant, you are going to need several tools for maximum effectiveness in the cannabis company. A list of the tools you need may involve the following items:
The very first thing you should do when starting your job as a bookkeeping agent in a cannabis company is to perform a complete, exact cleanup. That is because almost 99 percent of the cannabis businesses have messy books not in compliance with the rules and regulations.
For this reason, you need to consider several things. First, you should get an engagement letter signed, and collect a retainer. Perform the cleanup process at a high rate, since you do not know how long it takes. Also, try to deliver a PBC list that contains the due dates for all items, as well as all the legal documents before the cleanup process.
It is a good approach to creating an action plan with your clients. The plan can contain the duties of the client and the possible penalty in the case of missing deadlines.
If you are going to start the cleanup process on a specific date, try to gather all of the tax return information from previous years. Also, if you see the books are excessively messy, it is suggested that you download the transactions into Excel software for more convenience. The very first problem that bookkeepers encounter in the process of cleanup is not accessing or delivering the clients’ supporting documents.
Although legal restrictions of the marijuana companies force you to provide complete documentation and legal navigation, the good news is that remaining in line with legal regulations helps you reduce your tax burden. Tracking your expenses vividly will ultimately save a lot of money for your business.
There are examples of cannabis retailers that have gone under thousands of dollars in penalties, simply because their cannabis-related expenses and non-cannabis ones have been indistinguishable. To prevent such issues, it is recommended that you regularly backup your data, make sure more than one person is aware of the financial information in your cannabis company, and use the best software available.
Using a service like Less Accounting’s done-for-you bookkeeping service can help you keep your records accurate, and quickly and easily deliver to the IRS the information they need. The service saves you much time and helps you avoid risky tax mistakes. Then, the entrepreneurs can easily focus on their main tasks instead of bookkeeping disasters. Less Accounting also offers an accounting software solution that helps you manage your dispensary’s financial affairs including proposals, invoices, taxes, etc.