Since 2019, new CBD companies have flooded the market. Like any wave of startups, however, market changes have posed unique challenges to the CBD industry — the impact of COVID-19 is perhaps the most poignant when looking at 2020. For small startups, it’s these types of challenges that underscore the need for smart financial tools for CBD companies, to help them understand the fundamentals of their business: where money is moving, the cost of goods, and how to accurately forecast and plan for the future.
There are a number of financial tools CBD companies can put to work for their businesses. While there are relatively few that are “CBD” branded, their utility goes beyond any one market or vertical.
1. Proper Accounting Software
If you’re keeping track of your expenses with a checkbook, bank statements, and an excel sheet, you’re doing it wrong. Not only is a manual system prone to error, it’s also prone to wasting an enormous amount of time. A smart business owner enables themself with system that provide automated, pre-built system that allow for the quick production of Income Statements, Accounts Receivable, customer LTV, and more.
Very affordable options include:
- Xero: A cloud-based accounting software (ie. it’s all online). Free for 30 days and comes with over 700 tools.
- Quickbooks: Probably one of the most trusted accounting softwares available, with 4 million + users. Also has a 30 day trial.
- Freshbooks: Another top-rated accounting software, which boasts a 97% recommendation rate by its users.
- Float: Float stands out from the crowd in that it focuses on cash forecasting and predictions. Plug in your data and assumptions to understand how the future can play out.
2. Inventory Management and Product Formulation
Inventory management is critical, whether you’re running a white-label business or engaged in custom product formulation. For the latter, keeping accurate track of materials, components (intermediary materials or unfinished elements of products), packaging, and finished products is even more critical.
CBD businesses, especially those on a smaller hand-made scale, should understand that while this seems like an area you can brush off (read, “We just do eye-ball checks on inventory, and think that’s fine.”), there’s a huge reason to implement this program: accurate cost of goods.
Cost of Goods (COGS), represents the true cost to manufacturer a product. It includes the item-level cost per ingredient, packaging, and labor costs. When understanding your costs, especially as you begin to scale, implementing an inventory management system that keeps track of expenses, recipes, and actual output vs. forecasted, is essential.
Consider these:
- Craftybase: Craftybase is a top pick of ours for a simple, low-cost inventory and product manufacturing tool. It’s cloud-based (all online), and integrates with a number of systems (Shopify, Woocommerce, Etsy, etc). Craftybase makes it to create recipes, assign materials and run manufacturers that automatically connect to your stock.
- Soapmaker: Soapmaker isn’t just for soap. Similar to Craftybase, you can use this system to keep track from all elements of productions.
- Quickbooks / Freshbooks / Other Accounting Tools: Some accounting tools also allow for inventory management. These may work if you’re not running production yourself. For operations that produce their own product, we recommend using a system that allows for material to end product tracking.
Side note:
The Food & Drug Administration is releasing guidelines for CBD products. CBD has been used in an approved drug, Epidiolex, which means using it in food, beverages and supplements is expressly prohibited. Yes, thousands of CBD companies are using it, but that doesn’t mean regulation isn’t on it’s way. Should CBD be treated as a dietary supplement, your business will need to implement specific Good Manufacturing Practices, which includes tracking lot numbers of ingredients, intake dates, who produced batches, and who received the finished items. A quality inventory management tool will put you in the direction when it comes to GMP and manufacturing auditing.
3. HR & Payroll
Payroll is often a difficult realm for business owners, especially for startups that are adding their first employees. It’s not as easy as writing a check, as there are state and local laws to consider, tax withholding, employment laws, and a myriad of other regulations to consider. There are a ton of options when it comes to payroll processing companies, but one that we find the most compelling is Gusto.
Gusto helps you manage payroll, benefits, and HR, all along with expert support. Instead of having to navigate the laws yourself or calling up a processing company, Gusto’s cloud-based system makes it easy. Simply log-in, run payroll, and celebrate.
Honorary Mention: Smart Shipping Software
While it’s not a financial tool specifically, having the right shipping software is critical for saving money. Heading to the Post Office (one of the best channels for shipping hemp and CBD), simply isn’t the best place for the best prices. In fact, it’s usually the worst.
Our recommendation: Pirate Ship
Pirate Ship is a free-to-use shipping software that provides up to 89% off retail prices. It’s simple to use, allows for batch shipping (shipping 100s of the same type of package), and offers a compelling postage type: cubic shipping. Cubic shipping is a shipping class based on the volume of a package, not on the weight. This helps standardize shipping costs, making them extremely predictable. Consider, for example, how you would calculate shipping 500 boxes of varying weights of 2, 3 and 4 pounds, vs. knowing that all 500 packages ship for the same rate.
Financial Tools for CBD Companies
Using these tools puts your business in the position to understand its finances, forecast growth, manage inventory, keep payroll and HR manageable, and save tons on shipping. As your business scales, using these tools (or those like these) will become essential as well, as manual management of these tasks will quickly become unsustainable for any one (or two) people.
Suggestions? Tell us your favorite financial tools for CBD companies below. We’ll add them to the list!
