As with any business, tracking cannabis business financial health has the potential to determine the level of success you experience. Minimally speaking, it’s crucial to know what’s happening in your business by monitoring several key financial health indicators.
We spoke with the experts at Northstar Financial to learn more about which insights are most valuable for ensuring the financial health of cannabis businesses. Here’s what we learned:
Tracking Financials in a Business Journal
Your business journal should include every aspect of your cannabis operation’s financials. Specifically, cannabis dispensary operators should be keeping an updated business journal. This ensures you can track all internal and external factors that play a role in your operations.
The easiest way is to use a Google Sheets spreadsheet or Excel spreadsheet. You’ll have three columns: date, day of the week, and a sector to include notes explaining each day’s happenings.
Include anything that could be impacting your business. New hiring or firings, weather information, big news headlines, a special promotion you’re running, anything that could affect your business’s financials.
Over time, this data will reveal trends you might not notice otherwise. It’s a challenge to remember a month ago, but this method will allow you to look back at your notes to recall months of information.
Monitor Industry Trends & Compare Them to Your Operation’s Performance
Looking at the trends and determining how they impact your cannabis business’s performance tells a store. Rather than looking at a single data point, you’re looking at your business’s financial history, allowing you to connect the dots to form lines.
By comparing your performance to industry trends, you learn about your business’s financial health. You’ll learn how things are progressing, giving you the ability to perform quarterly analyses to ensure your business is on track for success.
Use Systems to Track Your Metrics
Every business should use systems to track metrics; this is how we improve. By collecting this data and choosing metrics that impact your business allows you to analyze shortcomings and successes.
The data gives you something to analyze. By measuring the results of your business’s performance, you can manage and improve it.
This involves setting key performance indicators (KPIs) and monitoring them.
Think about what data your analyst needs to get a good idea of your business’s performance. Most of the time, minimally speaking, you’ll need a robust Point of Sale (POS) system and a CRM system in place to communicate with your POS tool. This will help you maintain your books, but you should still have spreadsheets to keep your books in order and facilitate record reviews.
While some software offers pre-packaged metrics, the cannabis sector calls for a more robust system, one that will allow you to check historical or trend analytics. Here are some KPIs worth considering for each vertical:
- Average spend per transaction
- Contribution margin of each product
- Customer frequency
- Gross margin per product
- Labor %
- Waste management costs
- Grow cycle time
- Gross margin
- Product turns
- Cash-to-cash cycle time
- Gross margin
- Manufacturing cycle time
- Throughput & capacity utilization
- WIP inventory/turns
Cannabis Delivery Services
- Distance per delivery
- Fulfillment turnaround time
- Time per delivery
Use Your Metrics to Handle Concerns
Tracking KPIs can enable you to handle problems before they become severe. You can also develop an action plan with this insight, allowing you to prevent issues.
For example, you might notice your average spend decrease. If this happens, you can learn what might be causing this metric to fall. By analyzing your metrics and looking at your demographics, you could find the reason this is happening.
Look at the way demographics impact your audience’s spending habits. Then, determine the best actions to adjust your average spend.