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Cannabis Is Not Your Average Start-Up

I’ve written more than one article in the name of serving start-up businesses. I’ve built a career on helping others to achieve their desired level of success in the small business world. Cannabis however, is not the same ball game. Your average business plan template isn’t going to plug and play in this industry.

To start, most cannabis businesses are looking at a $1 million capital need just to get off the ground. Grow facilities and dispensaries are looking at $25,000 or more in licensing and legal fees depending on the state you’re in. Follow that with the costs to rent, fit up and maintain a 1,000 square foot facility which could cost you $100,000 a year. This is before you’ve started hiring the staff you’ll need, including a budtender, potentially a store manager and a master grower, which could top off at $250,000 annually. The banking industry isn’t going to make it easy on you either, typically demanding fees between 1-2% a month of cash deposits plus the cost of armored cars. Did I mention you’ll also need some pretty tight facility security? The complications of this industry’s regulations make cost to entry a road block for many.

Business plans have to address the need for capital while also addressing complicated inventory management and cost accounting requirements. Some states have mandatory point of sale and inventory tracking software that does not integrate well with accounting technologies. Daily cash reconciliations are required for the IRS along with a detailed flower calendar to support cost of goods sold calculations. This also means hiring an experienced industry bookkeeper and accountant to help ensure profits are being kept in your bank account. Since cannabis businesses can’t deduct operating expenses, having a CPA who can ensure proper cost of goods sold accounting is the only way to ensure that you’re not giving away half your bottom line away in taxes. And unlike other start ups, that equipment you just bought to fit up your space can’t be deducted under section 179.

If you’re looking to start a cannabis business, start with an industry expert and work backwards. You’ll need someone who can connect you to banks, lawyers, lending sources and who understands your immediate need for accounting and inventory management systems. Bonus if you can find someone who will also develop system implementation processes for you. The name of the game in this industry is exceptional internal controls and processes at every step of the way. I highly recommend working with a professional to detail each of them as much as possible and start off on the right foot towards success.

If you’re interested in learning more about how we might be able to serve your cannabis accounting start up schedule a call today

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