3 Simple Steps You Can Take to Improve Cashflow in Your Cannabis Business

3 Simple Steps You Can Take to Improve Cashflow in Your Cannabis Business

Recent inflationary pressures have put an added strain on marijuana businesses, especially those that have just opened.

Many cannabusinesses, especially in states like California, were already finding it hard to balance the books due to onerous tax obligations, compliance requirements, and licensing fees. This hasn’t been helped by IRC Code 280E which prevents marijuana businesses from deducting ordinary expenses from their tax bill.

Now, on top of these, higher costs for goods and services have led many cannabusiness owners to worry how they’ll pay their bills. Even though many marijuana businesses are hyper-local, supply chain issues have also started to have an impact.

To help ride out the storm, one of the best things you can do for your cannabusiness is to improve its cash flow. Here’s three simple steps you can take to help money move into your business quicker while slowing down your expenditures, so that you always have enough at hand to cover your expenses.

1. Collect from customers quickly

This seems obvious but many business wait weeks, if not longer, until invoicing a customer. This, in turn, results in delayed payments or confusion that could lead to non-payment.

Ensure you include a date on the invoice by which it must be paid, then follow up if the customer fails to abide by this and inform them that further delays will result in a surcharge.

You should consider other credit terms as well, such as requesting a deposit upfront or offering a discount for timely payment.

2. Take your time paying vendors

The inverse of this is to slow down your own payments to vendors. Of course, you should always pay on time but don’t rush to pay before it is absolutely necessary.

A lot of businesses pay an invoice as soon as they receive it, then find later that they have a more urgent bill and they don’t have the cash to cover it.

Waiting until your bills are due ensures you have as much money at hand as possible at any given time.

3. Follow the 80/20 rule for inventory

The 80/20 rule applied to inventory suggests that 80 percent of a company’s profits comes from 20 percent of its products.

This is, of course, more of a guide as it encourages you to think which inventory is most valuable to your business and then prioritize these.

Don’t purchase too much inventory that doesn’t generate as many sales, as this just ties up your cash. Instead, consider getting rid of excess inventory by selling it at a discount. This will increase your cash flow quickly and free up space for higher value inventory.

These are three simple but effective measures you can take to immediately boost your cannabusiness’ cash flow, to help ensure you make it through this current wave of inflation.

About Brian Ellis

With 6 years' experience in business journalism, Brian is the person we turn to for anything related to the business of cannabis. His news coverage spans topics including marijuana business and finance. Brian's work features on marijuanareferral.com, marijuanamerchantaccount.com and marijuanainsuranceagent.com.