required of clients: a legal bank account or detailed cash logs.
by liz gold
cannabizcpa.pro
a proponent of marijuana since college, laura durham, cpa, went into private industry after a stint at arthur andersen. she worked at a beef company, a software company and later at a manufacturing company.
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it was during this time the course of her life changed.
recently divorced, with primary custody of two children, she found herself overwhelmed by the demands of full-time corporate life. so, when a consultant colleague asked her if she’d consider going out on her own to help cannabusinesses in need, durham gave it some thought and decided to go for it, launching kind accounting out of her home in loveland, colorado.
“i’m definitely willing to take a risk,” durham said. “i have a cpa license. i understand why these established firms wouldn’t want to put their future on something so uncertain, but this could be perfect for me.”
in january 2013, durham formally started kind accounting while still working her day job. she spent the first year and a half – while providing bookkeeping for a grow operation on the side – in research mode, mostly turning down potential clients so she could get up to speed on the laws and regulations.
after realizing the stress was leading to health problems, durham gave notice at her job in june 2014, giving them ample time to prepare for her departure (on oct. 1, the first day of the corporate new fiscal year) and allow her time to put feelers out for new clients.
“a lot of people thought i was crazy because i hadn’t been in public industry for a while,” she said. “but it was a niche that wasn’t being served. we have allowed marijuana to be legal as a state. i think it’s absurd that they can’t get qualified help.”
durham and her team – she has one cost accountant in fort collins, an accountant in denver, a tax preparer in colorado springs and her boyfriend who helps with it – all work remotely. her clients are mainly in colorado but she prepares tax returns for a few cannabusinesses in states where cpas will not work with cannabis.
a majority of kind accounting’s clients are small; this is where durham said she’s found her niche. many cannabusinesses can’t afford larger firms.
“we are a lower cost option,” she said. “we provide a very good option for those small grows. we provide that middle ground.”
most of her clients, durham said, are in the grow, hemp or extraction business. she also has a handful of dispensaries.
one of the main guidelines she sets for her clients is that they must have a legal bank account or they need to keep detailed cash logs.
“most clients have it down these days,” she said. “early on, they had a hard time recognizing that they had to reconcile their cash.” as a result, large sums of money would go missing – not because of a theft necessarily, durham said, but because somebody forgot to document a bill payment or return change on a purchase and that would ultimately impact their potential deductions.
in the last couple of months in colorado, durham said she’s had a lot more communication with her grow clients because of emerging issues with the state’s excise tax.
“if you are selling to an affiliated party, you have to use the average market rate that colorado publishes,” she explained. “so, if you grow retail marijuana, the first time it moves out of the grow, you have to pay 15 percent to the state of colorado.”
that percentage is based on the value of whatever you transferred, durham said, and colorado has published different values for flower versus bud versus shake, whether it’s wet or dry.
“my cost accountant says this is a commodity market where volatility can be high,” she said. “we have clients who are struggling to pay the excise tax because it is higher than what they can actually sell it for. growers are really getting hurt.”
durham also advises her clients to behave as if they will get audited.
“anybody who has a license in the state of colorado, if they are a true marijuana company, they show up on a list that is visible. i tell them, ‘assume you are going to get audited.’”
she encourages her clients to have their records ready and to keep them clean. durham had two clients who went through irs audits last year and she said it was a positive experience because they were transparent, upfront and made tweaks that the irs required.
“we want our clients to do things right,” she said. “we want to represent people who are wanting to be honest and open and upfront.”
that said, durham is careful about who she takes on as a client.
“we have to have extra due diligence with our clients,” she said. “if it feels like somebody is trying to hide something or they are not answering questions, in this industry it is important to go with our gut. everything has to be on the table.”