Traffic Roots Pixel

Get Your House in Order

Editor’s Note: This item is an excerpt from Marijuana Business Daily’s free report, “Crisis Management in Cannabis.” Click here to download the report.

 

Marijuana companies face tough financial decisions in times of crisis. Cash is king when business is good, and it’s even more important when finances are tight.

The moves you make now won’t just help you during the current coronavirus-induced economic crisis, they will help you come out the other side stronger and more prepared. Here are some tips for how to keep your financial house in order:

 

Understand Your Cash Flow

How much money do you need to survive? That is the first question that needs to be answered, according to financial experts consulted by Marijuana Business Daily.

Companies “need to take a hard look at business plans in conjunction with financial data and current operations to assess short-term liquidity needs,” said Francisco Colon, a partner with California-based accounting firm MGO.

One way to do this is to create a cash-flow budget to project and monitor your cash receipts and disbursements.

Doing this weekly “will provide visibility and the information needed to make cash-management decisions,” said Seth Freeman, San Francisco-based senior managing director of GlassRatner, a national consulting firm focused on restructuring and distressed situations.

 

Optimize Costs

If you lack funds to execute your strategy, the logical thing to do is cut costs. But this move must be done strategically in order to minimize the impact on revenue generation, Colon said.

Begin by identifying removable costs, such as reducing travel, implementing hiring freezes and limiting discretionary spending.

“If there is one silver lining to this pandemic, it is that the virus is already cutting (these) naturally,” Colon said.

For example, more employees are working from home, minimizing travel and discretionary spending. Those decisions are the easy ones. Unfortunately, not all of them will be as simple.

“Make tough decisions quickly,” Freeman advises. “No manager wants to furlough or lay off employees, cancel services or reduce expenses that had seemed essential prior to the crisis.”

That said, making these changes now will give your company more options to hit the ground running when the crisis passes.

 

Optimize Revenue

Even while market demand is in flux, there are opportunities to drive revenue in new ways. “The best entrepreneurs are those that think outside the box and support their innovation with financial data,” Colon said.

Start with your price strategy: Do your prices align with actual market demand? Then turn to your product strategy. “More products do not mean more revenues,” he said.

Analyze the data you have to answer these questions:

  • Which of your products are in the highest demand?
  • Which provide the best margins?
  • Are there cross-selling/upselling opportunities you could be employing to generate more profit from a single customer?
  • Where are you seeing waste?

 

Communicate With Your Partners—Then Keep Communicating

You have many partners, from your vendors to your landlord to your customers. In times of crisis, they’re stressed, too, so make sure you’re communicating changes and challenges to them.

“Proactive communication demonstrates you recognize the problems and are taking control of the crisis,” Freeman said. This helps build trust in times of trouble.

Colon and Freeman suggest executives:

  • Expedite receivables and ensure quick payments to optimize cash flow from accounts.
  • Create a detailed invoicing process that is customer-centric.
  • Quickly advise partners of delays or disruptions. This allows them to optimize and adapt and can help prevent future problems.
  • Use existing communication tools to stay in front of customers. Let them know how you plan to meet their needs.
  • Consider personal calls to key customers. Such moves “will be remembered long after the crisis is over,” Freeman said.
  • Make sure they are listening to their partners and consider seeking input from outside advisers for a more well-rounded outlook.

 

Don’t Forget the Taxes

“Careful tax planning at this stage, informed by a deep understanding of recent tax code changes, can have a major impact on immediate cash flow and long-term tax burden,” Colon said.

Tax-relief programs are being introduced at all levels of government, from federal to local. But not all of these programs will be available to cannabis companies.

Make sure you understand what does and doesn’t apply to your business and consider consulting tax experts to keep you on the right side of the tax code during a crisis.

Click here to download the free COVID-19 Scenario Planning Calculator.

 

Next: Supply Side Struggles