5 minute read
Finance
Don’t Go Down With the Ship
Photo: iStockphoto.com/Planet Flem By Adam Benko and Brian Mayfield How to Create a Cash Influx for Your Cannabis Business During Hard Times
In today’s uncertain world, it can be harder than ever to keep your cannabis business in the green — and we don’t just mean flower. Whether your business has hit a rough patch, or you’re just looking to drive revenue, more green means more growth for your business overall.
Curious how to maximize cash flow to your business? These five expert-approved tips can increase the green in your cannabis business without drastically increasing spending.
Affordability Through Auditing
There’s never a bad time to take stock of your business, especially if you’re looking to minimize costs and spending. Costs of Goods (COGS), refers to the total cost it takes to produce your end product. While this varies based on where your business lies in the cannabis supply chain, these costs can include everything from: • Energy consumption and grow-related costs • Labor costs • Insurance costs • Payment processing costs • Payroll costs • Tech-stack costs
Performing routine audits on your cannabis business can help you stay up to date and compliant, but it can also help you take stock of your spending and ensure you aren’t losing out on savings. What does a thorough audit encompass? Any area you spend money. Break it down into three main areas to make it easy.
Consider your usage, including water and energy consumption (as a business and the energy your equipment uses individually). Then consider if those numbers match up with what makes sense for your business.
Review your business’s additional finances with eagle eyes and consider that the small things add up. Take a deep dive into the costs associated with running your business, including subscription services, software purchases, “niceto-have” resources, and other “extras.”
Finally, consider your retail and staff-related expenses. What products are you spending big on? How can you make packaging more affordable or eco-friendly? Are there better or new options available on the market that can help you manage costs? Ensure that you’re getting an equitable return on the products and
positions you spend the most on and track how those expenses have grown or changed over time.
Take Advantage of Tax Credits
If you’ve already taken a thorough audit of your business, you’ve likely looked into your past taxes (if you haven’t, now is a great time). But how do you identify these opportunities if you’re not a tax expert?
Thankfully, the IRS has recently expanded the information and resources available to cannabis businesses. While some of the information is region-specific, states that are well-established leaders in the legal market have also begun to provide great resources on how to identify and make the most out of tax credit opportunities.
While you should always consult an accountant who knows the ins and outs of the cannabis industry, there’s certainly no lack of opportunity for savvy cannabis business owners. For example, cannabis business owners can deduct their cost of goods sold, which is basically the cost of their inventory in most situations, according to the IRS.
Securing Extra Funding and Exploring Project-Based Lending Opportunities
The cannabis industry is the next frontier and everyone wants in. If you need to weather the storm to outlast your competition or even acquire your competition, securing funding from loans is a viable option. There are more funding opportunities than ever available to cannabis businesses, and you don’t need to be an industry newbie to secure it. As more celebrities have cashed in on the cannabis industry train, they’ve brought their wallets along with them.
For example, The Founders Fund, founded by PayPal Co-founder Peter Thiel, became the first institutional investor to fund the legal marijuana market. In April 2015, the fund served as the primary investor in a $75 million Series B financing round for Privateer Holding. Other notable names supplying funding for cannabis businesses are Snoop Dogg, Tommy Chong, and Martha Stewart.
Of course, traditional funding avenues exist as well. Crowdfunding has gained traction in recent years and providers like StartEngine to Wefunder are great options for securing investments.
Pump Up Your Revenue
Sometimes the best business advice is the most simple: one of the best ways to boost your business cash flow is to increase your income overall at the top and bottom line. You need to examine your revenue at two levels. The top line refers to a company’s revenues or total sales, whereas the bottom line represents a company’s net income after expenses have been deducted from revenues.
Boosting your top line happens by increasing sales and cutting out areas that aren’t driving maximum revenue. A great way to do this is to invest in strong marketing strategies, including search engine optimization (SEO) tactics or digital advertising, to maximize your business’s exposure to current and potential customers.
Boosting your bottom line is more complex, as higher net income doesn’t necessarily translate into a fatter bottom line. This is where maxing out your top-line revenue and cutting costs through auditing becomes key. Focus on keeping costs and spending low while boosting your top line as much as possible.
Upgrade Your Banking System and Opt for a Lower Rate
It’s true, many banks are very particular about working with cannabis companies. But that doesn’t mean you should settle for working with a bank or payment processing merchant that doesn’t meet your needs. Many business owners assume their bank has the best rates and features out there and that often isn’t true.
If you find your bank often charges high treasury fees or your merchant processing service is charging hefty transaction fees, it might be time to make the switch. Consider working with banks that have experience with cannabis brands and look into merchant processing services that offer cash back rewards for each card and credit purchase made. ❖
Photo: iStockphoto.com/Planet Flem
Brian Mayfield (left) and Adam Benko are co-founders of MJstack, a cannatech consulting service pairing cultivators and retailers with technology partners.