4 Tips for Maintaining a Compliant Accounting System

Keep Accurate Records

This applies to any business but is particularly important given the uniqueness of the industry. Many cannabis businesses, like dispensaries, handle large amounts of cash transactions daily. This has the potential to make maintaining accurate financial records a little trickier.

One fundamental that needs to be mastered is bookkeeping. Having organized books not only reduces your risk of an audit but can also end up saving you money in the long run. When you have impeccable financial records, it’s easier to recognize unnecessary expenses that may be cutting into your profit margins. Similarly, you’re able to point out the assets and tasks that bring in the most money so you can expand your efforts in these areas. Maintaining accurate records is easier said than done, so business owners should consider outsourcing to a cannabis accounting professional.

Be Conscious of the 280E Tax Code

The 280E Tax Code prohibits businesses that sell cannabis (or any other federally illegal controlled substance) from deducting typical business expenses from their gross income. As long as marijuana is considered a Schedule I drug, cannabis companies are forced to abide by this tax code. This means that, unfortunately, business owners aren’t able to deduct things like rent, utilities, salaries, or inventory costs. This law was intended to prevent street dealers from claiming tax deductions for their expenses but consequently impacts legitimate businesses as well.

Cannabis companies have a significantly greater risk of being audited, most often related to section 280E. Businesses found non-compliant can face years of litigation, massive legal fees, and other detrimental penalties. 

To prevent this from happening to your business, you must know the 280E Tax Code. Knowing what can and cannot be deducted will save you in the long run.

Outsource to Cannabis Accountants

Many business owners make the mistake of wearing too many hats at once. While you might be confident in your ability to handle accounting independently, it’s always smart to consider other options.

Outsourcing your accounting to a team that knows the cannabis industry inside and out can help you bring your business to the next level. These firms are hired to keep accurate records, manage cash flow and payroll, and identify areas of your business that could change to make you more profitable. Not only will outsourcing help your business grow, but it also gives you peace of mind knowing that your finances are accurate and fully compliant.

Your best bet is looking for an accountant that also offers complete compliance advisory solutions. These accountants will work with your team to implement solutions to manage risk, improve performance, and put practical accounting and financial systems in place. 

Conclusion

Managing a compliant financial system can be daunting, complicated, and, most of all: stressful. Regardless of what stage your business is in, you must make bookkeeping and cash flow management a priority. Partnering with a diligent cannabis accounting expert can help you stay up to date on all legislation that could impact your business.

Green Space Accounting can help you along with an intimate knowledge of cannabis rules and regulations. 

Click below to book a 30-minute consultation with our team today and start on your path to success!