World Class Cannabis Accounting Practice Operations and Systems
Dec 08, 2018
Whether you have cannabis accounting clients or are looking to specialize and service this industry, you’re going to need a special set of tools and processes. If you haven’t had a chance to check it out, we’ve created an infographic that sort of outlines all of the tools that we use to provide services to our clients. You can check out our cannabis accounting tools here.
In terms of running a thriving cannabis accounting practice, there are a number of challenges that we are faced with. Without proper systems for managing clients, it can create more trouble than it is worth, and eat into profitability.
We get a plethora of questions daily as to how to overcome the challenges that both CEOs and accounting professionals are faced with in this nascent industry that is in hyper-growth. Some challenges include:
- Accounting software isn’t friendly to complex cannabis entity structures
Cannabis business structures are highly complex. Accounting professionals require knowledge of how these businesses run and take in revenue, in order to provide proper accounting support to them. Each cannabis business type is different, and require knowledge and understanding of how 280E and various other tax rules are applied. Accounting professionals must have a streamlined way to manage these types of businesses or else it can create headaches for you and the business owner. With all this complexity, accountants and bookkeepers are able to charge more for their services.
- How to properly deal with cash and banking issues
There are some banks out there that will work with cannabis companies, but for the most part, everything is being handled with cash, including paying taxes in most cases. There are all sorts of security and controls issues that come into play here, so you have to be able to help your clients come up with a system to manage their cash in an effort to avoid theft, skimming, or other practices that not only cost your clients money, but could actually get them in trouble.
- Keeping client’s records audit-ready, for when they need to be reviewed
It’s not a matter of if, it’s a matter of when your clients will get audited. Consistent accounting and recordkeeping, proper inventory, and reporting will help prevent an audit. You’ll need to make sure that your clients are complying with your recommendations and expertise, so that state and local agencies stay off of their back. Cannabis companies are getting shut down left and right for issues that can easily be tracked and traced. They won’t get away with any type of fraud, so putting systems in place to mitigate these issues is crucial, so long as they are enforced and will comply. After all, no one wants to lose a multi-million dollar investment due to negligence.
- Securing financing and insurance
This is a big one, as most cannabis companies in the early stages will need financing for property or insurance for their lease agreements, and other things. They will need guidance and recommendations since there are only a select few providers out there that will support cannabis companies. for now. By building your network of providers and resources, you can bring more value to your client relationships for when they expand their business or even to help them get up and running.
- Where can you get a chart of accounts and how to do cost accounting?
Quickbooks, Xero, and other accounting programs do not provide chart of accounts or an easy way to do the proper cost accounting for these businesses. This is crucial for helping your clients to minimize their tax burdens that are imposed by 280E.
As accounting professionals, not only do we need to have our own systems in place, but we must also be ready and able to advise our clients as to how they can overcome these challenges within their business, which adds immense value to the work that we do.
For more information on how to implement these operations and systems tools into your own practice, check out our Cannabis Accounting 5.0 program by clicking here.