If you’ve ever done a personal budget, you know how hard it is to predict what you’ll spend for the month when you begin. Sometimes you find yourself having to adjust your projections when you overestimate in one area or underestimate in another. It’s almost guaranteed that as you move through the process, you’ll need to calibrate your quarterly projections based on spending.
For a new cannabis business, this process is no different. Making quarterly projections is a critical part of gauging your company’s effectiveness. To do it effectively, however, you’ll need to give yourself a roadmap to help guide you through the process. This will help you make informed choices that will benefit your business greatly.
Here are a few tips on making quarterly projections for a cannabis business.
Why You Should Make Quarterly Projections
Starting out may be the most difficult time to make accurate projections, but it’s also critical that you establish a system for doing so then. As time goes on, you’ll be able to calibrate your projections based on how your business performs. You’ll begin to see patterns emerge.
For example, if you live in an area that’s a popular summer tourist destination, you’ll be able to see that income increases during these months. You can plan to have more inventory available, more staff on hand, and spend more on marketing. Conversely, if your area is less crowded during the winter, you can adjust your projections accordingly to allow for using fewer resources during that time.
Simply put, making quarterly projections helps enhance your accounting practices. You’ll be able to manage your inventory, decide where to deploy resources, and see what money you are spending is giving you the best return on your investment. They also tell you how well you’re hitting your business’s key performance indicators.
They’re useful because they allow you to accurately set expectations for your business based on a number of factors. But what factors should you be using to make those determinations?
Know Your Expenses
Before you can measure your revenue, you need to understand what you are spending. Include expense projections as part of your quarterly analysis. You’ll break this down into two distinct categories: overhead and variable costs. Fixed costs can include rent for your office or storefront, office supplies, marketing, accounting, and more. These costs are generally set and will only change slightly from quarter to quarter, if at all. Variable costs that can change over time can include the cost of your product inventory as well as labor costs. You may even have occasional irregular, or one-time, expenses to account for as well.
Without an accurate representation of what your business is spending, you’ll never truly understand your bottom line. Factor this into your quarterly projection model.
Pick a Model, Any Model
The biggest challenge you’ll face at the outset is attempting to make a quarterly projection without using any existing model, school of thought, or other data to serve as a reference point. Your projections need to have a quantitative basis.
You need to have some sort of model – tailored for your specific business – to make the most accurate projections possible. Customize your model based on your location, your target demographic, how competitors in your area have performed, and a variety of other potential factors.
You may want to experiment with different benchmarks to see what works best for your specific company. Failing to do so and trying to make your projections each quarter on the fly will only complicate matters for you. Trying to make projections without any rhyme or reason will leave you frustrated as you try to keep track of your accounting.
Use Data From Other States’ Markets
While using data from your market is certainly the most helpful, using other states as a guide can also be useful.
Try to pick a state with similar demographics and profile to yours when it comes to the legality of cannabis in the area. If your locality skews younger, it may not help as much to examine a state with a large retirement community (and vice versa).
You can also use multiple states as well. Having several reference points can give you a more comprehensive picture of what to expect. Just be sure that the states you use have similar profiles to yours. You don’t want to compare apples to oranges, as that can skew your projections.
You’ll also want to keep a close eye on your own state as well – any regulatory or legal changes may impact your ability to do business and, in turn, will affect your projections.
Use Your Past Performance as a Guide
Ultimately, as you continue running your business, you’ll begin to get feedback from your customers in terms of dollars coming through your door. This will be the most useful reference point of all in making your quarterly projections.
It’s critical to keep a record – with hard data – of how your business is performing. This data will prove useful in the months and years ahead as you’re attempting to predict the ebbs and flows of your business.
To accurately measure how successful your business is, you should use this data to help you make your quarterly projections. No matter how profitable you may seem, you’ll never truly understand the depths of your success – or your ultimate potential – until you start forecasting and measuring your profits. The only tried and tested method of reaching breakeven is by having a practice in place to examine how you’ve performed against your initial projects. This can help you as you look to avoid losing money and streamline your operations to maximize profits.
Analyzing your own past performance will help you predict future trends and customer behavior.
Making quarterly projections as a new cannabis business can prove difficult until you have data to back up your projections. That’s why it’s important to start the process early and tweak it as necessary. And while it may be difficult to make accurate quarterly projections when you’re still brand new, it’s nonetheless important and will get easier the more you do it. As it gets easier, you’ll see it begins to help you increase your bottom line.
The best way to make accurate and reliable quarterly projects is by planning your budget with the help of a professional. Northstar Financial Consulting understands your business and has the capabilities to be a trusted partner in helping your budget. Contact us to learn more.