FLORIDA: A recent study commissioned by industry journal American Banker reveals that the nation’s four largest banks have opened accounts for pot shops and marijuana-related businesses. Conducted by MRB Monitor, a firm that helps financial institutions identify the risks associated with the marijuana industry, the study examined public records in the state of Massachusetts and found that 34 percent of businesses that filed to operate medical marijuana dispensaries in Massachusetts between June 2015 and September 2016 had one or more accounts at Bank of America, Citigroup, Wells Fargo, or JPMorgan Chase.
NEW YORK: Over the recent few years, particularly in 2016, the legal cannabis industry has accomplished some significant milestones. Most importantly is the change of public opinion regarding the use of cannabis, both for medical and recreational purposes. Before the November 8th elections where five states voted on legislation reform, a Gallup poll showed that 60% of Americans support legal cannabis use. According to the poll, that is the largest percentage of support for legalization ever in the recorded 47-years of studies conducted, with support increasing among all age groups.
WHO’S STANDING NOW; WHO’S STANDING TOMORROW
We keep getting the same questions over and over from different clients so to save everyone’s time; we decided to share the answers with all of you MJBA members.
GOALS OF THIS SERIES:
- To increase your business literacy.
- To help ensure that you fulfill all of the responsibilities of a small business owner.
- To clarify why outside professionals are essential to your survival and how to find and use the best fit for your business.
As a small business owner you are responsible for every part of the business. Understanding the stages of development can help clarify what is important at each stage of growth.
In small business offices around the country sits shoeboxes or file folders full of business receipts, invoices, and accounting data. As the months roll by and the data accumulates, your business is sitting on a growing problem. Learn before it is too late why your accounting system can cost your business and more.
For many start-ups and sole-proprietors, the shoebox or file box was a temporary fix prior to setting up an accounting system. But with procrastination the box can become the nemesis of your small business.
What is an Accounting System?
An accounting system for your business is not as simple as a shoebox or file folder. These items will collect and organize your important business information but you need to look at what the numbers are telling your business. An accounting system will take your business beyond record keeping and provide important financial indictors. An accounting system will have the following parts:
- Data Collection: Includes business transactions and operations data.
- Data Organization: A method of sorting data by date and transaction type.
- Accounting Database: Data entry into a spreadsheet or accounting software program will form the basis of accounting information.
- Financial Statements and Reports: Balance sheets, income statements, budgets, and timetables comparisons will aid in running your business.
- Analysis: Regular review of main controls to avoid problems and capitalize on opportunities.
If your small business accounting system is focused only on collection and organization until year end than discover why you need to change over to a complete system.
8 Reasons for Accounting System Upgrade
- Expense Creep: It starts off innocently as you begin to add more regular expenses to your operations. Without monthly tracking of expenses and costs, you cash flow can quickly dry up.
- Overdue Accounts: Ignoring the need for an accounting system can make tracking accounts receivables a guessing game. Don’t be in the business of bank lending. Misplacing a 90-day overdue account is costing you money.
- Cash Flow Crunch: Every business will experience the highs and lows of cash cycles. To overcome periods of cash shortages or to get needed funding, an accounting system will help you identify who owes you money and places for expense cuts. Create a full financial summary every quarter.
- Lack of Data Security: How safe is your shoebox? Is it reinforced steel, fireproof and waterproof against major disasters? Important financial information needs to be stored on a removable disk and on a secured offsite location. Never take a chance assuming it can’t happen to you.
- Added Costs: Having an accountant or bookkeeper organize and compile your accounting data at year end can be costly. Organize your invoicing, accounts payable, accounts receivable and most important know your cash flow.
- Audit Risks: Surviving an IRS audit can be easier if all financial matters of your small business are in order. Providing an auditor with financial statements, organized files, and well tracked transactions will make everything easier for all parties involved.
- Bankruptcy is NOT an option in legal cannabis: With the majority of businesses failing in the first 5 years, poor financial management remains one of the top reasons for failure. It is your responsibility as a small business owner to maintain and regularly assess your financials. Not putting an accounting system in place early during your startup can mean the end of business. Proper accounting can help you see money losing strategies before it is too late.
- Financing Difficulty: Do not bring a shoebox of invoices and receipts to your banker or investor meeting. The professional appearance of your company’s books is part of a winning strategy to financing.
The price of business ownership comes with the responsibility of establishing an accounting system. On the plus side you feel more control over your business, less stress, and better profitability.
WHERE DO YOU STAND?
The accounting cycle for a small business begins with establishing the chart of accounts for that business and ends with closing the books for that business at the end of the accounting time period. The accounting cycle is a series of steps that the firm takes every accounting time period in order to take account of its financial transactions.
Here are the steps in the accounting cycle for a small business:
- Develop the Chart of Accounts for your Small Business
- Understand The Source Document in an Accounting Transaction
- Accounting Journal Entries
- Construct the General Ledger for your Small Business
- How to Prepare a Trial Balance
- How to Make Adjusting Entries in your Accounting Journals
- Prepare the Financial Statements
- Closing Entries as Part of the Accounting Cycle
Washington State Business Entities
You may operate your business under any one of several business structures in Washington State. Each type of structure has advantages and disadvantages that should be considered. The descriptions of the structures below are provided to assist applicants and are not intended to be legal definitions with the force of law. You should contact an attorney, accountant, financial advisor, banker, or other business or legal advisors to determine which form is most suitable for your business or organization.
- A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorship’s are the most common form of business structure. This type of business is simple to form and operate, and may enjoy greater flexibility of management and fewer legal controls. However, the business owner is personally liable for all debts incurred by the business.
- A General Partnership is composed of two or more persons (usually not a married couple) who agree to contribute money, labor, and/or skill to a business. Each partner shares the profits, losses, and management of the business and each partner is personally and equally liable for debts of the partnership. Formal terms of the partnership are usually contained in a written partnership agreement.
- A Limited Partnership* is composed of one or more general partners and one or more limited partners. The general partners manage the business and share fully in its profits and losses. Limited partners share in the profits of the business, but their losses are limited to the extent of their investment. Limited partners are usually not involved in the day-to-day operations of the business. Note: A limited partnership may opt to become a Limited Liability Limited Partnership* by including a statement to that effect in its certificate of limited partnership. Status as a limited liability limited partnership provides general partners with a shield from liability for obligations of the limited liability limited partnership.
- A Limited Liability Partnership* is similar to a General Partnership except that normally a partner does not have personal liability for the negligence of another partner. This business structure is used most commonly by professionals such as accountants and lawyers.
- The Limited Liability Company (LLC)* An LLC is formed by one or more individuals or entities through a special written agreement. The agreement details the organization of the LLC, including: provisions for management, assignability of interests, and distribution of profits or losses. Limited liability companies are permitted to engage in any lawful, for profit business or activity other than banking or insurance. Doing business as an LLC may yield tax or financial benefits.
- A Corporation* is a legal entity, a corporation has certain rights, privileges, and liabilities beyond those of an individual. Doing business as a corporation may yield tax or financial benefits, but these can be offset by other considerations, such as decreased personal control. Corporations may be formed for profit or nonprofit purpose.
- A Nonprofit Corporation* A nonprofit corporation is a legal entity and is typically run to further some sort of ideal or goal, rather than in the interests of profit. Many nonprofits serve the public interest, but some do engage in private sector activities. If your nonprofit organization is or plans to fundraise from the public, it may also be required to register with the Charities Program of the Washington Secretary of State.
Items marked with * must register with the Secretary of State, Division of Corporations and Charities.
See table below
Set-up your company in a way that minimizes your tax liability
Make sure you understand your tax obligations
Keep a schedule of filing and payment deadlines
Do not fall behind
It is not too late to clean up the past
Money flows through a company and someone must keep track of it. A budget is a basic tool to understand the flow. A budget will inform your decisions by helping you decide how to allocate resources, control spending, and provide a way to plan for the next year.
Within an operating budget there are two major categories: fixed costs and variable costs. Each industry is going to have different forms or types of fixed costs. In some industries, salaries are paid even if no work is accomplished. In 502 world, the insurance company has to be paid as a legal requirement for you to be in business. The sooner you offset the fixed costs within the accounting period, the sooner you will generate a profit, but to know what that number is you must have a budget. The rest I will leave to the experts on April 19th.
DRAFT OPERATING BUDGET
|FIXED COSTS – Fixed costs are those cash expenses that must be paid whether the business produces or sells a single product. Some of these costs have a variable element, but you know the business will need to pay for the line item.|
|Dues and subscriptions|
|VARIABLE COSTS – A variable cost is a cost that changes in relation to variations in an activity. In a business, the “activity” is frequently production volume, with sales volume being another triggering event that increases variable costs.|
DRAFT CAPITAL EXPENDITURES BUDGET
COLORADO: The convention floor at Denver Airport’s Crowne Plaza this sunny Tuesday afternoon in April could be the trade show for any well-established industry — gray-haired execs in conservative suits mingling with office park dads in polos and fresh-out-of-college types in brand-emblazoned T-shirts. Only this is a new kind of business conference with a special Colorado theme: legal weed.
As states and cities follow Colorado’s lead and consider legalizing marijuana for medicinal and recreational use, the cannabis market looks less like a music festival and more like a Silicon Valley confab, upscale, data-driven and focused on investors.
Vendors and potential financiers at this month’s Marijuana Investors Summit say the current market for legal marijuana is more than $3 billion in the 23 states that have already legalized marijuana for medicinal or recreational use. Expanding that market, they say, will require not just drug reform legislation, but also a consistent infusion of capital at a time when the marijuana economy still exists in a legal gray area — one where the drug is permitted in some states, but still outlawed at the federal level.
COLORADO: The federal government is stockpiling hundreds of “suspicious activity reports” that could provide federal agents with sufficient evidence to shut down any state-legalized marijuana business.
While it may appear that federal authorities have taken a wait-and-see approach to marijuana legalization in the 23 states that now allow medical or recreational use, these reports are poised like a blade over the budding industry should federal laws be enforced.
This risk of federal prosecution has led some cannabis companies to literally launder their money.
“You used to be able to just smell it,” said Jennifer Waller, vice president of the Colorado Bankers Association, speaking of the cash from marijuana shops. “But now they are using Febreze a lot, putting the money in dryers, a lot of different things to try to disguise the scent because marijuana has such a distinct odor.”
That distinct odor is considered a red flag by federal authorities who require banks to file a suspicious activity report for every transaction that might be associated with illegal activity, including selling marijuana, even for state licensed businesses.
COLORADO: A Few years ago, a Boulder woman who owned one of Colorado’s first dispensaries ran into some troubles with her bank. As she later recounted, the bank told her the money she was depositing into her business account reeked of marijuana.
The bank was willing to take her money, but she would have to do something about the smell. Maybe Febreze would help. Her bank, in other words, asked her to literally launder her money.
Since then, the relationship between marijuana businesses and their banks has only become more fraught and complicated. Talk to anyone involved in Colorado’s marijuana industry—regulators, market players, law enforcement—and they’ll likely agree that the biggest obstacle to bringing marijuana out of the shadows is the industry’s inability to obtain basic banking services.