The cannabis industry now generates $52 billion in sales. The demand for cannabis is growing – for both medicinal and recreational use. This is why now is the best time to start a cannabis business.
However, new cannabis business owners have to get around one major obstacle: accounting.
Cannabis accounting has different steps and techniques compared to a traditional business. The cannabis industry is still relatively new. This makes accounting an even bigger headache.
However, it’s best to identify these problems early. Here are common accounting problems that cannabis business owners struggle with and how a cannabis accountant can benefit you.
Difficulty Getting a Business Bank Account
Cannabis legalization is tricky. While some states allow full cannabis use, others are even stringent about CBD usage. Getting a bank account for a cannabis business is difficult, depending on which state you’re in.
This also means you’re limited to financing options, such as business loans.
What are your solutions? Many cannabis businesses feel like they’re forced to only keep cash on hand. Discover your other options first. Instead of a federal bank account, opt for a local bank or a credit union.
Major banks are skeptical about opening accounts for cannabis businesses because marijuana isn’t federally legal.
However, state-wide banks may be willing to let you open an account.
Working With Cannabis Tax Laws
Cannabis sales are taxed in seven states.
This makes cannabis tax laws even trickier. While federal taxation is still being debated, marijuana is still a Schedule I drug, meaning cannabis businesses are under IRS radar.
The best course of action is to seek help from a cannabis accountant. An accountant can help ensure all tax documents are accurate. They can also help you avoid tax penalties and audits.
Speaking of which…
Higher Risk of Being Audited
As stated previously, federal cannabis taxation is still being debated. This means cannabis businesses are at higher risk of tax audits.
This is another reason why you need a cannabis accountant on your side. They know the common cannabis tax audit reasons and can help you steer clear of these filing errors.
Not Tracking Your Sales
The marijuana industry is becoming more profitable. But this means nothing if you aren’t accurately tracking your sales. This is essential to understand your profits and losses.
Fortunately, a cannabis accountant can help you out.
They will track your sales, your business expenses, and can offer advice such as ways you can save your business money and which deductions your cannabis business can or cannot claim.
Difficulty Finding Third-Party Bookkeepers and Payroll Professionals
Your accountant isn’t the only finance professional your cannabis business will utilize. Any business needs a bookkeeper, payroll professionals, merchant processing, and other professionals in this category.
While marijuana awareness is improving, many businesses still turn the cold shoulder to the cannabis industry.
This is where a cannabis accountant will come in. They can refer you to other finance professionals willing to work with and even specialize in marijuana businesses if the accountant can’t provide these services.
Not Utilizing Accounting Software
Everything is digital, including your business accounting and finance software. This software allows you to input your financial information, create financial documents, and improve cash flow management.
Still don’t have time to keep up with your accounting? An accountant uses software to ensure your financial and tax information is accurate.
However, there’s additional financial software you can use in your everyday business tasks, such as an updated POS system.
Protecting Your Finances and Inventory
While the legalization of marijuana is cutting drug-related crime and violence, this doesn’t safeguard marijuana businesses, especially dispensaries.
Many marijuana businesses are forced to be cash-only if they can’t find a bank, putting them at risk to lose essential finances.
In addition, robberies also force the dispensaries to give up their marijuana products as well as their money. This not only hurts your current profits but affects your future profits.
This is why it’s integral to protect not only your finances but your inventory. A cannabis accountant can inform you about different finances protection strategies, especially if you’re a cash-only dispensary.
Few Business Tax Deductions
Business tax deductions are a blessing. However, many cannabis businesses are limited to what they can deduct. For example, the IRS has certain limitations on when a cannabis business can deduct the cost of goods sold.
Fortunately, a cannabis accountant can inform you of the business tax deductions you’re eligible for and other ways you can save on your taxes.
The cannabis industry has higher startup costs than normal. These can range between $250,000 to $750,000. But these aren’t the only expenses you have to worry about.
Like any business, the cannabis business is under financial threat to unforeseen expenses, such as increased cost of goods or even a lawsuit.
A cannabis accountant can guide you on saving and having extra cash on-hand, in case any of these financial emergencies occur. In addition, better cash management will improve your long-term profitability.
Solve These Accounting Problems With Cannabis Accountancy
Even though the cannabis industry is profitable, a lot goes into running a cannabis business. This is one of the many reasons why many cannabis businesses face accounting problems.
Fortunately, the solution is simple. Seek help from a skilled cannabis accountant.
We can help you with a range of accountancy duties, such as general accounting and bookkeeping services all the way to tax preparation and audit representation. Schedule your free consultation today.