Introduction to Drafting a Canna-Business Plan – Part 3
Concluding this three-part series of articles, which explains how to write a winning business plan, we explore the remaining sections to include as well as some final thoughts.
In Parts 1 and 2, we discussed the following sections of a business plan: executive summary, company narrative, human capital, market opportunity, product or service offering, and sales & marketing. In this final article of the three-part series, we discuss pro forma financials, other elements to consider as additions to your business plan, and some final thoughts.
Pro Forma Financials
At this point in your business plan, you will have provided all of the most important elements except (arguably) the most crucial: your company’s financials. If you’ve begun operating at all, you will want to provide any financial statements you have. If this is a completely new venture, you will have to do some estimating to create pro forma financial statements. Regardless of how long you’ve been operating, or the historical financials you may have, pro forma forecasting is a necessary exercise to help your audience understand how you plan to make money based on all the other details you’ve already provided.
You need to present your balance sheet, income statement (sometimes called “profit and loss statement”), cash flow statement, and a capital expenditures budget. For many investors or interested parties, this is the most important section. Anyone with even a basic understanding of finance will be able to determine whether or not your business idea is feasible based on the data and projections in this portion of the business plan. As a result, it’s important to provide realistic numbers based on industry data and figures. There are a variety of free templates on the web, if you don’t know how to create financial statements. Generally, you will want to break out your projections by month during your first year and then estimate three to five years into the future.
Since the cannabis industry is constantly changing, make sure your pro forma models capture fair assumptions based on market trends. No one expects you to be psychic, but there are easy pitfalls you can avoid through simple due diligence and research. For example, don’t assume your revenue will grow by 50% year-over-year for the next five years unless you have a unique product or service offering that can back up those figures. Also understand that compliance costs may change over time, especially in such a heavily regulated industry. Remember that all sections need to be aligned, but this is particularly true of the financial portion. If you have very ambitious marketing initiatives listed earlier, but this isn’t properly captured in your expenses, that small disconnect can ruin an otherwise solid business plan.
Don’t be afraid to get creative in this section. Graphs, charts, and ratios all make digesting your business data easier for the reader. This is especially important if you’re sharing your business plan with an institutional investor or someone who reads through countless business plans every week. If you lack proficiency in this area, make sure you have an expert or partner helping you. A business that fails to properly plan and account for revenue and expenses will run into serious issues before long.
As with anything, there is no perfect solution that can be applied to every situation. The portions of a business plan discussed up to this point are based on best practices. To omit any of those sections would be at one’s own peril. Any audience that matters will be looking for these elements. That said, every business is different, as each business owner’s situation is different. You may want to consider additional sections that are optional but may be helpful for one reason or another.
It cannot be understated that any cannabis business applying for operating licenses will need to make sure their business plan contains all regulatorily (or statutorily) mandated sections. In Michigan, for example, staffing plans and technology plans are required elements of a state facility license application under the MMFLA and related rule set. You may want to consider a technology plan, even if it isn’t required for you. Obviously, if seed-to-sale tracking is mandatory for your business, you need to include the details of your software platform and/or POS system. Are you using an accounting software? If you are an ancillary business, what are you using to manage customer relationships? These are questions any business owner will need to address and it can be helpful to have an entire section of your business plan dedicated to this topic.
If you’re looking to attract investors, you will want to have a section entirely devoted to your funding requirements and objectives. How much progress have you made on those objectives? Any investor will want in-depth information related to your ask as well as how that capital will be spent in your financial section. Gantt charts or a list of milestones can add depth and specificity related to your various strategic goals. This can even be included in the section regarding sales and marketing.
Another element that can be stand-alone or included in an existing section: what is your exit strategy? Some may argue it isn’t crucial to know the answer before you launch your business. However, even if you are certain of your company’s future, thinking through your exit strategy at the beginning will help you plan your company’s destination. Planning to grow rapidly and acquire competitors requires a very different strategy than if you want to sell your business in the next five years. Do you want to issue an IPO for your company? Well, that strategy has its own set of requirements. What if a larger entity offers you a valuation multiple that exceeds your expectations? You should have contingency plans, even if you don’t plan to sell.
What are the biggest risks for your business and what steps are you taking to mitigate them? This can be addressed quickly in an existing section, but it can also be very helpful to have a separate section that provides this analysis in greater depth. For large-scale enterprises, this is especially imperative, as risks only multiply with scale.
Another common optional section for your business plan is to have an appendix.
Generally, this is reserved for records, data, or information that is not crucial, but may be of interest to a particular audience. If you believe you may need to reference additional financial details, patent or trademark documents, deeds, or anything else similar, an appendix is the perfect place to insert such items.
It can be overwhelming starting a business for so many reasons. Becoming an entrepreneur is a risky endeavor with a variety of challenges throughout the life of any venture. Figuring out how to capitalize on the “green rush” requires careful planning, which is what a business plan forces you to do. However, every business owner needs to find their own path and for some, that may mean finding strategic partners or service providers to help plan and execute their vision. Know your strengths and capitalize on them. The cannabis industry is brimming with a plethora of opportunities, so don’t allow poor planning to become your weakness. There are many paths to greatness and very few should be traveled alone. None of those paths should be traversed blindly. What’s your plan?
Do you need help planning out your business idea and/or drafting a business plan?
Rozbud Consulting excels in helping clients turn their vision into an actionable strategy that leads to success. Contact us today at email@example.com to start the dialogue that will help you achieve your dream.