For entrepreneurs in the cannabis industry, navigating the complex financial landscape of the modern business world can be a real challenge. It’s dangerous to go alone, but armed with the right knowledge and external support, business owners can successfully maneuver through it with relative ease while staying on the path of profitability.
External accounting support for tax filing and asset management is vital, but cannabis business owners also need the right managerial tools to stay on top of things. Asset management software solutions provide these tools to business leaders and help ensure that your cannabis business is always on track.
The Fundamental Importance of Fixed Assets
The purpose of every business is to maximize profit and increase the wealth of its stakeholders. To achieve this goal, enterprises must strategically balance their expenses and revenue within a given fiscal period, most often calculated by month, quarter, or year.
Keeping track of total revenue is reasonably straightforward, but determining total expenses can be difficult due to the fluctuating values of tangible assets like property, facilities, and equipment, which may depreciate over time.
To accurately determine business income, the depreciation of these ‘fixed assets’ within a fiscal period must be weighed against the total revenue of the same period.
Managing Fixed Assets
Strategically managing fixed assets is vital for success in the cannabis industry. To ensure that assets provide their full value, cannabis business leaders need to be able to accurately calculate the value of their fixed assets at every stage of their life cycles.
In addition to the depreciation of a fixed asset over time through regular use, factors like transportation, storage, and maintenance must also be used to determine the value of a fixed asset during a fiscal period. This can be a taxing and time-consuming activity for cannabis businesses but is necessary, nonetheless.
Fixed asset management software can ease the burden on cannabis business owners, both throughout the year and come tax time.
Benefits of Fixed Asset Software
Fixed asset software provides the tools that cannabis business leaders need to manage their assets successfully. Here are a few of the benefits that Fixed Asset Software Solutions offer cannabis businesses:
Increased Visibility – Software solutions offer increased visibility into fixed assets, tracking them through user-defined data fields and customizable metrics to provide insightful overviews and detailed reports. The functionality included with these accounting solutions lets users see all the costs associated with their fixed assets, including incremental depreciation, and facilitates strategic financial planning. This can be particularly useful for cultivators and processors, who typically hold a larger fixed asset percentage on their balance sheets.
Regulatory Compliance – Federal regulations like IRC §280e require cannabis businesses to follow specific procedures when reporting inventory, revenue, and claiming deductions come tax season. IRC §280e also restricts cannabis businesses from claiming deductions or credits for “any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances.”
However, under certain circumstances and careful asset structuring, cannabis businesses can reduce their tax liability without violating 280e restrictions. For example, the depreciation of commercial property used by a cannabis business might be deductible, but only if the property owner and the cannabis business are appropriately disentangled. Keeping the separation between entities is critical, and fixed asset software solutions can help ensure entities stay compliant.
Automated Accounting – Stakeholders can drastically reduce the amount of time, energy, and resources that business leaders spend tracking fixed assets and calculating their values by utilizing fixed asset software solutions. Advanced AI systems used by these solutions offer enhanced asset tracking capabilities, automatically factoring in depreciation costs throughout each lifecycle.
By integrating fixed asset accounting solutions into a comprehensive ERP solution, fixed asset data will systematically populate into financial ledgers, providing a broader view of company expenses and assets.
Real Solutions for Cannabis Businesses
Cannabis businesses moving forward will need to think strategically to maximize their profitability and fully capture the growth opportunities. Managing assets is a necessary part of this, and with tools provided by accounting software solutions, cannabis businesses can take full advantage of a booming market.