My good friend Julie Rhodes from Not Your Hobby Marketing invited me to one of her mastermind meetings and posed some great questions on brewery finances.
Below are the questions – along with answers – and resources that may be useful as you navigate your own brewery finances.
- What are the most critical KPIs to track in your financial universe as a growing craft beverage company today?
- How can operators better plan for seasonal cash flow patterns throughout the year?
- Can you explain more about how your company may be profitable, yet cash flow is lacking?
- What are the most common mistakes owners or operators make with their financials? Any tips on how to avoid them?
- How can organizations better monitor their inventory to ensure they are not losing revenue?
- Do you have any ideas for cost controls in the brewhouse?
- Things are tough right now for many craft beverage companies. When revenue drops due to market dips, where should operators start looking for ways to save beyond cutting staff or marketing/sales budgets?
#1 What are the most critical KPIs to track?
Hands down, the most critical key metric to track is cash flow.
And tracking cash flow is not as simple as it may sound.
Start with the key drivers of cash flow: Accounts receivable, accounts payable, inventory, debt payments, capital expenditures, and net operating income.
For free cash flow trackers and explainer videos, get my free brewery cash flow course here.
#2 How can operators better plan for seasonal cash flow patterns throughout the year?
The first step is to create a budget.
Estimate sales, margins, and expenses by month, and quantify what ‘seasonality’ really means to the bottom line.
Use the budget to find a ‘break-even’ point. This is where margins equal operating expenses. With this information, you have a target to shoot for to break-even during the slow months, and build profits in the busy month.
#3 Can you explain more about how your company may be profitable, yet cash flow is lacking?
The first rule to understand is that profit is not the same as cash (or positive cash flow).
As an example, a brewery may invest a lot of cash in building inventory (cans, raw ingredients, packaging materials). These cash outlays are ‘assets’ and live on the balance sheet. They are not expenses, and don’t show up in the profit number.
Another example are debt payments. Let’s say you have a monthly loan payment of $5,000. That payment is made up of interest (which is an expense on the income statement) and principal (which is a reduction of the loan amount on the balance sheet). Only the interest expense portion shows up in the profit calculation.
#4 What are the most common mistakes owners or operators make with their financials? Any tips on how to avoid them?
The most common mistake is avoiding the financials altogether. I get it, we avoid things we don’t want to deal with, and most folks do not want to deal with the finances.
Step one is to simplify. Use summary reports, key metrics, and ratios. Make it easier on yourself to read and digest the information.
Another idea is to use a buddy system.
Know that you are not alone in facing brewery financial challenges. As one option, I created the Beer Business Finance Association, a network of brewery owners and managers working together to build financially successful beer businesses.
This network is a great way to find an accountability partner, get peer to peer support, as well as expert guidance and educational resources.
#5 How can organizations better monitor their inventory to ensure they are not losing revenue?
Weekly or bi-weekly inventory counts are key to ensure completeness, accuracy, and profitability.
For starters, use this inventory scorecard and count process.
#6 Do you have any ideas for cost controls in the brewhouse?
Many breweries use labor per barrel as an efficiency ratio and a way to control costs.
Start by listing total production wages and divide this number by total barrels produced.
For example, total wages for the year were $75,000 and 750 barrels were produced = $100 labor / BBL.
Look back over the last several years and calculate this ratio again. Compare current results to prior. Is it getting more/less efficient? Can you find ways to improve?
#7 When revenue drops due to market dips, where should operators start looking for ways to save beyond cutting staff or marketing/sales budgets?
It’s helpful to create an expense reduction plan that you can use in good times and bad. Here’s a brewery cost cutting process that I put together.
Do this next:
- Learn more about the network of brewery owners and managers working together to build a financially successful brewery.
- Enroll in the FREE Brewery Cash Flow Course – your bank account will thank you!
