whether you work with cannabis or cbd/hemp businesses, these 6 steps will guide you.
by andrew hunzicker
properly quoting accounting fees is complicated in any industry, but establishing a pricing policy for the wily cannabis and hemp/cbd niches can be especially challenging and overwhelming.
if you find it hard, or even scary, to price your cannabis and hemp/cbd accounting services without undercutting your value, you are not alone.
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many accountants struggle with raising their fees beyond low hourly rates. learning how to
- package your services,
- create clear offers to reflect your value, and
- develop a system for charging appropriately for cleanup, onboarding and ongoing work
will enable you to confidently set your price and find clients who will happily pay it.
here are six easy steps you can take to make sure you’re pricing your cannabis accounting services correctly.
position yourself as a premier provider
stop charging for your hours and start charging for the value of your work. this is a complicated numbers game with ever-changing rules and regulations. navigating compliance, dealing with buggy software issues and managing cleanup are not simple tasks. navigating these complexities requires elite, niche-trained accounting professionals.
invest your time and resources into acquiring the knowledge, tools and systems that help position you as a premier provider in the space with expertise in cannabis/cbd/hemp accounting, tax, operations, software, banking and other services. this defines your role as a proactive partner, rather than a reactive recordkeeper. by offering insight into the ever-changing cannabis industry, as well as establishing clear systems and processes, you are serving as both an accountant/bookkeeper and advisor. this elevates your standing in the company, nurtures relationships with your clients and increases your earning potential.
show how your offerings provide what ceos and owners want and need
many ceos and business owners will tell you what they think they want (tax return filings, reports, bookkeeping, etc.), and may try to dictate your fees based on their understanding of your role. it’s important to convey to prospects the systems and processes that you have in place that will bring massive value to their companies. also, don’t be afraid to let them know that because you bring such high value, your services will not come cheap.
i’ve worked with hundreds of owners over the years, and they all want and value these key deliverables:
- improved cash flow: cash can be tight in this niche. company owners and ceos need ways to closely monitor and predict cash flows. one of the greatest misconceptions of cannabis businesses is that they are cash-flow-positive, especially because they tend to generate such high revenues, but unfortunately, being profitable is not always the case. ceos need your support in understanding and predicting cash flows so that they can properly manage their business.
- lower taxes: tax filings for businesses in these niches are complex, requiring solid cost accounting and processes throughout the year. owners need their taxes done correctly to minimize what they owe without creating a future liability. they must also know how to do this legally so that they are complying with 280e. the only way to do this right is to comply with gaap for inventory and do ongoing accrual cost accounting according to 471-11.
- high-level reporting: with proper and robust reporting practices, your client is able to more efficiently run and grow their business. it will also be easier to identify and mitigate risks, as well as communicate vital data to board members, investors and lenders. this intensive and elevated reporting is much more than the basic balance sheet and p&l ceos might be expecting.
- world-class accounting: correct gaap and tax (irc 471) cost accounting, a perpetual data room, strong internal controls and a permanent audit trail will help keep these ceos out of financial and legal trouble, and provide much more transparency to investors and stakeholders. this level of service adds value to the day-to-day operations, provides significant value at exit and is also necessary to stay compliant while cannabis remains on schedule 1.
- peace of mind: your clients need to have confidence in you and your systems, so they can focus on their brand and growth. your services should ease their pains about accounting so they can sleep at night, knowing you’ve got it handled.
adopt an “alpha” mentality
now is the time to assert yourself. your responsibility is to lead the client through the accounting process (not the other way around!).
if that’s hard to wrap your mind around, here’s a tip: adopt the mindset that you are busy and will only accept great clients. interview your clients like you are hiring them, not vice versa. bringing this mindset to your first interactions can alleviate tensions as you secure new clients, as well as increase the probability for higher pricing and smoother client servicing moving forward.
playing hard to get, being confident and remaining assertive will actually make clients want to work with you more. it also has the potential to earn you the respect of the ceo and business owner, as they could see you from the outset as an equal or a partner, not an employee. by taking control of your initial phone calls and meetings, you also avoid a drawn-out sales cycle. you lead the potential client into a swift “yes” or “no,” which saves you valuable time and energy.
ask the right questions, select the right clients
you must ask the right questions of cannabis and hemp/cbd ceos and owners if you have any hope of pricing the engagement correctly.
some of the main questions we recommend asking before you send an offer letter to a prospective client:
- how many legal entities are there?
- how many employees are working for the company?
- what are the forward 12-month expected revenues (and years two and three if it’s a startup)?
- what accounting system is currently in use?
- what, if any, accountants or bookkeepers do you have in house and/or outsourced?
- how long have you been in business?
- have previous tax returns been filed in a timely manner?
- what financials and reports are currently being completed?
- any “big” items planned ahead (exits, acquisitions, etc.)?
- any non-accounting compliance work needed?
- do you have all of your organization’s documents in an organized place that is easy to access for an auditor? (leases, bank account information, etc.)
as your potential clients provide the necessary answers, you can build out a picture of their business, their current problems and your initial scope of work. their answers will also help you determine if they are a good fit for your practice. because you are “hiring” them, are they a good client?
ideal clients usually have seven-figure revenues currently, or will in the near future. they understand you charge a high hourly rate for cleanup to ensure they are compliant, and are receptive to answering the above questions (as well as any additional inquiries you may have). these are often the clients who happily pay higher fees in return for your niche-trained expertise.
setting your price
pricing is directly correlated to the value you provide. if you fail to offer a service that addresses the cannabis ceo’s key needs outlined in step 3, clients will not value you or your work. they will likely look at you as a commodity and treat you like an employee.
so how do you price your esteemed services?
- value pricing: don’t charge hourly for your services. take into account multiple variables including forward revenues, number of entities, number of employees, number of verticals and complexity of work. armed with that data, set your price high enough to ensure you make a good return on your efforts and can hire help in the future if the need arises.
- increase your fees over time and with company growth: implement systems and communicate with your clients that you will review their engagement quarterly so that you can set the stage for ongoing fee increases. managing this expectation up front is imperative, so that you aren’t trapped by an early estimate; if your initial price was too low for the scope of work, you can reassess three months in. additionally, as the company grows, so should your fee.
- adjust your estimates for unknowns: based on your initial call with your client and the information provided, determine a fee that you deem appropriate, and then apply an increase of 20 percent to account for the hours of work you might not foresee. for example, if you think $5,000 per month is what you estimate for your services, quote $6,000 in your offer letter, especially in the beginning as you get started. there are almost always unknown “surprises” in cannabis/cbd/hemp companies and you want to plan for them up front.
- base your fees on benefits, not tasks: know the difference between benefits and tasks for your services when communicating value to potential clients. tasks are aspects of your services; these could be technical or descriptive. benefits are why those tasks matter for your clients. if you have the tools, systems, training and a supportive, knowledgeable network, you can justify a higher pricing policy.
- position your services as an investment: as a general rule in cannabis and hemp/cbd, for every $1 million in forward revenue, assume a minimum price of $20,000 to $40,000 per year for complete accounting and tax services, as there are simply more challenges for us as accountants in this niche than most. as more complexities arise (number of entities, consolidations, etc.), that minimum amount will increase. also, if you are able to back up your bid with world-class client service, assume the value of all the services you add to the business over time is at least 10-15 percent of entity value, meaning your fee is an investment for the client, not just a cost.
- personalize your pricing structure: look at your current situation. what level of “need” do you have to close this prospect? are you just getting your feet wet and eager for your first cannabis client? or do you have a full accounting practice and are not sure you want a new client? where you are on this continuum will affect the final price quoted. if you are desperate for work and think a fair price is $5,000 a month, you could offer $3,500 to land the job. conversely, if you are going to rotate out a client you no longer wish to serve for this new prospect, you might bid $7,000 per month for the same job. if you decide to take lower-priced engagements initially, simply rotate them out with higher-paying clients later (or increase your prices).
send your offer letter
offer letters should focus on communicating the benefits of value-add services and deliverables. your exact list of service offerings and packages should be outlined to showcase the value you will provide, along with the accompanying fee you will charge.
with the proper training, great tools, workpapers, systems and supportive network, you can become the expert keeping ceos compliant and helping them sleep at night. many of these business owners are newer to the niche or do not understand the complexities involved with proper cannabis and hemp/cbd accounting, so you will be an essential asset and worthwhile investment.
convincing them that you will be an asset is the clincher. when you properly explain your rationale and demonstrate your value in your offer letter, the prospective client is left with two possible answers: “yes” or “no.”
if the answer is “no,” you are saved from the headache of working for a client who doesn’t appreciate your efforts. you can move on to another prospect who will be a better fit for you and your firm.
if the answer is “yes,” it’s time to get to work! start proving your value and earning your desired fees.