Cash flow planning is tough for most

Cash flow planning is one of the hardest and most neglected tasks for most businesses.  And yet it is also one of the most essential requirements for your cannabusiness’s success.  How many businesses do you know that failed because their bills got ahead of them and they ran out of cash?   There are many and you don’t want to be one of them. Here’s what often happens.  A company (let’s say a dispensary) gets started, maybe with some seed money.  If they are doing it right, they have already developed a budget of start-up costs and have been monitoring that budget as they spend, to be sure they don’t run out of resources before they open.  The dispensary opens and very quickly there is a flood of cash sitting in a bank account or in a vault.  Owners and managers may make decisions based on the cash they have available at a given moment in time, without thinking ahead to future cash needs.  Perhaps they make distributions to owners, or they buy more equipment.  Maybe they invest in an expanded variety of inventory.  There’s nothing wrong with these decisions as long as you have planned for future expenses. So how do you do it?  How do you plan for cash needs several months down the road?  It sort of goes back to that budget I mentioned in a previous blog but you are budgeting cash instead of net income.  You’re also doing it in smaller timeline increments, that is weekly, instead of monthly.  Common methodology in business is to do a 13-week cash flow projection.  What’s magic about 13...

“Yeah, we have a budget around here somewhere….”

Likely when you started out with your cannabis business, or were contemplating a start, you prepared some kind of budget or projection, something that you thought would tell you if your idea was feasible. Maybe you didn’t prepare it yourself but had a consultant or friend do it. The budget looked good, and off you went to get started in entrepreneurship. Life got crazy, and you never pulled the budget out again. A budget or proforma (used interchangeably here) is what nerds like me like to call a “working document”. That’s because we work on it all the time. Over the past many years, I started a number of new businesses. The very first step, after the concept of the business was determined, was to create a proforma. A proforma is basically a budget that projects what you expect your business to do in detailed financial terms. I always prepared proformas showing month by month activity and usually projected out 5 years. That document was hugely important to getting the business off the ground because it was the primary piece of information presented to potential investors and to bankers from whom we were seeking financing. The use of the budget didn’t stop after our business was open and operating. I tweaked it constantly throughout the project development phase and well into the first few years of operations. Until the business was clearly on track to meet or exceed the budget, I compared our actual financial results to the budget, to determine where we were on track and where things were not working out as we expected. It helped us...