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Starting a business of any kind presents unique challenges and often requires an upfront investment. When your business is cannabis-related, there are several specific hoops to jump through that can make the process overwhelming—and they’re unique in each state.

Most states require extensive procedures to begin operations. Because cannabis legalization is still relatively new and not yet recognized at a federal level, you’ll want to make sure you go through the proper channels to fund your startup costs, apply for your license, and submit your Host Community Agreement—among other considerations.

We recently hosted an ask-me-anything style of webinar for cannabis start-ups to take a lot of the guesswork out of starting up a cannabis business. We’re turning that hour-long conversation into a series of videos and articles designed to help you get answers to your biggest questions, including the questions you may not know to ask.

While not necessarily a step-by-step walkthrough of everything you’ll need to know, this series gives you a rundown of some of the most important things to consider as a new cannabis business owner. In fact, we find that companies who do these few things right tend to be best prepared for long-term cannabis business success.

Let’s dive in.

Documenting Pre-licensing Expenses

Before submitting your license application, you’ll want to research what your state and municipality require in terms of documentation and what the cost of that documentation might be.

For example, in addition to complying with regulations, you might need:

  • A business plan
  • A diversity plan
  • A security plan
  • A code and ordinance compliance plan

That’s just the tip of the iceberg of pre-licensing expenses  But the biggest takeaway here is that you have to pay for it all somehow. And since you don’t have income from your business, that money has to come from somewhere.

By tracking each expenditure as it happens you can save yourself (and your financial team) considerable effort and energy down the road when it’s time for the business to start reimbursing those expenses.

It can be as easy (and low tech) as using a simple spreadsheet to track:

  • Date of transaction
  • Vendor/recipient name
  • Funding source (checking account, credit card, PayPal, etc.)
  • Who paid (you, an investor, etc.)
  • Where the receipt is stashed
  • Filename of receipt (or link to it) if electronically filed

Keep in mind that you must track and account for every dollar. 

You may also be required to submit financial statements or file for a tax return depending on where you are in the process. If the year ends and you’re not ready to submit your application but have spent money on the new venture, you need to file a tax return (which you’ll include in the licensing documentation if it becomes a multi-year process).

Keeping Track of the Bottom Line Matters

Even when you don’t have a bottom line yet, keeping track of every penny can pay huge dividends in time and trackability in the long run. In addition to being able to confidently hand over your financials to your bookkeeper, you’ll already have a better idea of what you’ve spent to date in your business.

If you’re already partway through the process and haven’t started tracking your expenses yet, now is the perfect time to go back and start looking.

Ready for financial support in your cannabis business? Contact Accounting for Green today to find out how to get started.

To catch the other videos in this series, see the links below.

Conversation #2 Documenting Funding for Your Cannabis Business 

Conversation #3 Know Your Cannabis Biz Pros

Conversation #4 Choosing a Host Community and Location

Conversation #5 Understanding Forecasts in the Cannabis Economy 

Prefer to read instead of watch the video?

Here’s a transcript of the video:
One of the first things I like to talk to people about are pre licensing expenses. So just like any entrepreneur, a cannabis operator or a cannabis licensee is going.

To start to incur expenses from the very beginning.

As soon as they start their process, they’re going to spend some money. And it’s really important in the beginning to think about tracking those expenses.

Because it’s very important, especially in cannabis, to make sure that you have tracked all of your money in and money out transactions. And so in the beginning, before you have banking, you might be spending some of your own money, you might be using your own credit card, you might have other investors that are spending money on behalf of the business. 

So as soon as you’ve become a business and started the application process, every single expense related to that business needs to be tracked. And the best way to do that is to get banking as early as possible. There are banks that will work with you in the pre licensing phase fairly cheaply, depending on what state you’re in. Some states are better at banking than others. But if you are using your own money, it’s really important to track not only the receipts for those expenditures, but what money you used and how it was spent. So did you use your own debit card? Did you use your own credit card? Did you use your own cash?

And you need to submit an expense report to your business for reimbursement. So documenting what you’re paying for from the get-go is the best advice.

The most important advice. If you take nothing else away from this speech today, it’s that document your expenses. 

Make sure that you are keeping your receipts and that you know how, when and where you spent that money. 

And why does it matter? It matters because as you’re putting your accounting file together, one of two things is going to happen in your licensing process. Either you’re going to have to submit financial statements to your regulatory board or you’re going to have to file for a tax return. One of those things will come before the other thing. Depending on where you are in your process, if the year end comes and you’re not ready to be fully submitting your application, but you’ve spent money on this business, then you need to file a tax return.

And part of your submission process, if it’s a multi year process, will be to provide tax returns.

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