The legal cannabis market in the United States is relatively new, but it is growing incredibly quickly. Experts estimate that it will be worth over $25 billion by 2025. Over 75% of all global cannabis sales will be made in the United States by that time.
Although the cannabis industry is ripe with opportunities, it is not without risks. Cannabis retailers need to recognize the challenges they face and take appropriate measures to prepare for them.
One of the most essential steps cannabis retailers must take is practicing sound financial management. Proper financial management practices can save a lot of frustrations and maximize the future profitability of your cannabis business. This includes monitoring financial records carefully and using the right payment tools.
“The legal cannabis industry is still a work in progress and dealing with financial restrictions remains a challenge. Cannabis companies can’t successfully navigate the legalities of processing payments and managing finances without the right technology at their disposal,” says Kolas.com, a retailer of Platinum Gummies.
Some of the most important financial tips are listed below.
Make executive decisions based on crucial financial metrics.
Many people attracted to the cannabis industry tend to make impulsive decisions and are guided by whimsical principles. If those qualities apply to you, then you’re going to need to keep them in check.
The failure rate of cannabis businesses is very high. Some experts estimate it is around 40%, while others have stated it is around 97%. Your chances of failure are a lot higher if you make decisions based on feelings.
Instead, you will need to make business decisions based on reliable financial data. The best way to do this is by reviewing critical financial metrics.
You need to look at inventory turnover and gross profit margins of different products in your inventory. You need to be careful about stocking inventory just because it appeals to you or sounds like something customers might want. Your financial data will tell you whether these lines of cannabis products are profitable. If they aren’t, you need to remove them from your store and replace them with inventory that will boost your revenue.
Take stringent measures to prevent shrinkage.
Shrinkage is a severe concern in the cannabis industry for various reasons. First of all, many employees are attracted to the cannabis industry because they enjoy cannabis themselves. Therefore, those who have substance abuse problems will be more likely to steal your products. Another problem is caused by federal financial prohibitions. Federal law prevents cannabis companies from having standard bank accounts, which means that transactions must be paid for with cash. The massive cash on hand could be tempting for employees to steal.
You must take even stricter precautions to prevent employee theft when running a cannabis business. You must be careful not to appear too trusting to employees. You should have video surveillance systems around the company and let employees know that they are in place. You will also want to carefully count inventory regularly and make sure employees see you doing it. They will be a lot less likely to steal if they realize that you are paying very close attention.
You might also want to consider using a cannabis payment processor. This is an alternative to accepting cash that is also in compliance with federal laws. This can help reduce the amount of money you have on hand and lower the risk of theft.
Be extremely diligent about bookkeeping and compliance.
Bookkeeping is one of the most important aspects of any business. It will be even more critical when you’re running a cannabis business.
The most apparent reason to make sound bookkeeping a priority is that you need to keep track of costs and identify possible sources of waste. However, proper bookkeeping is also essential for compliance. Cannabis businesses are scrutinized even more closely by regulators, tax authorities, and other officials than most other companies. The problem is that federal regulators might want to hassle cannabis businesses since it is still illegal at the federal level. The cash nature of cannabis businesses also means the IRS is more likely to audit them.
You are going to need to be very diligent about recording all transactions. You don’t want to be shy about hiring a professional bookkeeper if you need to. It is a lot better than being blindsided by a tax auditor or a visit from a compliance officer.
Understand your financing options when you need to raise additional cash
Every business is going to go through feast and famine cycles. You’re going to have times when your business is short on cash. You will need to find ways to raise the money to meet payroll and other expenses.
A lot of factors need to be taken into consideration when raising cash. First, you need to consider different financing options and weigh them accordingly. Some financiers will charge higher interest rates but be more flexible with payment terms. Others might have lower interest rates but are very strict about who they issue money to. You will need to list all prospective financers and decide which are most cost-effective and flexible.
