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Mastering Cash Flow Management

The legalization of cannabis in Canada has generated a massive opportunity for entrepreneurs, with the industry now valued at an astonishing $4.3 billion.

To succeed in this booming sector, cannabis retailers must prioritize crucial aspects of their businesses such as effective record-keeping, cash flow projections, maintaining cash reserves, and establishing strong banking relationships. Fortunately, numerous tools and strategies exist to help retailers manage incoming and outgoing funds. Helene Vassos, CEO of the successful Canvas Cannabis brand for the past three years, shares valuable cash flow tips for both new and existing cannabis retailers.

Implement a Robust Record-Keeping System

According to Vassos, “The Canadian cannabis industry is one of the most highly regulated industries in Canada. As such, record-keeping is not only helpful, but also mandatory.” Accurate tracking of daily cash transactions, including sales, expenses, and payments to suppliers and employees, is necessary for monitoring cash flow and understanding the financial status of the business. Effective record-keeping is also vital for complying with regulations and ensuring long-term financial health. Vassos adds, “The time and cost of setting up proper record-keeping procedures will pay off in the long term.”

Forecast Your Cannabis Cash Flow

Cash flow projections are essential to manage finances. They help anticipate income and expenses, identify potential cash shortfalls, and enable operational adjustments. Forecasting provides a clear picture of financial health, informs decisions, and optimizes cash flow, which is crucial in an unpredictable industry like cannabis. Additionally, these projections enable retailers to evaluate the effectiveness of their marketing efforts, manage seasonal fluctuations, and identify growth opportunities. By continually refining their cash flow projections based on historical data and market trends, retailers can make data-driven decisions that contribute to the stability and success of their business, even amid the uncertainties of the cannabis industry.

Substantial cash reserves may be necessary to weather unexpected economic downturns.

Maintain Sufficient Cash Reserves

Retailers should have enough cash reserves to cover unforeseen expenses or short-term cash flow issues. Vassos says, “In today’s competitive market, it is not unusual for some stores to take up to nine months to become cash flow positive.” For store owners, having substantial cash reserves may be necessary to weather unexpected economic downturns or other challenges, such as supply chain disruptions, regulatory changes, or increased competition. Building a robust financial safety net allows businesses to maintain operations and invest in growth opportunities during difficult times, ultimately strengthening a retailer’s position in the market and increasing their resilience to external pressures.

Streamline Inventory Management

Managing inventory is a key factor in ensuring a steady cash flow. Proper inventory management helps prevent overstocking or understocking of products, which can lead to lost sales, tied-up capital, or dissatisfied customers. Utilizing inventory management software and conducting regular stock audits can further improve accuracy and streamline the process. Vassos advises that retailers should have enough stock to ensure no client leaves the store empty-handed, as keeping clients happy and retaining them should be a priority. “Otherwise they will just walk across the street to another store,” she says. In this regard, understanding consumer preferences, market trends, and seasonal fluctuations is crucial to maintaining optimal inventory levels and ultimately fostering customer loyalty, which contributes to the business’s long-term success and financial stability.

Establish Relationships with Canadian Banks

Cultivating relationships with Canadian banks willing to work with cannabis businesses can be an excellent way to secure loans, lines of credit, or other financial services to support cash flow needs. Vassos mentions that some of the Big Four banks charge higher fees to cannabis retailers due to the perceived risk associated with the industry. As a result, sometimes the only viable option for a cannabis retailer is to explore alternatives such as trust companies like Community Savings in British Columbia or smaller banks like Alterna in Ontario. “Alterna has provided great service to the majority of the cannabis retailers in Ontario, without overcharging for their services,” notes Vassos.

Monitor and Control Expenses

Keeping a close eye on expenses and looking for ways to cut costs without sacrificing quality or customer service is essential for the success of any business. Vassos emphasizes the importance of focusing on aspects like payroll and talent when managing expenses.

Cut costs without sacrificing quality or customer service.

“At the end of the day, we are all purchasing our products from the Ontario Cannabis Store, at the same price,” Vassos explains. “As such you cannot control your cost of goods sold, but keeping an eye on your payroll to ensure that the talent you attract supports your business strategy, is the key to making sure your business stays cash flow positive.”

By regularly evaluating and optimizing staffing levels, employee productivity, and resource allocation, businesses can ensure they are operating efficiently and minimizing unnecessary costs.

Develop Contingency Plans

Identifying potential risks and developing a plan to mitigate their impact on the business’s cash flow is crucial. Implementing financial strategies such as establishing a line of credit or securing short-term loans can help ensure access to cash during times of financial strain.

For businesses struggling with financial and regulatory reporting, working with an experienced accountant may be necessary. An accountant can help store owners improve operational efficiency, ensure compliance with regulatory requirements, establish a strong bookkeeping and accounting process, and manage taxes.

As the sector continues to evolve, retailers who adopt these best practices will be well-positioned to adapt to changing market conditions, capitalize on new opportunities, and achieve long-term financial stability.

Vassos emphasizes that success in the cannabis retail market requires diligence, flexibility, and a strong focus on financial management. By prioritizing these essential areas, cannabis retailers can secure their place in this competitive landscape and contribute to the ongoing growth and development of the industry.

Tags: Alterna (1), cannabis banking (2), Cannabis Retail (394), cannabis retail profitability strategies (2), Community Savings Credit Union (2), controlling retail expenses (1), Karen Lloyd (1), managing cash flow (1), streamlining inventory (1)