7 Innovative Ways to Improve Cannabis Cash Flow

If your cash flow could use a little reinvention—and, realistically, whose couldn’t—we’ve got a few creative tips to help you move it in the right direction.

Cannabis businesses are affected by seasonal lulls, supply and demand, and various other mitigating factors, much like any other industry. However, taxation and compliance tend to have a much more significant impact, requiring operators always to keep their belts tight and pencils sharp.

Seven Creative Tips to Boost Cash Flow

Cutting costs is usually the first strategy business owners think of when trying to improve cash flow, but there are other ways to get the flow moving and improve liquidity during crunch times.

1.      Make sure the cuts you make are strategic

Look for ways to reduce spending. Review your fixed costs to see if they can be changed to variable. For example, you might be paying a flat monthly rate for fuel or utilities, but switching to variable billing can save significantly in some months.

Salaries are another avenue for variability. Consider reducing the base rate and increasing commission. Doing so will not only reduce your payroll and payroll tax burden, but it will also incentivize sales and help you build a strong bottom line.

If you feel you need to lay people off to improve your financial picture, ensure you’re keeping your high-performers.

2.      Speak to your accountant about tax credits you may be eligible for

Certain cannabis businesses may be eligible for various tax credits, like federal and state R&D tax credits. These credits are offered for qualified expenses and activities like new product development, extraction techniques, new types of cannabis products, indoor LED lighting, and even studying cannabis for use as biofuels and fabrics, as a few examples. Speak to your tax specialist to see if you might qualify.

3.      Don’t sweat your margins: focus on cash

Sure, your margin is the chief indicator of profitability. However, in tough times, you must worry more about bringing cash in than ensuring you meet your markup. If you need cash in hand fast, discount your product and don’t worry about how much you’re not making. Even if you take a loss on some products, it’s a temporary scenario until you get back on track.

You might consider raising prices overall when you get a handle on things. Undoubtedly, your costs have increased due to inflation, so perhaps it’s time to let your customers know they’ll see higher prices once your sale ends.

4.      Consider offering subscriptions

Subscriptions are popular with consumers because of convenience. It gives you a predictable monthly income you don’t have to work hard to make. Here’s where you can get really creative with your offers, too. Offering a selection of innovative monthly boxes also allows you to introduce new products and push out items that aren’t moving well. Your customers will love the variety; you reap the rewards.

5.      Stay on top of your AR

Outstanding accounts receivables are the surest way to negatively impact your cash flow. Improving your AR means staying on top of what’s owed to you, but you can also revamp your receivables strategy to get paid faster. Do you offer online payments? If not, you should. Are you still sending paper invoices? Consider switching to a cloud-based system where customers can pay directly from the invoice. Offer multiple ways to pay to reduce friction and get you paid faster.

You might also offer discounts for early payment, which is often a strong motivator to pay. Even a small discount of 5% can add up to big savings for the vendor and an advantage for you.

Some companies might consider factoring invoices, i.e., getting an advance based on your AR. While this strategy isn’t recommended, it might help you bridge the financial gap in the short term. Shop around for the best rates, as interest can be high.

As a last resort for slow payers, consider implementing COD terms until they comply. Requiring new customers to pay upfront is also a good idea, as is being proactive about collections. Don’t be shy about going after customers in arrears.

6.      Implement referral and loyalty programs

Referral discounts are a great way to improve cash flow and engage your best customers and vendors. The more people who are referred to you, the more product you sell and the more money you make. Referred customers are also more valuable as they already trust your products and services.

Promote referrals with attractive discounts or loyalty points for the referring customer. Don’t have a loyalty program? Think about starting one, as it incentivizes sales and upsells. Data shows that loyalty customers spend 50% more, on average. The loyalty and retention you gain can potentially increase profits by five times or more.

What can you offer as a loyalty perk? Consider points toward future purchases, early exclusive access to new products, premium gifts with purchases, and even in-person experiences if that makes sense for your business model. Whatever you decide to do, make sure it’s simple, seamless, and easy to navigate. You’ll benefit from increased sales, lower cost of acquisition, and access to valuable data about your ideal customers to inform future marketing.

7.      Apply for a loan

Nobody wants to increase their debt. However, if you don’t have a lot of existing debt and your business is generally doing well, you might consider applying for a loan. Lending can bridge the gap in slow times and may help you access funds to buy equipment or software to improve efficiency and reduce overall costs. Shop around for the best rates. A little extra cash might give you the peace of mind you need so you can focus on business-building activities.

Final Thoughts

We hope these cash flow improvement tips have given you some food for thought! If you have any questions about tax credits or ways to streamline your AR through outsourcing, book a call with the cannabis CPAs at Growise today.