As both Entrepreneur and Forbes have pointed out, there are certain things a growing business should not “skimp out” on, a primary one being who you have looking after your finances. The solution that is suggested most? Fractional CFO Services. There are a laundry-list of reasons why it makes sense to outsource accounting for a legal cannabis venture, here are our top five:
The top 5 reasons to outsource your cannabis accounting:
1). Save Time
All that time you spend worrying about cash flow, improving your accounts receivable or payroll can now live with someone else. When you outsource your cannabis accounting, you can focus on what matters most to your business whether it’s business expansion or connecting with customers. Additionally, when you choose our outsourced CFO services, you save yourself the HR headache.
2). Save Money
It’s not just the time-saving factor that saves you money when you outsource your accounting. As a cannabis company you get taxed by the IRS at the gross revenue level. This means your accounting and books need to be accurate and well maintained in order to successfully turn a profit. Cannabis companies have a significantly greater likelihood of being audited– most often related to section 280E– with some companies stating it’s a matter of “when we get audited, not if.”
While you can plan for section 280E it has been effectively laid out as an area that you need have all your t’s crossed. As a result, it is increasingly important to have things like your cost of goods sold (COGS) categorized appropriately.
3). Get Accurate Cost Accounting in Cannabis
Proper cost accounting will help you plan for section 280E and the likelihood (erm, chance) of an audit. Outsourced cannabis accounting can offer accurate unit economics which directly affects your business profitability. By properly documenting and categorizing the costs of your cannabis products, you can walk into an audit feeling more confident that your books are as they should be. In cannabis, cost accounting should take into account both fixed and variable costs, as well as direct and indirect costs. For example:
- Direct materials, bill of materials (BOM) and packaging
- Rent and utilities
- Maintenance and repair
- Product transportation
With properly managed costs, and clean books, business owners and investors can determine product profitability and accurately predict future cash flows. The weekly bookkeeping services will manage all day-to-day cost accounting needs your cannabis company requires.
4). Risk Assessment for Cannabis Accounting
A significant value-add of our outsourced cannabis accounting services is the risk assessment we can offer. Poorly maintained books and any lack of compliance could have very negative implications.
Because you can’t move cash from state-to-state given the varying regulations across states, our outsourced CFOs provide risk assessments for all cash accounting and manual processes. We then introduce different systems that are specific to cannabis compliance and state regulations. We are familiar working with smaller credit unions. Bigger banks often don’t take cannabis clients with the risk to unintentionally transfer cash across states.
Because we have a tax arm within our firm we also truly understand how important it is to have a solid partnership with the cannabis tax accountant.
5). Multiple Cannabis Entities Require Consolidated Financials
One strategic move we often see with cannabis companies is to acquire licenses for limited-license states to avoid saturated markets. But this move does complicate the business accounting for cannabis companies. For example, one client has 15 entities and needs to have accounting books for each one, so getting consistency across all their books is essential with each new entity that is added.
In saying that, with each additional entity and the nuances of each new market, your finances grow more complex. Consolidated financials become increasingly important. We’ve witnessed firsthand what having solid financial reporting can do to open doors with cannabis investors. With outsourced controller services you get monthly financial reports when you need them.
What is the cost of outsourcing your cannabis accounting?
Our outsourced cannabis accounting services begin at $500 per month for our base package, $2,500 for our core package and $4,000 for our Core + Awesome Outsourced CFO Services add-on. Click to learn more about what’s included in our outsourced accounting packages.