- Pick your location,
- Prepare to invest in the construction of your location,
- Decide on your inventory,
- Start your marketing off on the right foot, and
- Get all of the legalities in place. Check out this link for more on the legalities. There’s also a nice summary here on the regulations affecting Canadian Cannabis Retailers.
This article is going to outline what you should focus on in order to ensure the financial future of your new cannabis retail business is Lit. You are on an accounting firm blog after all.
Here’s our list of steps you should take to make sure your business Grows Like a Weed.
(Prepare yourself for some pot puns)
Step 1: Find a great bookkeeper and accountant
This isn’t as obvious a first step that most business owners consider. While we’re a bit biased, this is vitally important to ensure your financial success.
Having a great bookkeeper will make sure your books are clean and you can make decisions as soon as possible and in near real-time based on your financial data. By also having a great accountant, you’re ensuring a clean hand-off from books to taxes at your year-end to get your corporate taxes filed accurately and timely.
Did we mention we offer both of these services? No? Well, now you know. Check out our service page here to learn more about how we can help you. Not only that, but we write some pretty great content (again, biased).
- You’re probably wondering how much a bookkeeper might cost. Here’s an article to give you an idea.
- Here’s another article on why you shouldn’t pay your bookkeeper and accountant by the hour. FYI: We only do fixed fee billing with our clients.
Step 2: Work with your new bookkeeper and accountant to set up your CRA My Business Account program accounts
What’s a CRA My Business Account (MBA) program account? These are your CRA accounts such as GST/HST, corporate taxes, payroll, and dividends. Most corporations we work with have at least these four program accounts.
If you haven’t already registered these accounts, here is an article with some information on registering your GST/HST account.
You can register online, by mail, or by phone. While calling can be somewhat frustrating because of the wait times, we would recommend this option. When you do chat with a CRA representative, they’ll easily help you set up your program accounts mentioned above and provide you immediate access to these accounts.
We’ll assume you’ve already incorporated your business. If you haven’t, you can check out this article that explains how to do this, with a few affordable options. We do however recommend using a lawyer and your tax accountant to ensure you have a tax-efficient structure for your corporation.
Referring back to step 1, once you’ve decided on your bookkeeper and accountant, make sure to add them as a representative after you’ve set up your CRA MBA. This allows your bookkeeper and accountant to access your CRA MBA to ensure there are no issues in the account. Here’s some information on how to do that.
Step 3: Open your business bank and credit card accounts
From what we’ve seen working with multiple cannabis retail store owners, the big five banks aren’t super helpful when it comes to opening a bank account if you’re in the cannabis industry (except for Bank of Montreal). So far we’ve only seen two banks that are open to working with the cannabis industry: Alterna Savings and Bank of Montreal.
Here’s a link to Alterna Savings’ website for Cannabis Banking Services. And here are some of the credit cards they offer.
Here’s a link to Bank of Montreal’s website for their business accounts. The best way to get an account with BMO is through a Relationship Manager. Let us know if you need a referral.
We do want to point out the operative word in the step 3 title: BUSINESS. It’s very important that you have a clear and distinct separation between your business and personal banking and credit cards. You don’t want to put yourself in a situation where you’re running personal and business transactions through a personal bank account. From experience, it will cost you more for bookkeeping if you do this. So, just don’t do it.
Credit cards being under your personal name isn’t the worst scenario, though it’s not ideal. We would highly suggest having a separate business credit card. If you choose not to, then you’ll simply have a lot of expense reimbursements owing to you each month. Talk to your bookkeeper (reach out to us here if you haven’t already found one) if this is the route you want to go and they’ll set you up properly.
Step 4: Choose your accounting tech stack (all the software you’ll use)
This is an often overlooked aspect when starting your new business. You want an efficient, paperless, experience, right? Perfect – we can help you with that.
Inventory and POS
You may as well choose the software that has these both integrated. That software is COVA. All of our cannabis retail clients use COVA and it works well. COVA was specifically made for the cannabis retail industry covering you with point-of-sale, inventory management, compliance, reporting, e-commerce and delivery, gift cards, and cashless payments. It really is an all-in-one solution for your retail needs.
The other part of COVA that we love is that it integrates with QuickBooks Online.
Speaking of your accounting software, as you just read, COVA does integrate with QuickBooks Online (QBO). It helps to be directly integrated but is more of a nice-to-have. The other option we would recommend is Xero. This is QBO’s biggest competitor in the accounting software industry. While it doesn’t integrate with COVA, your bookkeeper will know exactly what to do to ensure your sales, cost of goods sold, and inventory are all accounted for based on your daily transactions. And if they don’t know what to do, we can help you with that.
Other important software
Buddi – This is your customer-facing Click & Collect, Delivery, and Digital Menu. Also, it’s FREE! Who doesn’t like free software? The great thing about Buddi is that it will integrate directly with COVA to keep all of your products synced between the two systems. No more duplicate entry and you can offer a seamless experience to your customers.
Dutchie – This is a cannabis marketplace. You know how you’ve worked so hard on your marketing and search engine optimization to be found via Google? Dutchie gives you some extra SERP (search engine results page) presence for your customers to find you. An added bonus to using Dutchie is that it ALSO integrates with COVA. Dutchie allows customers to order online and because it’s integrated with COVA it will keep your data updated in real-time. Now you don’t have to sit back and wait for customers to come to you, you can let Dutchie help you make online sales and provide a delivery option to them.
Receipt Bank – You know how to take a selfie, forward an email, and drag and drop files to other folders, right? Perfect! You’re now a Receipt Bank (RB) super-user. RB is one of the only apps that we use with every client. It’s that good. We use RB as a document management platform. This helps you because you can create a paperless environment by snapping photos of documents so they end up in RB. We take the bookkeeping from there to ensure your transactions are accounted for. It’s as simple as that – upload and we’ll take it from there.
Plooto – We can agree that e-transfers work great. The problem is that you have to give full access to your bank account to your bookkeeper in order for payments to be made. That’s a very poor internal control. This is where Plooto comes into play. Plooto integrates with your accounting software and pulls in your outstanding supplier bills and customer invoices to be paid or collected. Your bookkeeper, therefore, doesn’t need access to your bank account to submit payment requests to you. Once a payment is submitted, you’ll receive an email notifying you to approve via a button in the email followed by a single-click inside of Plooto. The security of Plooto is taken even further by providing a complete audit trail of every transaction from who submitted and approved, when it was withdrawn from your account, and deposited into your supplier’s account.
Wagepoint – You’re a retail location, which means that you’ll have many employees to manage payroll for. We recommend Wagepoint for your payroll. Wagepoint handles all of your payroll needs: direct deposit to employees, year-end T4 preparation, source deduction remittance to the CRA, ROE preparation and submission to Service Canada, among many other features. It works and that’s why we recommend it. Because you’re a retail location and hours are submitted each and every day that employees work (it’ll be rare that you have fully salaried employees), we further recommend that you set up your payroll with a bi-weekly pay schedule. For example, if your pay runs from Saturday to Friday, that means that your employees will be paid the following Friday. This gives you enough time to prepare the hours from the previous two weeks and have them submitted to your bookkeeper to process payroll by Tuesday at noon EST of the pay week.
Bonus: Rewind – Your data is vitally important, especially your financial data. If you do choose to use QuickBooks Online, we recommend that you also sign up for Rewind. Rewind is a data backup solution for your QBO account. While Intuit (the makers of QBO) do keep a backup of your data, it is not something you have access to. This is for their purposes only. Rewind allows you to backup your data so you can access it in case of a disaster recovery need.
Step 5: Set up your books for growth
Setting up your accounting software (your books) for growth is a great way to ensure that as you do grow then you know how you’re businesses are performing. We’re using plural here on business because we’re assuming you’ll want to open more than one store.
Assuming having more than one store is your goal, you’ll want to set up your books for this growth. The best way to do this is through the following:
- In QBO use the Locations field for each of your Locations, and
- In Xero use a Tracking Category for each of your Locations
Using either of these options in QBO or Xero allows you to classify transactions directly against each of your locations. Doing this means that you can very easily see how each location is performing. Combine this with the data from COVA on your product sales and you’ll be able to see exactly which products are selling (or not selling) at each location. From there you can make more informed decisions on which products to buy more or less of and set yourself up for more success.
Step 6: Manage your retail metrics
Setting up your books for growth further means you can manage your retail metrics a lot easier. This means more than looking at your Profit & Loss statement to see how each location is performing. You’ll want to understand specific retail metrics that help you understand how successful each location is. Here is a list of some retail (and some general) metrics that you’ll want to know like the back of your hand.
Conversion rate = (total goal conversions / total visitors) x 100
Your goal in this metric could be a count of total sales transactions. You can also look at this in the reverse in that you need X visitors to make Y sales. The goal then becomes “how do I attract more visitors?”
Traffic = total store entrances or total sessions on your website/online store
Very simply, how many people come into your store and how many people visit your website/online store. Visits on your website/online store can be tracked via Google Analytics. Here’s an excellent article on capturing foot traffic data
Inventory turnover rate = total cost of goods sold / ((inventory end of period – inventory beginning of period) / 2)
The higher this number, the more you’re converting your inventory into sales. This is a great thing to have!
Average transaction value = total net sales / total count of sales transactions
This tells you on average how much people are spending on a transaction. Combining this metric with Inventory Turnover will allow you to forecast much easier (see below) to help understand your cash flow needs
Sales per employee = total sales / number of employees
This metric will help you make better hiring decisions. We’ll explain more about this after the Retail Metrics section below. The higher this number the better because it means you can have fewer employees while making more sales.
Gross margin return on investment = gross margin / ((inventory end of period – inventory beginning of period) / 2)
This metric tells you how much margin from sales you should expect based on your investment in inventory.
Sales per square foot = total net sales / total square footage
How many sales are you making per square foot of store space? This metric will help you understand that and make decisions on the expansion of your store.
Sales per open hour = total net sales / total open hours
What are your average sales per open hour? Knowing this metric has a secondary effect on helping you plan what your open hours will be throughout the year.
Customer retention rate = ((total distinct customers – total new customers) / total distinct customers) x 100
How often do customers come back to your store? When you’re able to convert customers to repeat-buyers, you’ll see a jump in sales.
Online vs Retail sales = total online sales / total retail sales
This is a ratio to determine where sales are being made. Knowing this ratio will help you manage where to focus your marketing efforts.
Sell-through = number of units sold / beginning inventory x 100
This metric can be measured on a per-product basis and allows you to determine the speed at which a product is selling to help you make the right purchasing decisions.
All of these metrics combine to help you understand your business and make more informed decisions. If you look at a very simple sales funnel, you have something that resembles: X visitors convert to Y sales.
If we know our Traffic metric, and we know our Sales Per Open Hour, we can determine roughly based on having X Traffic Per Hour and Y Sales Per Open Hour that you should expect Z in sales on any given day based on your open hours.
As we start to combine these metrics together we get a more complete picture of what the business can look like in the future. This ultimately helps you plan better with hiring, inventory purchases, marketing decisions, or really anything that you’ve measured.
Inventory is a huge driver of your business. Looking at metrics such as Inventory Turnover, Sell-through, and Gross Margin Return on Investment will allow you to plan your inventory even further. You need to keep a very close eye on your inventory and should be completing inventory counts at least on a monthly basis. Any shrinkage, write-offs or lost inventory are important to know about because these put further pressure on your profits.
Once you start to understand your business metrics, that’s when you can start to manage and understand your cash flow a lot easier.
Step 7: Manage your cash flow
All of the above is important and gets you to the point where you can manage your cash flow. Being in the retail industry is tough, especially when you have to hold your own inventory. Purchases are made up-front and sold at a later date. Because of this, you need to understand your cash flow before your business goes Up In Smoke.
We believe cash flow is so important to your business that we decided to write an article on this. You’ll see more and more of this from us in the future because, well, Cash is King.
What we’re talking about here is knowing your in- and out-flows like you know the strains of weed in your inventory (you do know your inventory, right?). You don’t want to Take a Hit to your cash because you planned poorly.
In order to plan better, we would recommend at least monthly cash flow forecasting. Weekly forecasting would definitely add more value because of the changes that can happen to your business so quickly. But at a minimum, monthly should have you covered. Of course, there are software options for you and your accountant to manage this process such as:
These all have similar and different features, and can all cover off your cash flow forecasting needs.
If you have High Expectations for your cannabis retail business, reach out to us to chat – You’re Ganja Have a Good Time. We’re your Cannabis Retail Specialists; we’re Blueprint Accounting.
At Blueprint, we can provide bookkeeping and tax services that can bring value to your business. You can expect no overcharge fees and service suited for you. If you feel you’re not getting value from your bookkeeper or accountant and are tired of paying bookkeeping, tax or any accounting service at an hourly rate, contact us today.