“Make your money work for you.” That’s what the money experts and wealthy investors always say. Now I’m not going to tell you how to invest your money, per say. I am going to tell you how to take action to CONTROL your money, like the boss you are.

Seriously, tell your money where to go instead of wondering where it went.

Budgeting your cash is your way of controlling where it goes and what happens to it. Budgeting has a cousin, it’s called forecasting. Forecasting is your way of seeing into the future to avoid huge cash falls (ie unforeseen effects of COVID-19) and/or take advantage of investment growth opportunities. During the early life of your company, the budget will mirror the forecast.


What is a Budget

 Simply put, it is your overall expectations of your income, costs, cash, and liabilities for a period. A period could be a month, could be a year.


Why Do You Need A Budget

 A budget is your plan for the short and long term. Benjamin Franklin said it best, failing to plan is planning to fail. A good budget is one that acts like a roadmap. Because your roadmap needs to guide you in the best way possible, it needs to be continuously reviewed and updated.

It will allow you to track performance and answer the question of did your company meet expectations for the period.

If the company did not meet expectations, your finance team can then get to the core issues of why it did not. If you surpassed your expectations, ask how did you do it then adjust expectations to continue to see growth. For cannabis companies, it helps to also plan how much cash on hand will be needed for vendor payments, taxes to be paid, etc. You’ve experienced the large flux of cash on hand and the challenges of managing your cash.


How to Successfully Use a Budget

 If you want to truly maximize the benefits of a budget, you will need to

 Make it flexible

Your budget needs to be flexible, allowing you to model out different scenarios. Your roadmap may show you different roads your company could potentially travel on. It is the CEO’s responsibility to choose a path guided by the CFO.

Use it to highlight the money makers and the cash eaters (areas that costs you the most cash)

You can’t hide the areas where the company is overspending the most money. You also reveal what the money makers are. These two areas often stick out in the budget, especially to those experienced.

Connect the budget to who you are at the company’s core

Remember you truly profit from who you are at the core.

 Tie it to performance and incentivize your team to perform in comparison to it

 Allocate cash to what management think is the most effective investments (fixed assets, etc.)

 Continuously update it from period to period

Analyze costs with the goal of reducing them as much as possible.

 For those with investor relationships, use the budget to provide investors with a benchmark to measure company’s progress.


Why Do You Need A Forecast

A forecast is a good replacement for a budget when you want a simpler tool to use, and you want to use it more frequently. It doesn’t have to get as deep and detailed as your budget needs to be, but it brings together some of the most important areas of your business.

It gives you a reasonable (not 100% accurate) look into the near future.

It answers the question, where are you currently headed as opposed to where we want to be headed like your budget. The major benefit of this is identifying problems before you experience the actual effect of those potential problems.

Multiple businesses that I’ve worked with were hit hard due to COVID-19. They all survived. In large parts, this was due to using a cash flow forecast for the next week, month, and year the moment our country went on lockdown.

Unlike a budget, a forecast does not have target goal amounts. It’s simply to look ahead for potential problems and opportunities.


Bonus: How much cash you need to have on a hand

The answer to this relates to both budgeting and forecasting. It uses forecasting to foresee future problems or events in the short run (like state and local taxes due or a sudden shut down of operations) and budgeting to plan based on the past tendencies of the company and its business environment.

For starters, you need to have enough cash available to cover 2-6 months of overhead expenses. The best way for cannabis producers or sellers to calculate this is the average monthly burn rate multiplied by the number of months you and or the CFO strategically think is best to have on hand.


Factors Affecting Your Budget and Forecast

Multiple factors can affect your budget and forecasts


After a couple of years, you may have realized you experience a higher volume of sales during one month compared to others. If you’re in a tourist area, you may see upticks in the summer. Maybe for you it’s the winter holidays. Typically, you will see increases in sales on 4/20.

Part of your expectations for a given month need to take into account the different seasonal cycles your company experiences. The seasons can have a significant impact on raw material for example with outdoor grows. Depending on the locale, cultivators could see a boom in supply in Fall from the harvest. It wouldn’t be a surprise to see price per pound decrease.

You need to always be asking how you could take advantage of the seasonality of your markets.

Using the knowledge of the business environment along with a budget and forecast, you can better spot these types of trends occurring.

You will also need to be aware of how these affect different lines of products such as oils, extracts, etc.

Weather and climate, tourist areas, and consumer behavior all play a role into the effects of seasonality. As decision makers, CEOs and CFOs need to always have some type of a pulse on consumer behavior.

Natural and National Disasters

Rarely can we foresee natural and national disasters. Okay, okay maybe to some extent. Meteorologists give some insights; the media and our government can sometimes provide information that leads to these types of disasters.

 Marketing Actions

Focusing on sales, growth, and profiting from the core of what your businesses does leads to market growth.

Track your marketing efforts from your different market campaigns and sale channels as way to improve your budget and forecast for the next period.

 Tax Increases

 You can bet your life savings that taxes will increase. At least expect an increase before you expect a decrease. As we all know, tax in the marijuana industry is heavily regulated. For this reason, cannabis taxes play a significant role in affecting the budget and forecast.

Keep in mind that because this cannabis industry is heavy cash based, budgeting and forecasting for the appropriate cash on hand is even more important than in a normal business.

Please remember, when it comes to the taxes you owe on each sale, not a single penny belongs to you or the company.

As a cannabis organization, you will experience cycles of ups and down.

Sometimes this is due to seasonality. Unexpected things may occur worldwide like the COVID-19 pandemic or a national wide vaping “crisis”. You will experience price fluctuations which could be wreck a company. Nevertheless, having the knowledge of history and awareness of the highs and lows allows you to better adapt when they happen again. They will always happen again. A budget and a forecast allow you to have a better control for when it happens.

Need Help?

If you need help setting up your budget or forecast, email us at kmason@accountantsinnovate.com.

If you would like to get deeper financial support, set up a discovery call here.