Home Business 5 Reasons Why Accounting Adds Value to the Cannabis Business

5 Reasons Why Accounting Adds Value to the Cannabis Business

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The cannabis industry is one of the growing ones but with tons of regulations since it is not legal. However, managing a cannabis business can be challenging unless you have adequate systems in place. It’s easy to be caught up with other operations that make completing accounting tasks hard.

To perform to the level of reputable companies like Lazarus Naturals, you need an accountant, accounting software, or both. Accounting services help to handle various tasks between keeping and analyzing financial records. Without proper records, you’ll end up with disorganized records leading to losses or even penalties, fines, or damaging legal issues.

Below are some of the issues accountants and finance professionals will help solve in your cannabis business.

1.Accounting Helps With Taxation

According to section 280E, cannabis businesses limit the number of expenses deductible for tax exemption. These businesses use the cost of goods sold data for tax exemption, ending with huge tax burdens. However, businesses now have payment plans for paying tax burdens partially until completion. But it’s hard for business owners to find enough time to negotiate such agreements since they are time-consuming and require expertise.

Accounting personnel is needed to negotiate on behalf of the business, have a proper recording of the transactions, and keep the deal with the taxing board. In case auditing is done and inconsistencies are discovered, you’re likely to face fines, penalties, or, worse, cancellation of business license. Proper accounting will save you from IRS audit red flags that may necessitate an audit at your business.

2.For Bookkeeping and Auditing

Over the last five years, the cannabis business has experienced an increase in sales and might hit over $65 billion by 2027. An increase in market sales means there is more cash in the industry that needs recording.

The records are an essential requirement for auditing by the state commissions every two years. Auditing officials will require seeing monthly records of all transactions made. From receipts for purchases made to invoices and money for employee salaries and other business expenses, business owners must produce these during auditing.

For a business with a good record of all the cash transactions, auditing is not quite a headache, but if they lack this data, such companies may face hefty penalties and fines and sometimes back taxes. Most cannabis business owners have a lot on their plate to balance all this and still run the business activities, which is why an accounting professional comes in. An accounting professional with proper knowledge of the GAAP and other accounting skills to do all exercises for successful auditing is a valuable asset.

3.Cash Management

In most states, banks do not allow transactions with cannabis businesses because of the risk factor involved. Since cannabis is not federally legal and is considered a schedule 1 drug, most banks fear losing their federal trading licenses while engaging with cannabis business owners.

Banks are essential for transactions like paying taxes, real estate, licenses, and other business expenses for the cannabis industry. Lack of banking services leaves a lot of liquid cash in the business, exposing it to personal and business losses if the money is lost.
Cannabis businesses need accounting professionals to help with cash management for these investors and relieve them of the burden of risk. It is easy for cannabis business owners to get conned without the appropriate management skills; hence having someone to do proper recording is crucial.

4.Correct Valuation for Proper Planning

If not all, most business owners start a business aiming to build it to be strong enough to survive for future generations. The case is not different for most cannabis investors, and they remain hopeful that the situation will change and one-day cannabis will be federally legal. To survive the hurdles facing the industry today, the proper valuation of the cannabis businesses is essential.

Correct valuation of the cannabis businesses makes it easy for owners to plan for expansion, mergers, and acquisitions. With valid values at hand, they can plan the company’s future by re-investing the profits and maintaining a balance. Sage Intacct is a prominent example of these functions that can help you much with your business. When it comes to mergers and acquisitions, investors need to see their potential business partners’ transaction records and valuation first. In case the figures are not accurate, a cannabis business owner risks losing potential partners or investors.

Depending on its state, the business could even lose its license or, worst still, a jail term for the business owners. Such incidences are avoidable by investing in an accounting specialist who will correctly analyze the business records and advice during the expansion, merger, and acquisition exercises.

5.For Smoothing Running of the Business

An accounting system automates most of the transactions on time. It keeps a good record of all transactions and notifies business owners when a particular area of their business needs attention. That means business owners can detect mistakes early and rectify them, thus preventing severe business issues and with the authorities.

For a system to work, it needs to be run by a professional who designs the ideal structure for the cannabis business. Accounting professionals can develop such a system with IT professionals’ help and ensure your cannabis business transactions stay updated at all times.

It also means saving the time spent on putting together all transactions manually and investing it in other activities. The ideal system also saves business owners trouble from authorities by ensuring the business is always compliant with all the accounting requirements.
Conclusion

Like in other businesses, accounting is essential in the cannabis industry. It determines whether your business will succeed or fail. Besides, there’s a need to install proper accounting systems being a business that’s still in a grey area. There are strict regulations for cannabis businesses, and a slight accounting mistake could send your investment down the drain. Cannabis businesses need to ensure they have accurate records. As more states legalize cannabis, more opportunities are opening, and business owners can take advantage of it. But to thrive in this lucrative industry, you should start taking accounting seriously.

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