Running a cannabis business can be incredibly lucrative. What many first-time founders don’t realize is that few businesses stay with the original owner. Many business owners professionally nurture a shop until the business is ready to sell to bigger fish. Others sell when their small business hits a financial rough patch.
If you have been getting offers for your cannabis business or have been considering the pros and cons of selling, it’s time to take a look at your books. The biggest indication of whether it’s time to sell will often be whether you are financially thriving or struggling in very specific ways.
SIGNS YOU’RE BIG ENOUGH TO SELL
“Big enough to sell” means that your cannabis business is on the rise. Your books are in good order, your customer base is growing and you could make a real profit from selling right at this moment. The business that you have nurtured from the ground up may also stand to see real developments with a new owner ready to invest in helping it grow.
You Are Generating Steadily Increasing Revenue
Every business goes through the rocky startup phase. If your goal is to sell, one way to be ready is when your company has exceeded covering overhead to increase revenue. Your business is approaching ready to sell when your customer base is growing through both marketing and word-of-mouth popularity while your overhead stays productively low. In a state of healthy growth, your cannabis business will naturally become more appealing to potential buyers.
Sell When Buyers Have Started Making Bids
A surefire way to know that your business is ready to be sold is if potential buyers are making bids. If a potential business partner has already reached out to you with interest in buying your cannabis establishment, you know they see the potential for gain in the deal. Each bid must be weighed on its own merits and the merits of the buyer. Once you find a buyer who seems like a good fit for your business, the only remaining question is whether your back-end paperwork and internal finances are in shape for the hand-off. Of course, when you are personally ready to sell.
You Have Another Investment Ready to Go
Another important factor is where you are going financially from this sale. Many serial business owners are looking for a chance to sell because they’ve had other “irons in the fire” that are maturing as the current business grows to sale-readiness. You may have another startup ready to go with the kick-off of your cannabis business sale. When you have other projects waiting, now may be the ideal time to sell.
SIGNS IT’S TIME TO SELL
Another best time to sell is if the cannabis business finances are struggling, but the shop is fine. It’s not uncommon for startup business owners to create a fantastic business model, but not quite have the finances. You may have run into overhead issues, been hit by incidental costs, or the constant regulations may have tripped up your otherwise perfect financial plan. When this happens, often the smartest choice is to sell and allow the buyer’s revenue to provide support and growth.
You can then take the profits from the sale and reinvest in a new plan. Here are the financial signs of a cannabis business that is struggling and ready to be sold.
Sell When Your Brand Is Ready to Expand, but Your Revenue Is Not
Your brand may be a big hit in the neighborhood and you may have more business than you can easily accommodate. However, expanding takes quite a bit of investment. Opening a new store or remodeling are serious investmentd, and your revenue might not be prepared. If you started this cannabis business from scratch, then a new buyer may be able to take your accomplishments through the next phase of growth and development. And you can take the sale profits to try something new.
Competition Is Fierce and Eating Your Profits
Competition in the cannabis industry is intense in the select areas where dispensaries are permitted to flourish. You may have started as the only cannabis business in the neighborhood, but now there are three or four others. If you built a dispensary with potential but you can’t keep the books in black, a buyer might be able. In this case, selling could be the best solution for everyone.
You Are Not Financially Prepared for the Next Wave of Regulations
Regulations may be taking their bite out of your revenue reserve. Every time the regulations change, you need to change your packaging, labeling, and security protocols. This is not necessarily part of a stable business plan. This can throw a serious wrench in your otherwise well-planned startup finances. Investing in regulation-required changes can eat into money you needed to complete your business launch. If your books can’t handle the next wave of regulation changes, your best option is to sell.
Your Store Is Doing Well but Slowly Losing Money
Then there is the unique situation that only happens in business: Success without profits. You have great customers who love your brand. You have dominance over the competition, but somehow you’re still losing money. This can happen when costs are higher than income, even if your customers are steady. High rent, regulation costs, and tax changes can all cause this unique situation. A buyer may be able to turn your business around, but won’t be interested until they can buy.
LEARN MORE ABOUT SELLING YOUR CANNABIS BUSINESS
If you are considering selling your cannabis business, the smartest move is to work with a third-party financial consultant first. You may be able to turn a negative revenue situation around and keep your business or a financial consultant can help you finalize your books and create the most beneficial possible exit strategy. Contact us to learn more.