Which way should you turn? Without an understanding of where you’ve been and where you’re headed, the next path you choose for your cannabis company could be the wrong one. Businesses need reliable, timely information to help guide decision-making and make the right strategic moves. Do you have the resources and cash to expand at this point? Or should you buckle down and rethink some of your plans?
To answer these questions with confidence, finances need to be set up properly. But doing that can be easier said than done. Cannabis companies have had to act fast to get to market. Perhaps you had a great idea for a niche business or saw an untapped opportunity in your state, and you went for it, planning to properly build your business as you went along. The issue now? The financial foundation of your company is likely barely developed.
Just as you wouldn’t move into a house without first investigating its structural soundness, you should ensure the financial pylons of your business are solid. If you don’t have a way of recording, reviewing, and forecasting what your business is up to, there’s a weakness in any decision you make.
Putting the Company on Solid Ground
Running a business successfully requires having access, at a moment’s notice, to what is going on at your company today and how—if you keep things going the way they are—it is likely to perform in the future. While this premise may seem simple, some young companies grow so fast that they are missing out on critical ways of keeping tabs on business performance. They’re not recording a history that could inform future decisions.
Consider a cannabis company that has never closed its books. It’s not only going to have to scramble if it ever wants to show investors audited financial statements, but even more pressing is the fact that it’s operating blindly. You need historical data to make smart, proactive decisions and to know whether you need to shift gears entirely if something goes awry, like an economic downturn or a regulatory change that directly affects your business.
Indeed, to grow and thrive in this fast-paced industry, the leadership team needs a clear view. Can you afford to make a new investment in equipment, or is it time to ramp up your marketing efforts? Which is the better choice? Do you have enough cash on hand to keep paying your suppliers week after week? These questions can be answered when you have a solid financial foundation in place. Here are five essentials for understanding and empowering the finance side of your business.
Systems and Processes for Your Company’s Needs
This is a must for getting at reliable, timely information so that you can run the day-to-day operations and manage cash flow.
Is the data you’re gathering consistently input? Are you trying to make sense of multiple spreadsheets, or does one accounting system provide everyone on the team the same sense of how the business is doing today? With so many moving parts, you need to know where everything—from your cash position to the ongoing costs that go into your products or services—stands currently. You also need to have a way of using that information to carry out scenario planning and make decisions about tomorrow.
Depending on the size and complexity of the business, you may start out with a popular accounting system for smaller companies, like QuickBooks, before investing in a larger system.
The Right Finance and Accounting Team
There is no one-size-fits-all finance function. Generally, your finance team needs a mix of financial and operational experience and the ability to grow as the company does. A part-time controller could help you develop trustworthy reporting and documentation. A combination of in-house and outsourced accounting finance team professionals could provide flexibility and full access to the kind of senior-level expertise the company needs as it’s finding its way.
Metrics that Matter
To understand the health of your business, establish metrics that can be recorded and reviewed for progress. Examples include yield per plant, revenue per customer, and cost per unit. Keep the team apprised of key metrics and who is responsible for what.
Financial Literacy
A high-level understanding of what’s happening financially in the business will help you make wise choices. What’s an income statement, and what does it mean for your business? What’s the cost of running the business? What’s the cost of goods sold? You don’t need to be an accountant to know these answers—you need to surround yourself with people who can help you figure it out.
If you’re interested in pursuing a career in finance, consider exploring the financial side of business by undergoing comprehensive training to become a business broker.
Accountability
Look at the results that come in. If they don’t live up to expectations, what’s the next step? The informational trail you’re creating can help to explain the reasoning behind what has happened and to understand what the company’s move should be in response.
The ability to properly track and record your company’s finances is not just about accessing up-to-date information. It’s about getting information that is actionable. Such data sets up the company to be responsive to changes in market demand, competitive pressure, and shifts in regulations. It’s a key way to set up your company to be more insightful and proactive—and to grow.
