Payroll Taxes – Don’t Mess Around

I have seen more clients get in trouble with their business and the IRS because they did not pay their payroll taxes on time.  It’s a tricky thing, because you do have some leeway in the timeliness of your payments, and so often business owners and managers make the decision to forego paying the taxes right away, thinking that they will catch up later.  Then later never comes and before they know it, the IRS is after them.  So what’s the best approach with payroll taxes? First let’s talk about the difference between an employee and an independent contractor.  Again, I have heard lots of folks say “we’ll just pay him contract”, then they don’t have to worry about payroll taxes.  It’s true, independent contractors are responsible for paying their own payroll taxes.  Just be sure this person meets the definition of independent contractor.  If the person working for you does not fit the definition, they are an employee and as such you are required to pay payroll taxes on their behalf. So here’s the distinction between an employee and independent contractor: Employee – You control the job (what, where, when and how) and provide the employee with the tools and supplies to do the work. Independent contractor – The contractor controls the job (what, where, when and how) and provides his own tools and supplies (or may charge you for supplies as part of his contract). Let’s look at some examples: You hire your friend’s brother to install lighting in your grow space.  He tells you when he can do it, brings his own tools, but charges you...

The general ledger – one of my favs

A general ledger is the complete record of a company’s financial transactions over its lifetime.  It is a report that can be generated over any period of time, and contains a wealth of information. The general ledger is my go-to place when I have questions about my company or need further understanding about a particular transaction. For very large companies, general ledgers are made up of numerous sub ledgers and you have to dig very deep to get to the individual transaction.  In smaller companies, like most of yours, the majority of the transactions occurring in your business will be captured individually in your general ledger.  It’s a ton of detail but if you know how to dig into it, you can find all kinds of valuable information.  The general ledger is organized into a list of categories called accounts.  Each account holds the transactions specific to that category.  Transactions are entered into the general ledger with the amount, a reference number (such as an invoice number or check number), a description (usually optional) and date the transaction occurred.  That date drives the period in which the transaction gets reported.  For example, sales that occur on April 20, 2016, get entered into the general ledger with a transaction date of 4/20/16 and will show up on the income statement in the month of April 2016. Essential to a good general ledger is the description that accompanies each transaction.  Not all software will require a description, but a good accountant will enter one that is detailed enough that the person reading the general ledger knows what happened in the transaction. ...

Documentation – the what, why and how

Being in business means keeping up with a lot of varied information.  Oftentimes business owners are confused as to what they should keep, for how long and how to store it.  This short blurb should take the mystery away and give you a few simple rules to follow.  The What – here is a list of items that should be kept and for how long Contracts – Contracts, licenses, signed agreements, corporate and partnership documents, corporate meeting minutes, should be kept indefinitely. Expired contracts that are not relevant to the business any longer, such as a lease from a previous location, can be shredded after 4 years. Transaction documentation – Documentation of transactions that occur on your financial records, including sales receipts, deposit slips, checks, bank statements, vendor invoices, purchase orders, mileage logs, petty cash records, payroll records, all of these should be kept for a minimum of 4 years. Income tax returns – both federal and state, should be kept indefinitely. Financial statements – including general ledger, balance sheet and profit and loss statements, should be kept indefinitely. The Why Contracts and other agreements should be kept as long as they remain in effect. You never know when you might have to support the way something was handled, or refer back to determine how something should be handled. Transactions that support your financial statements and tax returns are kept for at least 4 years because of the potential for an IRS audit. The IRS can audit tax returns up to three years after the date you filed the return.  At audit, you will be required to produce supporting...

Hiring right – find your future stars!

I’ve said before that employees are likely your most valuable asset.  Having the right staff is key to the success of your cannabusiness.  Oftentimes they are the first contact that your customer has with your company whether it be on the phone or in person.  It’s crucial that you hire the right people and there are ways to assure that you get the right people the first time, or at least increase the odds. How to find that right person?  Fortunately, the cannabis industry attracts plenty of people.  Some of these people are well qualified, others are not.  Finding the right people requires some work and research on your part. First, let’s talk about hiring that “friend of a friend”.  It happens often, probably even more so in a cannabis business.  A friend or relative says they know someone who would be really great.  You may feel strong pressure to hire them but working with a friend or relative can be tricky.  It’s difficult to have a frank discussion with that person about their performance.  You don’t want to be hampered by concerns that a personal relationship may be compromised if you are honest and forthright with your employee. When getting ready to hire a new staff person, think about the job description and requirements for the position.  Will he/she be working with the public, do you want them to have retail experience, are you willing to train someone who is new to the industry?  If you don’t have these things worked out in your mind or better yet, on paper, the odds decrease that you will make a...

Capitalization and Depreciation

I have to say that I find this topic quite boring.  Coming from an accounting nerd, you know it must be dull!  However, it is something you should understand to run your cannabusiness properly and to understand your financial statements.  So let’s push forward and get this one out of the way. You may have heard the term depreciation, and perhaps some of you are familiar with what it means to capitalize something, but let’s discuss the details, because it affects your net income in a way many of you may not realize. To get started, let’s assume that you have purchased a video surveillance system that cost you $2,000.  It includes a computer, software and 8 cameras.  The system was paid for and installed in the month of May and you expect it to last you for three to five years before it will need to be replaced.  Your first inclination would be to expense this item on your income statement just as you do other expenses in the month, like rent and utilities.  If done this way, your income statement for May will show an expense of $2,000.  But this purchase will have a benefit well beyond the month you paid for it, so instead of putting it on the income statement, we will put it on the balance sheet as a fixed asset. Fixed assets are those items that have a long term life, meaning they don’t get “used up” quickly but deliver benefit for more than a year.  Equipment, computers, software, furniture and improvements to your facility fit into this category of asset.  When we...