Part I: Best practices for accounting, monitoring and level-of-sale software program
From your small business experiences previous to marijuana, you’re doubtless acquainted with quite a lot of accounting techniques. For instance, Freshbooks, Sage 50 (previously generally known as Peachtree) and QuickBooks are highly regarded with startup to mid-sized companies with restricted merchandise, manufacturing and/or places.
Larger corporations, together with the most important nationwide and worldwide firms, have possible carried out a full enterprise useful resource planning (ERP) package deal, which isn’t solely the accounting system, but in addition runs a lot of the techniques used within the enterprise together with manufacturing, gross sales, buying, fastened asset monitoring, budgeting and human assets. If your marijuana enterprise is already producing gross sales, you’re doubtless utilizing an accounting system geared towards smaller companies similar to QuickBooks.
This article assumes you’re at present utilizing, or plan to make use of QuickBooks as your marijuana enterprise accounting system, however the subjects coated are additionally usually relevant to different accounting methods.
Pro Tip #1: Utilize QuickBooks as the overall ledger just for gross sales, value of gross sales and stock.
An essential accounting idea to know is the distinction between the overall ledger and sub-ledger. Think of the overall ledger as a subtotal of the small print within the sub-ledger. For instance, if in case you have six totally different merchandise in your dispensary, the sub-ledger will include an entire itemizing of all six merchandise and the amount and price of every. At the underside of the sub-ledger there’s a grand complete of the price of all of the stock within the dispensary (or cultivation facility). It is just the grand complete that’s proven within the common ledger, as follows:
Due to the truth that you’re doubtless utilizing a separate product monitoring system, don’t try and recreate the sub-ledger particulars of gross sales, value of gross sales and stock in QuickBooks. The techniques mentioned listed here are satisfactory to trace these particulars for you. However, with that stated, DO use QuickBooks because the sub-ledger element for accounts payable and all money transactions.
In different phrases, it’s best follow to enter all vendor invoices into QuickBooks upon receipt, no matter whether or not the bill is paid by way of money, verify or bank card. This follow permits you because the proprietor to know the excellent payables at any time. In addition, it’s critical that each one receipts and makes use of of money are recorded within the money ledger inside QuickBooks.
Marijuana enterprise house owners are conscious of the alternatives within the business, in addition to the complexities of coping with companions, buyers, regulators and auditors. This three-half collection options 9 ideas from an skilled accounting skilled who has devoted lots of of hours learning this business. These professional ideas are designed to save lots of money and time and place your organization for fulfillment.
#1. Use your main accounting system as the overall ledger just for gross sales, value of gross sales and stock.
#2. Use your main accounting system’s division classification performance inside a single accounting file and use separate information for every authorized entity. DO NOT commingle a administration firm or different entities together with your dispensary.
#three. Use the identical chart of accounts in every firm’s accounting file. This will make it simpler to organize and ensure monetary info.
#four. Keep the small print of gross sales, value of gross sales and stock within the monitoring and level-of-sale techniques and archive month-to-month.
#5. Document the providers and transactions between all of your dispensary-associated entities.
#6. Follow all intercompany contracts and pay/document the intercompany payments month-to-month.
#7. Ensure all stock is in your stability sheet on the finish of every reporting interval.
#eight. Create a separate money basic ledger account for every protected.
#9. Develop and doc a course of to find out complete value of products bought and comply with it strictly.
Pro Tip #2: Utilize QuickBooks Class performance inside a single QuickBooks file and use separate QuickBooks information for every authorized entity.
There are possible a number of entities, every with a number of places and/or departments concerned in your dispensary operations (such because the state-licensed entities, administration and/or staffing corporations, actual property entities, and so on.). Each authorized entity performs an necessary position within the operations, reporting and compliance of your dispensary, and subsequently an entire accounting document of every entity is required.
Your tax preparer and auditor will ask for these data annually, and in the event that they’re not full and/or correct, you’ll incur larger skilled charges to right and even create them.
First, create a separate class for every bodily location (dispensaries and cultivation amenities) inside the QuickBooks file of every licensed marijuana entity. You might even have sub-courses inside the dispensary and/or cultivation courses representing totally different departments inside these places. Apply this apply to the opposite authorized entity QuickBooks information, at any degree you a lot need to allocate and seize prices. Your accounting system probably has quite a lot of normal stories by class (or division) that shall be useful in analyzing which places and departments are worthwhile. However, keep in mind this tip is simply nearly as good because the follow behind it. Therefore, each transaction entered into the accounting system must be categorised accordingly. QuickBooks consists of useful normal reviews you’ll be able to run any time to verify the diligence of your accounting workforce. Periodically, ask your employees accountant for the “balance sheet by class” and “profit and loss by class” reviews. Look for any balances within the “unclassified” column. If your accounting workforce is following this tip, there might be no “unclassified” columns on the stories. If there are, remind your workforce that each transaction must be categorised correctly.
Next, guarantee your accounting workforce has arrange separate QuickBooks information for every authorized entity. If you need to have the ability to put together mixed financials utilizing the accounting software program, you will have to make use of QuickBooks Enterprise as an alternative of QuickBooks Pro or QuickBooks Online. This is essential for tax, audit and firm valuation functions. Each authorized entity wants to face alone, precisely as if every have been a completely separate and unbiased firm.
DO NOT fall into the temptation to account on your legally separate entities as one, whatever the degree of widespread possession between them. Accounting and tax guidelines are very strict as to the relationships between corporations beneath widespread management. In addition, you may be miles forward of the competitors if you’ll be able to present full and correct monetary info for any and all authorized entities on the click on of a button by following the ideas on this article.
Pro Tip #three: Use the identical chart of accounts in every QuickBooks file.
When establishing your first QuickBooks file, create a grasp chart of accounts in a worksheet outdoors of the system. Consult together with your accountant to correctly tailor it to suit the wants of your enterprise. Upload the grasp chart of accounts into every QuickBooks file you create. It is ok to have sure accounts which are solely relevant to at least one QuickBooks file. The cause for the standard chart of accounts throughout all QuickBooks information will grow to be evident as you consolidate monetary stories out of your separate QuickBooks information. As your small business grows, you’ll doubtless want so as to add accounts to a number of QuickBooks information. When you do, add the brand new accounts to the opposite QuickBooks information with the identical account quantity and outline.
Point of Sale and Product Tracking Systems
As a dispensary operator, chances are you’ll be required to comply with product monitoring protocols as outlined by your respective state. Certain states even mandate which system is for use to perform this. Other states, together with Arizona, permit dispensary house owners the selection of techniques. In Arizona, you possible use MJ Freeway or BioTrack. Both techniques meet the necessities of the state and embrace numerous functionalities relevant to dispensary and cultivation actions.
Pro Tip #four: Keep the small print of gross sales, value of gross sales and stock within the level-of-sale system.
Utilize the purpose-of-sale system on your gross sales, value of gross sales and stock sub-ledgers. At the top of every month, add the grand totals of gross sales, value of gross sales and alter in stock within the level-of-sale system to the respective QuickBooks common ledger accounts. There are numerous methods to perform this inside QuickBooks, and your accountant can advocate a process that works greatest for you. However, keep away from common journal entries and attain this utilizing the designed QuickBooks functionalities corresponding to creating gross sales receipts and transferring prices between value of gross sales and stock, as a result of auditors are required to dig into common journal entries recorded in the course of the yr and subsequent to yr-finish. Limiting using common journal entries to precise corrections will prevent time and aggravation throughout an audit.
Also, remember to save a printed and/or digital copy of the month-finish gross sales, value of gross sales and stock balances outdoors of the purpose-of-sale system. These are essential particulars that help the balances in your basic ledger and shall be wanted at audit and tax time.
DO NOT depend on your marijuana enterprise’ level-of-sale system to save lots of these particulars for you. These methods are comparatively new and may expertise durations of instability.
This article is the primary of a 3-half collection on accounting ideas for marijuana companies. In the February 2019 concern of Marijuana Venture, Part II will cowl associated-get together transactions and third-celebration contracts; Part III will handle money dealing with and price of products bought in March 2019.
John Terry is a licensed public accountant in Arizona who spent the primary 14 years of his profession as an auditor with “Big 4” sort companies. In these roles, he had a number of nationwide obligations within the areas of auditor coaching, technical accounting and audit methodology. He additionally served as the primary company controller for a nationwide media firm throughout its $three.5-billion-plus market cap NYSE IPO. Since late 2016, he has consulted with a number of marijuana-associated companies and served because the interim controller for one of many largest multi-state dispensary operators within the U.S.