What investors want: Financial discipline

Predictability, profitability and confidence can all be improved by implementing systems to improve to make smart decisions

Reputation matters greatly in this industry. To attract new customers, gain loyalists, earn the respect of business partners and win over investors, you need to show that you run a reliable, professionally managed business. In other words, your store will be open when you say it’ll be open. The products you sell will be consistent in quality. Your plans to grow the business are based on credible information — not loose estimates.

Cannabis companies with financial discipline are set up to keep their promises and to be viewed as credible. They’re poised to make smart decisions, based on real, accurate and timely data.

It’s true, the choices you make for your business are only as good as the information on which your decisions are based. If the information is based on sloppy guesses or inconsistently entered figures — it will reflect negatively on the internal and external perception of your business.


The Habits of Disciplined Companies

A startup may feel they have a clear vision — they know how much they sell and how much it sells for, and they have a handle on their cash flow, inventory, expenses, suppliers, customers and number of daily transactions. They know what’s going on in the business every day — but what they may not know is what they can do next. They don’t have a way to know how any plan they come up with — such as expanding into a new territory — will play out.

Financial discipline expands companies’ capabilities beyond the here and now. Companies that take a disciplined approach:

– Notice patterns. Patterns emerge as you put together processes and systems to produce reliable, up-to-date information. How did the business do last week compared to this week? What’s different this month?

– Adopt a metrics mindset. If you want to understand and control a certain aspect of your business, find a way to measure it and write it down. How many gummies did you make today? How many people visited your website? How many customers walked into your store today? Anything that varies by the day is something you would want to track on a regular basis and come up with goals that align with your business plan. You want to be able to go back and see how the business has performed week to week, season to season, year to year.

– Test predictability and adjust. Compare your targets against actual results. Are you close to the plan or off base? If your sales numbers are moving at a quicker pace than expected, is now the time to bring in more people to process orders? Does it make sense to open another location?


The Benefits of Financial Discipline

Financial discipline enables you to understand how the business is doing so you can compare where you’re at to where you are going. Benefits include:

– Awareness of what’s truly happening: Getting your finances in order gives you visibility into your operation. For instance, you may know how much cash you have today, but do you have any sense of what you’ll have next month? Will you have enough to pay your suppliers on time or will you need to stretch out payment terms? How much is it costing you to sell your most popular product — not just for materials but what you’re paying the person behind the counter, the marketing effort you’ve put behind everything and so on?

– Confidence: Timely and accurate information instills confidence in those around you, whether you’re looking for a loan, partnering up with another company or targeting investors. Over time, you can show that you have a history of meeting planned targets and metrics. You’ll have built a trustworthy track record.

– Accountability: A disciplined approach gives you a way to test out the company’s budgeting and forecasting skills to see whether they’re sound or need adjusting. And when you know where the business stands on its performance and targets, you can hold employees accountable for meeting their individual goals.


A Companywide Effort

Instilling financial discipline needs to be a companywide effort. An expense-tracking system, for instance, can greatly streamline the company’s understanding of where the money is going — but it’s only as good as the organization’s commitment to following the processes that are in place. If some people never record what they’re spending, how do you know what’s happening? Do you have an approval process or has the petty cash become a free-for-all? Depending on the size of the company, perhaps owner approval should be necessary for everything over a certain limit.

Taking a more disciplined approach to finances can require a shift in culture and habits, but the upside to your company’s future will be worth the effort. With financial discipline, companies have the ability to respond to what’s happening in the business quickly and stay on track.


Dave Roberson is the CEO of Kukuza Associates, a Silicon Valley-based consulting firm that solely focuses on the finance and accounting needs of cannabis companies and draws upon the full capabilities of its parent company, RoseRyan, which entered the field in 2014. The company’s Kukuza Rapid Diagnostic is an online tool to help people evaluate their business’s finance readiness and agility. Roberson was formerly the president and CEO of Hitachi Data Systems and currently serves on the NCIA’s Banking & Financial Services Committee. He can be reached at droberson@kukuzaassociates.com.


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