Running a cannabis business is not easy. Many established cannabis businesses struggle with managing their finances, and this can often lead to problems down the road. And, in new markets it can be extra challenging to keep your business afloat. Think increased competition and relatively fewer options for suppliers, which makes product more expensive.
With inflation predicted to be just around the corner, mitigating the impacts of rising prices can also prove important. One of the best tricks you can use to avoid these issues, though, is managing and improving your cash flow.
In this blog post, we will discuss the three ways that you can improve cash flow in your cannabis business. By following these tips, you will be able to keep your cannabis business running smoothly and avoid a cash flow crunch!
Collect From Your Customers
The first way to improve cash flow in your cannabis business is by collecting accounts receivable quickly. This means invoice your customers as soon as the product is sold and follow up with them until payment is received. Many businesses make the mistake of waiting too long to invoice their customers, which can often lead to delayed payments or even non-payment. By invoicing your customers quickly, you will be able to ensure that you are paid in a timely manner.
Setting credit terms upfront for customers can also help. You can do this by requiring a deposit upfront or by offering a small discount for early payment. By setting these credit terms, you will be able to encourage your customers to pay their invoices quickly, which will improve your cash flow.
Slow Down Paying Your Vendors
The second way to improve cash flow in your cannabis business is by slowing down the payment of accounts payable. This means that you should not pay your bills until they are due. Many cannabis businesses make the mistake of paying their bills as soon as they receive them, which can often lead to cash flow problems. By waiting to pay your bills until they are due — but not late — you’ll be able to keep more cash in your bank.
Rightsize Inventory by Following the 80/20 Rule
The third way to improve cash flow in your cannabis business is by selling through your inventory. This means that you should only purchase the inventory you need and sell any excess inventory that you have.
Ask yourself what 20 percent of your products generate 80 percent of your sales, and seek to always have these available for sale. Only purchase the other items that generate the other 20 percent of sales on an as-needed basis.
Many cannabis businesses, especially new dispensaries, make the mistake of purchasing too much inventory or holding on to too much inventory, which can tie up a lot of cash.
And, if you find that you do have excess inventory, consider selling it off at a discount. This will help you to free up some cash flow. By selling your excess inventory and tracking your sales on the items customers want you’ll have good data. Use that data on what you sell the most to get inventory off your shelves so that it’s not clogging up your cash flow.
By following these three tips, you will be able to improve cash flow in your cannabis business and avoid a cash flow crunch and any financial disasters! You’ll also mitigate any negative impacts of inflation.
Do you have any other tips for improving cash flow? Let us know in the comments below!
Want to learn more? Speak with us about how we can help you improve cash flow so that you can keep your cannabis businesses rocking and rolling.