Managing cash flow is a challenge if you’re trying to maintain it for financial stability. Without a stable cash flow system in place, your business may have more money going out than in. This can lead you to have less money that your business needs to grow and thrive.
If you’re having difficulty successfully managing your cash flow to grow and maintain the stability your business needs, keep reading for more.
This guide provides ways and promising strategies for managing cash flow for cannabis businesses.
Challenges In Cash Flow Management For Cannabis Businesses
What’s the problem with sustaining and utilizing proper cash flow management for cannabis businesses?
There are some problems you may know about and we are going to dive into them more in-depth now.
- Regulatory Hurdles: The regulations in the cannabis industry are tight and have a flood of new regulations that pop up every year in different states. With the unwavering uncertainty of the industry, you need to stay ahead by following and complying with your standards or guidelines. Otherwise, you risk receiving fines and fees taxed on your business resulting in more money going out.
- Seasonal Fluctuations: Seasonal fluctuations can occur through the act of supply and demand which can affect cash flow. The market can force your business to increase supply to meet the demands, regardless if you can’t quickly meet these demands or get enough capital to increase at a moment’s notice. Seasons have a lot to do with supply and demand, with the holidays and specific months throughout the year. Whatever the reason for seasonal fluctuations, you need to know how to stay ahead of the market and maintain your cash flow to ensure you don’t miss opportunities or lose money down the road.
- Banking Limitations: Another challenge is the need to have banking to secure your capital and funds. There aren’t many banks serving cannabis companies due to fear of getting into trouble with federal law. This can make it hard to access financial services to help you manage cash flow effectively.
These challenges can hinder you from managing the cash flow of your cannabis company which can lead to negative outcomes. Knowing how to manage your cash flow is essential to growing your finances. Let’s explore the simple practices you need to know to have a healthy cash flow system.
Simple Practices You Need To Know For Managing Cash Flow To Save More
When managing your cash flow, you should understand the simple practices before doing so.
Cash Flow Forecasting
You need to estimate your business’s future sales and expenses that can occur throughout the year. Planning and preparing for these outcomes allows you to make better decisions and maintain financial stability.
To do so, list all your income and the money that goes out on a spreadsheet or accounting software system. Calculate your net income then record it especially if it changes. Keep track of these and keep a running total to plan.
Budgeting And Expense Management
Budgeting and managing expenses properly can ensure you maintain a healthy cash flow system. You need to create budgets, if not in place, and strategies to have a good cash flow process.
Start by tracking and categorizing expenses, accessing your current financial status, and setting up a monthly spending budget. Then track your progress.
Revenue Management
You should manage your revenue streams and accounts receivable to optimize finances and cash flow.
To accomplish this, segment your customer base, leverage revenue management tools, analyze the market, focus on customer retention, and more. These are a few you can do to utilize revenue management.
Inventory Management
For cannabis companies, this is necessary to optimize cash flow and maintain financial stability, especially as tax season comes.
When managing inventory, use methods of FIFO, LIFO, average cost, and weighted average. These methods help you understand your inventory costs and conduct proper financial reporting.
You can then map your inventory flow, incorporate monthly inventory counts, and utilize accrual basis accounting to get insight into maintaining a healthy cash flow system.
Debt Management
Managing your debt is another practice you can utilize to avoid increasing debt.
When conducting debt management, prioritize debts and list them, negotiate with creditors if you have problems paying or seeking better terms, automate payments to avoid late fees, build an emergency fund, and monitor financial health regularly.
Easy Ways To Manage Your Cash Flow
Now you know the practices you can utilize in your business, you can start managing your cash flow.
- Establishing Cash Flow Policies: Develop clear cash flow policies and procedures tailored to the needs of your cannabis business. Those involved with the cash flow activities should follow these policies to ensure transparency and stability of the business finances.
- Building Reserves: You need to build cash reserves to buffer against unforeseen expenses or downturns in revenue.
- Regular Monitoring And Review: You should continuously monitor and review cash flow metrics to identify trends and make timely adjustments. Keeping a record of this can give you immense insight into a healthy cash flow process.
These are some ways you can manage your cash flow to ensure you keep everything in order so that no surprises come your way.
Tools For Cash Flow Management
Explore tools to minimize the work of conducting proper cash flow management.
Cash Flow Software
You can use software integrated with a cash flow system to help you manage the process. These can be accounting systems and or standalone ones that can help get the job done. Do your research and uncover the best one for your needs.
Accounting Systems
You can incorporate accounting software such as Bookkeep, 365cannabis, Distru, and others.
These robust accounting systems track cash flow and financial transactions that can make managing cash flow easier.
The Best Way To Manage Cash Flow Without Wasting Your Time
One of the best ways to manage cash flow without wasting your time is to work with a cannabis accountant. An accountant can help make your cash flow process seamless and give you more money back into your business.
At Green Space Accounting, we help you manage your cash flow, which can give you time and money back into your business.
If you want to work with an accountant to accomplish your cash flow issues, you can work with Green Space Accounting through a consultation. We will get more information from you through a thorough online consultation.
Why Your Business Needs A Proper Cash Flow Management Process
Your business needs proper cash flow management to sustain and grow your business efficiently.
Here are some other reasons your business needs it:
Financial Stability
Financial stability minimizes stress from operating your business and allows you to focus on paying for the right business costs. You can also make better predictions on oncoming expenses and income.
Resource Allocation
You can allocate resources in the right places that make your operations run more efficiently and smoothly. By allocating certain budgets into business expenses, you can also optimize your cash flow operations.
Handling Seasonal Variations
You can handle seasonal variations more effectively with a proper cash flow system in place. When seasonal expenses come, you have the budget to support it and other seasonal variations.
Supporting Growth And Expansion
A cash flow process can support your growth and expansion within your business that is sustainable over a long period.
Preparing For Unexpected Expenses
It can also help you prepare for unexpected expenses occurring at various times in your business. A cash flow system should allow you wiggle room to budget for these unexpected expenses that leave your business financially strong.
Closing Thoughts
These are the ways you can start managing your cash flow without spending too much time on it. There are a few methods to consider and utilize to ensure you have a smooth cash flow process.
Whether you want to maintain your finances or keep more money in your business, you have several tools, at your disposal.
Manage Your Cash Flow Today To Get More Money In Your Business
Start managing your cash flow today by working with Green Space Accounting. We are efficient and effective cannabis accountants who know the lay of the land in the cannabis industry.
Book a consultation today!
