The cannabis industry has experienced exponential growth as adult use has become legalized in many states over the last few years. If you’re considering opening a cannabis dispensary, you need a strong financial foundation.
It’s best to start with a robust and detailed business plan, which is the first step to state licensing. This plan can also help you attract investors!
Keep reading to learn our tips on building a solid financial foundation for dispensaries.
Create a Business Strategy
Studies show that entrepreneurs with a solid business plan are twice as likely to grow their business than those without a business plan.
Think of your business plan as your business’s story. It defines your goals and how you plan to achieve them. What are the steps? What is your process? The more detailed, the better.
Within your business plan, it’s essential to identify you’re unique selling point. In other words, you’ll want to define your niche. You’ll also want to address expansion plans. Not every cannabis business is looking to scale, however. Some maintain a “mom-and-pop” operation, while others prefer to expand to have multiple locations in various states.
Regardless of how small or big you want your company to be, it’s necessary to have a basic understanding of what’s important in terms of keeping the business running.
Track and Analyze Key Metrics
Every business has statistics that need to be tracked and analyzed. In your business plan, you’ll want to cover key metrics, such as inventory, cash flow, store traffic, etc. You’ll want to include fixed costs like the rent, equipment, site security, and variable costs, such as electricity.
Tracking and analyzing these metrics show which areas need improvement and identify projected operating costs. The average yield and amount of product your cannabis dispensary generates are crucial factors in understanding how to run this type of business.
Interested third parties, such as investors, will also want to be able to see these metrics in writing. Additionally, most investors will thoroughly research the competition before committing to your business, so make sure you complete a competitive analysis.
Outsource Your Accounting
After you compile all your metrics and statistics for the business, you can either choose to interpret them yourself or hire a professional to do it.
Correctly analyzing your data is very important for identifying inefficiencies. You may see significant revenue, but you need to be aware of the tax implications and other expenses, keeping in mind that your revenue is what’s left after all expenses are paid.
It’s not always easy to look at your own business from an objective standpoint. This is where an outsourced CPA or accountant is helpful. Not only can a good accountant help you stay on track, but they offer advice and suggestions on where you need to cut back.
Consider Tax Implications and Audit Risks
Although you may feel like hiring a CPA is just another added expense, it’s worth the investment as the cannabis industry can be extremely difficult to navigate.
Look for an accounting firm that specializes in cannabis. Businesses in the cannabis industry are under IRS scrutiny. IRS Tax Code 280E states that “no deduction or credit shall be allowed in running a business that consists of trafficking a controlled substance” – this makes taxes complex and challenging if you don’t know what you’re doing.
You’ll want to ensure there are no mistakes that can lead to costly tax consequences of errors that lead to an audit. In addition, outsourcing the task of bookkeeping and accounting frees up your time to focus on creating your business.
When building a solid foundation for your cannabis business, keep in mind the following:
1. Define your business model and all the objectives.
2. Find your niche. This is the void in the market you’re trying to fill.
3. Set long-term goals and how you plan to achieve them.
4. Evaluate all product and market decisions.
5. Evaluate market trends.
6. Track and analyze key metrics.
7. Hire a CPA with experience in the cannabis industry.
If handling the financial side of your business seems too complicated for you to handle on your own, click below to schedule a free 30-minute consultation with Green Space Accounting. We will work with your team to improve performance and put effective financial systems in place.