With yet more states opting to legalize recreational cannabis sales this year and the prospect of others joining them through ballot measures at the forthcoming midterm elections, we are going to see a new wave of marijuana dispensaries opening for business.
The cannabis industry is undoubtedly lucrative but that in itself is no guarantee of success. As cannabis markets continue to consolidate, competition is increasingly fierce.
If new marijuana business owners are going to thrive, they need a solid financial basis on which to build their enterprise. Here’s some advice from a Certified Public Accountant (CPA) on how to ensure this.
1. Craft a detailed business strategy
You need more than a “build it and they will come” mindset. For starters, a thorough business plan is typically the first hurdle you need to clear to be considered for a marijuana business license.
But its value goes far beyond this. A viable, detailed business plan can help you to attract the investors you may need to turn your vision into reality.
Think of your business plan as a story you’re telling. Who are you? What do you want to achieve? How are you going to get there?
It’s important to set yourself apart from the crowd, to define your unique selling point and what niche you want to operate in.
2. Define, track and analyze key financial metrics
Any investor or financial entity considering a loan request will want to understand your business’ finances. As the owner, you also want to have a clear understanding of your company’s financial flows to know how well you’re doing and where you can improve.
As such, you need to have clear records of fixed costs like payroll, rent, security, equipment as well as variable costs like electricity. On top of this, you want to cover key metrics like inventory, store traffic, and cash flow to give a fuller picture of your business’ performance.
3. Inform yourself of tax implications and the risk of audits
Taxes are onerous at the best of times, and this is even more true in the cannabis space.
Due to marijuana’s federally illegal status, cannabusinesses are subject to IRS Tax Code 280E which means they can’t deduct ordinary operational expenses, like rent or payroll, from their tax bill.
Plus, as a nascent industry that operates in a legal gray area between state and federal law, the IRS pays particularly close attention to marijuana businesses. This means they are more at risk of an audit, and the penalties for non-compliance are severe.
Outsource your accounting
All this may sound daunting, but there’s no need to face it on your own. Indeed, the smart choice is to seek the services of a third-party accountant with marijuana industry expertise.
This may seem an additional expense, but the time and savings they offer can far exceed what you’ll pay to recruit them.
As well as helping with the licensing process, a marijuana CPA can help you identify financial inefficiencies and put them right, and ensure you stay tax compliant while minimizing your tax bill.
All this frees you up to focus on the day-to-day running of your cannabusiness to make it as successful as it can be.
Check out our directory of cannabis CPAs and accountants to recruit the expertise your business needs.