The pandemic brought an unexpected boon for some in the industry, and those cannabis businesses are beginning to profit from all the opportunities to grow. In fact, industry insiders predict state tax cannabis revenues to reach $12 billion by 2030, carrying many states once pandemic relief dries up.
At the same time, other cannabis operations are struggling to find ways to stay afloat. But with a projected $12 billion in revenue, someone is profiting from all this cannabis opportunity.
For those companies who need to get through the tough times, we’re here to help. But first, what’s the difference between revenue and profit? People use these terms interchangeably in error, and while revenue and profit are essential metrics for a business, they are not the same.
The total income rendered through sales related to your cannabis operation
What remains after accounting for expenses, debts, and operating costs
What’s the secret to maximizing your cannabis profits? A budget.
A clear and concise budget showing your projected revenue and expenses will help you manage your money better, avoid cash flow problems, and in turn, profit. Because your cannabis business has limited financing options, managing a workable budget is even more critical.
A budget enables you to understand maximizing profits by cutting costs and reinvesting that cash into growing the business. Unexpected high expenses are also more easily discovered and investigated appropriately.
Here are the strategies used by leading cannabis companies to better manage budgets and increase profitability:
Setting Up a Rainy-Day Fund
Budgeting for a rainy-day fund is critical. For some businesses, Hurricane Harvey in 2017 caused damages to the tune of $180 billion. Other small businesses without insurance met their end. About 200,000 small businesses suffered permanent closures in 2020, including cannabis operators. What’s a rainy day look like for your organization?
It doesn’t take a natural disaster to ruin your year. Losing a key employee or becoming the victim of a cyberattack, there’s no limit to unforeseen events that happen to other businesses every day that could result in a severe setback if it happened to your business.
Take the next step by allocating a specific dollar amount to be transferred consistently to the rainy day fund to surf the tide to avoid cutting into profits to survive.
Scaling Back on Expenses
Analyze expenses and look for ways to cut costs. Large discount vendors are often friendlier priced than traditional office supply vendors. Reach out to vendors to inform them that you’re price shopping, and you might be surprised with a discount.
Shop for low-cost insurance providers and ask current providers to price-match. Analyze insurance policies for areas you might be over-insured and talk to your broker for adjustments.
Better Tracking of Business Expenses
Small businesses often fail due to poor expense tracking, leading to a lack of working capital. When you incur business expenses, capture the receipt with a receipt scanner for proper accounting that will save you time and money when it’s time to file taxes.
Use accounting software that will help you categorize all business expenses and transactions. As a result, you’ll get useful reports that tell you the financial standing of your business.
Categorizing expenses and accounting for costs are easily achieved using the right technology. Connect your finances to your accounting software to import all transactions automatically. You’ll only need to categorize the expenses, link to their receipts, and spend less time bookkeeping.
Keeping Payment Deadlines
One way to incur extra costs is to pay bills late. Many expenses will cost you interest or penalties if you pay them late, from loan repayments to credit card bills to high-interest rates. With most of your monthly expenses, you should be able to opt for automatic payments to leave no room for late payments.
Whether weekly or monthly, schedule a time to maintain the budget. Don’t forget to make a habit of scheduling a time to pay bills and keep your budget looking good too. This routine will prevent you from falling behind. Your accounting software should also send you reminders so you can ensure you have the required funds on hand.
A wise cannabis operator leverages the right devices to make their business successful. A budget is one of those tools too many cannabis companies neglect. Proper budget management doesn’t just require cost-cutting, but is supported by a rainy-day fund, monitoring expenses, and the right technology to keep bills paid on time.