Brewery Cash Management Tools

Many businesses fail because they run out of cash.  They run out of cash because they don’t actively manage cash.

Your brewery business may fail for the same reason unless you actively, aggressively and consistently manage your cash flow.

Now more than ever, craft breweries need to monitor cash to stay on top of loan payments, working capital needs during growth periods, and cash flow drains from increases in inventory and accounts receivable.

Cash management is vital to the current financial health of your brewery. Cash management is vital to the continued existence of your brewery.

In this post we’ll review what cash management is and share a process you can follow to properly manage this asset.

The people of the world need your beer. Use these cash management techniques to manage your cash so that you can continue to make it for them.

Profit vs. Cash Flow

It is tempting to look at the bottom line on the income statement and assume that profit is the same as cash flow. Unfortunately, the financial statements don’t work that way.

The income statement measures business transactions such as beer revenue and brewery expenses. The cash side of these transactions may occur at a different time.

For example, a sale is made today and recorded on the income statement as revenue.  However, the collection on that sale, the inflow of cash, may not happen for weeks or even months.

The brewery income statement may show a profit of $10,000 for the month, but the bank balance is close to zero. How can this happen? Profit and cash flow are not the same.

The first step to cash management is to understand that there can be a big difference between profit and cash flow. Learn where cash flow is measured (the Statement of Cash Flows), and where it’s not measured (the Income Statement).

Brewery Cash Management Defined

Cash flow is money that is moving in and out of your business each day.

Money comes in from collection of accounts receivable, cash on delivery customers, and taproom cash sales. Money goes out in the form of payroll, accounts payable, debt payments, and tax payments.

Cash management involves monitoring the inflows and outflows to ensure the money is safeguarded and is moving efficiently through the business.

For example, accounts receivable should be collected on time, and accounts payable should be paid on time (but no earlier).  Inventory on hand should be only what is needed to meet current production needs. (Inventory is just cash in a different form).

Make a list of where money comes into and goes out of your brewery. Identify how and when the cash moves and who is responsible for taking care of it. With this information you’re ready to implement a cash management process in your brewery.

Keys to Good Cash Management

Financial planner and author Suze Orman sums up cash management nicely.

“Your money will work for you, and you will always have enough – more than enough – when you give it energy, time and understanding.  I have come to think that money is very much like a person, and it will respond when you treat it as you would a cherished friend – never fearing it, pushing it away, pretending it doesn’t exist, or turning away from its needs.”

Good cash management requires consistency, persistence, and understanding. It requires asking questions of your cash flow when you don’t know the answer – Why is this customer overdue? Why are we paying our suppliers early? Why do we have so much inventory on hand?

Mostly, good cash management requires that you pay attention and take action when things aren’t going right. Next, we’ll look at a cash management process you can use in your brewery.

Brewery Cash Management Process

There are five primary drivers of brewery cash flow. These are the items that have the biggest effect on cash. These are the items you need to keep track of to manage your cash.

  1. Accounts Receivable: Money in.
  2. Accounts Payable: Money out.
  3. Inventory: Cash in a different form.
  4. Capital Expenses. Cash used to pay for fixed assets.
  5. Debt Service: Cash paid for the principal portion of loans.

When you monitor the five cash flow drivers along with the profit or loss from your income statement, you’ll get a good picture of overall brewery cash flow.

The Simple Cash Flow Tool provides a snapshot of current cash flow. It combines the five cash drivers with profit or loss on one page.

The Cash Flow Key Metrics Scorecard can be used to forecast expected cash. The Simple Cash tool shows you current cash flow, while this Scorecard will help see future results.

On a weekly basis, fill out the Simple Cash Flow Tool and investigate the results. On a monthly basis update the Key Metrics Scorecard to forecast future cash flows. These two spreadsheets will give you visibility on your cash position and serve as a tool in your cash management process.

Wrap Up + Action Items

Brewery owners can outsource bookkeeping, tax work, and payroll processing.  In many cases, it makes good sense to have an outside professional handle these tasks for you.

A qualified accounting firm can handle bookkeeping and tax work, and there are many services that process payroll and related tax filings. Very often, these outside companies can do a better job at a lower cost than hiring an employee to do the work.

There are many financial tasks you can and probably should outsource, but the ONE THING you cannot outsource is cash management.

Use the cash management tools presented here and watch your cash like a hawk. The continued existence of your brewery depends on it.

 

P.S. Want more on cash management? Check out the The Ultimate Guide to Brewery Cash Flow.