In normal times, it’s a challenge to manage
brewery operations, and stay on top of the finances. There’s a lot to juggle,
and never enough time to get it all done. In these abnormal times, these tasks become
even more difficult.
However, one way to manage your brewery business differently, and more
effectively, is with open book management. Open book management (OBM) is a
system in which employees are provided with financial information so that they can
make better business decisions.
idea is that employees are more motivated, engaged, and productive when they
are treated as business partners (who commonly have access to financial data)
instead of employees. In these uncertain times, more information can provide
employees with more certainty to make better decisions.
Open Book Management has four basic elements:
employees in financial literacy so they can read and understand financial
employees to use financial information when making business decisions.
employees as business partners with proprietary company information
employees fairly for the brewery’s success
employees in Financial Literacy
Financial literacy is the ability to read and understand the numbers of
your brewery business so that you can improve financial results. Improving
financial results may include growing sales, strengthening gross margins, or
increasing cash flow. In today’s uncertain times, financial literacy is more
important than ever.
numbers of your brewery business are reported on the financial statements – the
income statement, balance sheet and statement of cash flows. Each of these
reports provides vital financial information to understand what’s going on in
financial statements are the scoreboard for your brewery and the numbers show
whether you are winning or losing. The financials show you where you are in
relation to your goals and how much harder you must push to hit the targets.
Open book management requires that you train
employees in financial literacy so that they can know the score, and help the
brewery win the financial game.
Employees to Make Decisions
organizations there is a decision-making hierarchy. Owners or managers make the
decisions, and employees carry out the directives. With open book management,
everyone is responsible for making decisions and has the authority to do so.
problem needs to be fixed, employees are empowered to fix it. If an opportunity
needs to be seized upon, employees are obliged to act. There is no waiting
around for a manager to make these decisions. The move lies squarely on the
shoulders of employees.
open book management, employees use their understanding of the numbers –
financial literacy – to inform their decisions. For example, suppose a brewery
uses a mobile canning company to package beer. The packaging manager
understands the costs associated with this service and can make an informed
decision about whether the purchase of canning line would benefit the company
financially. The packaging manager understands how to build a return on
investment calculation and is empowered to make a purchase recommendation based
on the numbers.
Trust Employees with Proprietary Financial Information
book management centers around trust. Do you trust your employees with
sensitive financial information? What if confidential information is shared
with competitors? What if it’s leaked out on social media? Sharing information
requires that we trust employees to handle sensitive information with
professionalism and confidentiality. The best way to earn the trust of
employees is to be trustworthy yourself. Be transparent, share the information
that will help them do their job better, or have a better understanding of the
business. When you call upon the highest level of thinking from your employees,
you get the highest level of results.
Employees for Brewery Success
open book management system, employees are asked to learn new things in
addition to their core job. Brewers are asked to understand the costs that go
into making the beer. Brewery salespeople are asked to understand product
margins for each brand in the portfolio. Taproom staff are asked to learn the
average order per customer, for example. Everyone in the organization needs to
learn something new to make the open book management system work properly.
goal of open book management is to create a culture of business owners. OBM
teaches employees to think of themselves as businesspeople instead of workers.
To make this real, businesspeople need a stake in the outcome – a reward for
brewery success. As such, part of what they earn should be tied to company
in the outcome gives employees a vested interest in improving financial
results. The brewer learns about the costs that go into making the beer so that
she can find ways to be more efficient. The salesperson learns about product
margins so that he understands the importance of proper pricing. The taproom
server learns about the average order per customer to find ways to increase
Learning about the financial aspects of the business that are within the
employee’s area of control moves the brewery towards the goal of improving
overall financial results. And towards the reward of having employee
businesspeople share in the success.
Wrap Up and
book management is a system where financial information is shared with
employees so that they can make better decisions. Better decisions lead to
better financial outcomes, and better financial outcomes lead to a stronger
brewery business for everyone.
requires that you train, empower, trust and reward employees. Train employees
in financial literacy so they understand the finances of the business. Empower
employees to make decisions and encourage them to do so. Trust employees with
sensitive information and reward them when brewery financial success is
these uncertain times, open book management provides a way to manage your
business more effectively and to reward your employees for a job well done.
I’d like to offer your readers a $50 discount off of the Craft Brewery Financial Training annual subscription. Visithttp://www.craftbreweryfinance.com – Use the discount code beveragemaster at checkout to claim savings.
Since its founding in 2013, Seattle-based Copperworks Distilling
Company developed an award-winning portfolio of spirits with accolades such as
the 2018 Best Distillery of the Year award from the American Distillery
Institute. Yet, according to Jason Parker, Co-Founder and Presi-dent, they
found themselves at a crossroads in growing their distillery last year. Even
though they had more than 260 barrels of whiskey aging in inventory, the
current demand for their American Single Malt whiskey exceeded their supply of
“The only way to win sales
in the whiskey market is to have whiskey to sell,” Parker told Beverage Master Magazine. “If we are only growing through cash flow generated by vodka,
gin and a little bit of whiskey sales, we won’t have the whiskey to compete in
the market against those businesses who received capital investments to produce
whiskey. In essence, we must produce whiskey faster than our current cash flow
Rather than resort to
traditional ways of generating capital, they wanted to explore a way to ex-pand
their business that would get their friends, family, customers and other
supporters involved as brand ambassadors. “We wanted to give them an
opportunity to own a little piece of the work and be with us as we grow,” said
Choosing Equity Crowdfunding
Copperworks decided to
raise money via equity crowdfunding through the WeFunder website. In
Copperworks’ estimation, this approach enables individuals to become
part-owners of a privately held company by trading capital for equity shares.
This method of generating capital became available in 2016 with the passage of
a new law called “Regulation Crowdfunding.” This shift made it legal for anyone
to invest small amounts of money in startups.
Copperworks chose equity
crowdfunding over more established crowdfunding platforms like Kickstarter,
Indigogo or GoFundMe because, with equity crowdfunding, a company issues
equi-ty, such as shares of company stock, to participating investors. A company
like Copperworks may also choose to offer perks, but the major incentive is the
opportunity to become shareholders in the company.
In comparison, traditional
crowdfunding is more rewardsbased, whereby those who contribute to the campaign
receive a perk, such as a discount or an advance copy of the product, but they
have no equity in the company. Furthermore, a traditional crowdfunding campaign
often offers their products at a discount to generate interest. Should the
campaign take off, companies can find themselves unable to meet market demand
at this low price point.
According to Parker, a key
advantage of equity crowdfunding is the company’s opportunity to utilize its
investors as brand ambassadors. While this component of Copperworks’ strategy
has been put on hold due to COVID-19, they are currently in the process of
building a brand ambas-sador kit for their investors. In this kit, investors
will be given the details of how to approach a restaurant, bar, grocery store
or liquor store on behalf of Copperworks.
Challenges of Using Equity
Parker acknowledges the
need for a distillery to ascertain if equity crowdfunding is the right
ap-proach. For example, this approach to raising funds may not work for a
business that has only been around for a year or less and has yet to build up a
loyal following. “Equity fundraising is a good thing when you’re mature enough
for the company to attract the appropriate investors for the valuation,” he
From a company’s point of
view, equity crowdfunding requires more upfront costs and financial discipline.
The company’s records need to be reviewed professionally, an expensive process
that took Copperworks three months to complete. In addition, WeFunder takes 7%
of the funds raised, unlike a bank loan where one receives the entire amount
upfront and then pays interest over time. Depending on the terms of a loan, a
company may pay more in interest through a traditional loan. However, for those
companies needing the full amount upfront, a bank loan may be their best
Also, with equity
crowdfunding, Copperworks had to be totally transparent with their financials,
a process that included having this information readily available for public
viewing. For Parker, this transparency fits in with their business model. “We
believe transparency is one of the things missing in businesses today, so we
want to model that behavior.” In the issue of transparency, they chose to share
with their investors why they needed to raise money and how they intended to
use these funds.
Promoting and Implementing the Equity Fundraising Campaign
Copperworks promoted their
campaign through their mailing list of 12,000 individuals. In addi-tion, they
reached out to the 3,600 folks who liked their Facebook page because they had a
high rate of customer engagement on this platform. They were also featured for
five weeks in the American Distilling Institute newsletter. Their campaign,
which ran from the end of February to April 2020, netted a total of 409
investors and $776,480 in funds.
Parker admits to the
challenges of raising funds right as COVID-19 began impacting the econo-my
starting in mid-February. “It’s not very easy to ask people to spend money on a
company when they may not have a job, their life savings may be losing 30% of
its value, and they don’t know who around them is even going to be alive in a
However, he said that
since Copperworks had been around for a long time, many people emerged who
really liked the company and their products and were looking to support
something they cared about.
Regardless of the amount
of their investment, each investor receives an annual report along with an
invitation to every quarterly meeting. For those who invested $1,000, they get
10% off all Copperworks goods for life. Other perks were offered to those
investing at higher increments, such as an offer to pick a single cask whiskey,
a free event rental or an invitation to be on the board of directors.
As per the SEC
regulations, Copperworks disclosed to their investors the risks associated with
capital works. While some of the risks noted are associated with investing in
any company, others are specific to the distilled spirits market or Copperworks
in particular. For example, the cur-rent distilled spirits market growth could
slow or stop in the future. Along those lines, due to the threetier
distribution system in the alcohol industry mandated by U.S. law, Copperworks
is reli-ant on distribution companies. The distribution system has experienced
consolidation in recent years, and should this consolidation continue,
distilleries may face difficulty in expanding the distribution of their
Outcome of Equity Fundraising
raised enough money to continue production during the COVID-19 shutdown and
produce whiskey at their all-time maximum rate. All employees kept full-time
hours, even though the tasting room was (and remains) closed. Therefore, the
distillery could de-vote some of its resources to producing hand sanitizer, a
product badly needed at the start of the pandemic.
Even better than simply
raising money, which a bank loan could have accomplished, Copper-works was able
to fully engage the support of their loyal fans. Customer engagement through
social media, email and quarterly calls increased the opportunity for
Copperworks to share their story and their customers to become brand
ambassadors. New customer acquisition, which is much more difficult while the
Copperworks tasting room is closed, increased through word-of-mouth, and online
sales increased due to these outreach efforts.
As Copperworks looks to expand their
production area and event space, they have solicited their new investors’
network to help them find even more opportunities to grow their business.
Copperworks is truly building an army of brand ambassadors and getting new
talent and ideas through the use of regulation crowdfunding.
While many people are familiar with the four
main types of intellectual property: patents, copyrights, trademarks, and trade
secrets, often they don’t know the distinctions between them or what they are
meant to protect. This article is meant
to cut through the confusion and explain these distinctions and how each
property right applies to the beverage industry.
Protect Ideas – sort of
people have a general understanding that a patent protects an “invention” or an
idea. In a very general sense, that’s
true. But, even though the Congressional
authority to grant patent rights comes directly from the U.S. Constitution
(Article 1, Section 8, Clause 8), exactly what is patentable is the subject of
tremendous confusion among the U.S. population, examiners at the U.S. Patent
and Trademark Office, lawyers, and even judges; sometimes requiring
clarification from the U.S. Supreme Court.
The purpose behind the grant of a patent is to encourage innovation by
granting exclusive rights to one’s discoveries for a limited time. In other words, it gives the patent holder a
short-term (20 years from the date of filing) monopoly on his invention. Generally, new machines, chemicals,
electronics, methods of production, and in some cases, methods of doing business,
are eligible for patent protection.
not all ideas are patentable. In fact,
ideas alone cannot be patented. They
must first be “reduced to practice,” meaning that either you must have actually
created your invention or have described it in sufficient detail that someone
skilled in that area could follow your disclosure and create it
themselves. So, you can’t get a patent
on a time machine, because (at least for now) no one has figured out how to
defy the time-space continuum. In
addition, to be patentable, ideas must be novel, meaning that no one else has
ever disclosed that idea before, and non-obvious, meaning that your idea cannot
be an obvious variant on someone else’s invention.
that humans have been making beer for thousands of years, one might think that
coming up with something novel in the brewing process would be impossible. Not so.
In preparation for this article, I ran a quick search of patents
containing the word “beer” in the title and got 491 hits. Some recent examples include U.S. Patent No.
10,570,357 – “In-line detection of chemical compounds in beer,” U.S. Patent No.
10,550,358 – Method of producing beer having a tailored flavor profile,” and U.S. Patent No. 10,400,200 – Filter
arrangement with false bottom for beer-brewing system.”
Improvements in any area of the alcoholic beverage industry may be
patentable including, new types of bottles, cans, growlers, and kegs; new types
of closures and caps; improved methods of separating hops from bines and
leaves; new processing equipment, improved testing procedures and equipment,
improved packaging, etc. Essentially,
anything that lowers costs between the farm and the consumer, improves the
quality of the beverage, or enhances the consumer experience is worth considering
for patent protection.
word of caution, however; time is of the essence. The America Invents Act, effective March 16,
2013, brought the U.S. in line with most other countries in being a “first to
file” system, meaning if two people develop the same invention, the first to
file for patent protection wins, regardless of who first came up with the
idea. Also, any public disclosure of
your idea (such as at a trade show) starts a 1-year clock to file or you may
lose your eligibility for patent protection.
Protect Creative Works
authority for copyright protection stems from the same section of the U.S.
Constitution as patent protection, discussed above. Our founding fathers recognized the valuable
contribution made to society by authors and artists and, therefore, sought to
encourage creative expression by providing protection for artistic works. Examples of copyrightable materials include,
books, paintings, sculptures, musical compositions, and photographs.
inventive ideas, which are only protected when the government issues a patent
to the inventor, copyrights attach at the moment the artistic work is “fixed”
in a tangible medium. So, for example,
if a composer develops a new musical score in her head it isn’t protected, but
the moment she translates that tune to notes on a page or computer screen, it
becomes protected by copyright. In order
to enforce that copyright in court, however, it must be registered with the
U.S. Copyright Office. While it is
possible to wait until an infringer comes along before filing for registration,
doing so can severely limit the damages that may be available to the author of
the creative work. So, early
registration is the better course.
beverage industry, copyright issues often crop up with regard to labels and
advertising materials. But often
disputes arise relating to who owns the artwork contained within a label, for
example. Generally, the author of a work
owns the copyright. But, if an employee
of a brewery, acting within the scope of their employment, creates an image
that the brewery owner incorporates into its labels, that picture is considered
a “work made for hire” and is owned by the brewery. Where disputes often arise, however, is if
the brewery hires an outside artist or a branding agency to develop the
artwork. In that case, the brewery
should include language in its contract requiring assignment of all copyrights
to the brewery for the created artistic works.
The same would apply for any artwork commissioned for use inside the
brewery tasting room or for marketing materials.
Protect “Source Identifiers”
generally associate trademarks with the protection of a brand. In fact, I have often described trademarks as
an “insurance policy for your brand.”
But, in more technical terms, what a trademark protects is a “source
identifier.” The purpose of trademark
law is to protect consumers from being misled or mistaken as to the source of a
product. So, for example, if a consumer
sees a pair of shoes with a certain famous “swoosh” image on the side, they
should be reasonably able to assume that pair of shoes was manufactured by
Nike, Inc. and was made with the same degree of workmanship and quality that
they have come to expect from that company.
That “swoosh” symbol, therefore, acts as a source identifier to tell the
public that the product was made by Nike, Inc.
may function as a trademark can be quite broad, including: the name of the
business (e.g., Triple Nickle Distillery®), a logo (e.g., the “swoosh”), a
color (e.g., the Home Depot orange or the UPS brown), even a scent (e.g.,
Verizon owns a trademark on a “flowery musk scent” it pumps into its stores to
help distinguish them from competitors’ environments). Not everything can be trademarked,
however. Slogans, words, and images that
appear merely as decoration as opposed to a means of identifying the supplier
will not qualify for protection unless the applicant can demonstrate that the
item has achieved “secondary meaning,” i.e., that the public has come to
associate that item with the manufacturer.
As an example, in the 1970’s McDonalds used the slogan, “You deserve a
break today” in its commercials and other advertising. People came to associate this phrase with
McDonalds and in 1973 they were granted a trademark registration. Incidentally, McDonalds briefly let this
trademark go abandoned in 2014, but quickly re-filed and the mark is still
active today, more than 45 years after it first registered.
general, marks also cannot be descriptive of the product or geographically
descriptive of the source in order to be registered as a trademark. For example, one could not obtain a
registration for just the words “India Pale Ale.,” because it simply describes
the product and does nothing to differentiate it from every other IPA on the
market. Similarly, an attempt in 2019 to
register the name “Philly City Brewery” was refused as “primarily
geographically descriptive,” because the applicant could not demonstrate that
people had come to associate that name with its business as opposed to the many
other breweries in Philadelphia.
Trade Secrets Protect Valuable Confidential Business Information
other forms of intellectual property, there is no registration system for trade
secrets, because, by their very nature, they must be protected from all
unnecessary disclosure. Trade secrets
can be just about anything that is confidential to your business and gives you
a competitive advantage. Some examples,
include recipes, client lists, manufacturing processes, marketing plans, and
client lists. These are things that, if
publicly disclosed, would harm the competitive position of the company and,
therefore, must be vigorously protected.
the most famous trade secrets is the formula for Coca-Cola. This formula has been protected for more than
130 years, sometimes through extraordinary measures. In 1977, The Coca Cola Company withdrew its
product from India, because in order to sell there, they would have had to
disclose the formula to the government.
They decided it was more prudent to forego sales to one of the biggest
populations on earth rather than risk disclosure of their secret recipe.
Protecting trade secrets requires constant vigilance in two ways. First, the information should only be
disseminated to people within the company, or outside consultants, who need the
information in order to perform their duties for the company. In other words, the information is on a
strictly “need-to-know” basis. Second,
those few people who are given access, should sign non-disclosure agreements
with harsh penalties for breach of their duty of confidentiality. Once the information gets out, it’s nearly
impossible to un-ring that bell, so there must be severe financial consequences
to someone who leaks the information.
Brian Kaider is a principal of KaiderLaw, a law firm with extensive experience in the craft beverage
industry. He has represented clients from the smallest of start-up breweries to
Fortune 500 corporations in the navigation of regulatory requirements, drafting
and negotiating contracts, prosecuting trademark and patent applications, and
complex commercial litigation.
The Fall season is upon us and that means it’s time to create your
brewery budget. This document will serve as the financial road map for your
business and will provide clear directions to reach your sales and profit goals
for the coming year.
One challenge of the
budget process is that it feels like an overwhelming task. There are so many
numbers, so many unknowns and so many changes that come up unexpectedly in the
brewery business. How can you accurately predict everything that will happen
and get it all down on paper? The short answer is that you can’t.
As the saying goes, plans
are useless, but planning is indispensable. Likewise, the budget planning
process is indispensable for your brewery business.
In this article, we’ll
review the key building blocks to create your budget and provide tips so that
you can get started (and finished) quickly. An effective brewery budget is
within your reach.
Brewery Budget Quick-Start
To get started with your
budget, I recommend writing out the plan in words first. Don’t worry about the
numbers right now, just write down your goals, objectives and strategy for the
coming year. The numbers will come easier after that.
For example, if your goal
is to grow sales by developing new beer styles or introducing new package
sizes, write that into your plan. Perhaps you want to expand into a new market
and hire a new sales rep for the territory. Write this into the written plan as
Continue this process, in
writing, until you’ve got all your goals and objectives listed out. This
creates clarity and momentum for the rest of the budget process. Once the big
picture goals are clear and in writing, it’s much easier to quantify the
objectives and build the numbers into the financial plan.
Effective Budget Basics
The operating budget
involves five major building blocks: the sales forecast, margin plan, operating
expense plan, capital budget and debt schedule.
Below, we’ll dig into each
of the budget building blocks and give you some tips to get started. Use these
ideas in connection with the budget templates and you’ll be well on your way to
creating an effective budget for your brewery.
Budget Building Block #1:
The sales forecast is
simply a projection of how much beer you will sell. It should show the sales by
customer, by brand, by package, and by month.
If you sell through
distributors, start by making a schedule of who you currently sell to (and who
you plan to sell to). Include the historical sales for the past 12months, and
the year over year growth for each distributor.
If you plan to open new
markets with new distributors, that should be included in the schedule. If you
have self-distribution sales and taproom sales, include the figures for these
With a sales forecast, the
trend is your friend. If growth this year was 10% but you project 50% next
year, make sure you know where it will be sold.
Ask questions. Challenge
assumptions. Build an achievable sales plan.
Budget Building Block #2:
Let’s begin with some
• Sales minus the cost of
sales = margin
• Margin divided by sales
= margin percentage
In other words, the price
you charge for your beer minus the costs to make the beer is your margin.
When building your plan, use an expected margin percentage. This will make communication of the margin goal easier and allow for quick comparisons to past results.
For example, if the
historical margins in your brewery are 45%, use this as an expectation for your
new budget. This can be used as the goal (or a baseline) for new brands or
packages you intend to create.
To dig in on your margin
planning, review the cost components of your beer: Direct labor, direct
materials and overhead.
Direct labor is the cost
you pay people to make the beer. Salaries and benefits for brewers, cellar and
packaging go in direct labor. Direct materials are the ingredients you combine
to make the beer. Hops and malt go in direct materials.
Overhead is the cost of everything else that you need to produce the beer. It includes lease expense, insurance on the brewery and depreciation expense of the equipment. Overhead costs are those indirect costs, or support costs, which keep the brewery running.
Build up the costs of new
beer styles or packages you intend to sell. Determine pricing, calculate
expected margins, and include this information in your total brewery margin
Budget Building Block #3:
OPERATING EXPENSE PLAN
Every big expense number
on your budget should have a supporting schedule. Examples of big expenses
include payroll, lease payments, travel budgets, and marketing costs. A
supporting schedule is a detailed listing that adds up to that one number on
the operating expense plan.
For example, to create the
payroll schedule, list out the number of employees, expected wage rates and
hours that will be worked. The sum total should match up with the payroll expense
line on the budget.
To build up the expense
plan and make sure everything is accounted for, I find it helpful to review
spending that has occurred in the past. I do this by looking through the
detailed transactions in the general ledger.
The general ledger is a
listing of all the transactions that hit the financial statements. It’s like a
check register that shows where money was spent and a description of what was
purchased in the past.
Where did we spend money?
Will that happen again? Will we spend more or less? What new plans do we have
next year? What will it cost?
Chances are, if you bought something this year, you may buy it again next year. Use the general ledger to jog your memory on expense items that are likely to repeat. Use these amounts as a baseline for budgeting expenses next year.
Use the budget that you
created in words and estimate spending needs based on those goals and
objectives. If you don’t account for this spending in the operating expense
plan, it’s tough to make the goals a reality.
Budget Building Block #4:
The capital budget is the
place for big purchases like a new canning line, a keg washer or delivery van.
Anything that costs more
than a set amount, say $1,000, and will last longer than a year should be on
the capital budget.
The difference between a
Capital Expense and an Operating Expense is that capital items need to be
depreciated (or written off) over a certain period of time. If you buy a box of
copy paper for $50 it’s an expense on the current income statement. If you buy
a $15,000 forklift, that’s a capital expense that will be depreciated over the
next five years.
Make your wish list of
needed capital items. Determine what the items will cost and when you expect to
buy them. This will help with cash needs planning and be an important building
block of your financial budget.
Lastly, match up the
expected spending to the expected funding. During this step of the budget
process you’ll need to determine how you’re going to pay for a new canning
line, keg washer or delivery van. List any new bank loans or new equity you
will need to invest in the business to make the Capital Budget a reality.
Budget Building Block #5:
Debt Service is the amount
you pay each month on your loans. These payments are made up of two parts:
principal and interest. The principal portion reduces the loan amount on your
balance sheet while the interest portion is an expense on the income statement.
To start, create a
schedule of all your loans and the payments due on each. List the bank, type of
loan, term of the debt and payment amounts. This schedule will be an integral
part of the financial plan and will serve as a reminder of how much is due and
Wrap Up + Action Items
The brewery budget is the
financial road map for your business. The plan will provide clear directions to
your team so that you can reach your sales and profit goals for the new year.
Starting the budget
process can be tough. So, begin by writing out your budget goals in words.
Simply write out what you want to accomplish, how you intend to do it, and what
resources you will need. Start with words, and let the numbers come later.
Once you have the goals
and objectives written out, it’s time to add the numbers. Use the five budget
building blocks: the sales forecast, margin plan, operating expense plan,
capital budget and debt schedule.
An effective brewery
budget is within your reach. Use the ideas here to get started and to finish
your plan. Your income statement is counting on you.
From improving market penetration to increasing sales volume for a
specific product, craft beer producers rely on their indirect salesforce to
accomplish their strategic goals. Incentive rewards can help craft beer
producers create win-win scenarios for their indirect salesforce and influence
their selling behaviors in ways that benefit the brand. However, not all
rewards are created equal. The effectiveness of an incentive reward program
depends on choosing rewards that capture the attention of wholesale and
distributor sales reps and provide sufficient motivation for them to go the
When choosing rewards that
appeal to their target audience, it’s important for craft beer producers to
focus on the following factors:
• Value Proposition: Will
these rewards provide sufficient value to your indirect sales reps to justify
their efforts and maintain their interest?
• Personalization: Will
these rewards feel meaningful to participants on a personal level, creating an
• Scalability: Will your
reward selection give you the ability to tailor your value proposition to
different segments of your audience, from easily attainable rewards for new
participants to exclusive rewards for top performers?
• Memorability: How long
will this reward keep your brand top-of-mind with participants?
• Participant Lifestyle:
Which types of rewards appeal to your participants’ interests and align with
• Competition: If your
competitors are running a rewards program, how will your program provide a more
compelling value to your participants?
Additionally, craft beer
producers need to consider how their reward selection ties into their
overarching goals, as well as their budget. Will it be more profitable to focus
on providing more attainable, less personalized rewards to drive short-term
growth or to develop high value, highly personalized rewards to solidify
long-term loyalty? Or, perhaps, some craft beer producers will be interested in
a mix of both. Either way, it’s important for craft beer producers to view
their incentive reward program as an investment rather than a cost and
concentrate on choosing rewards that help them achieve their goals in a
profitable, cost-effective manner.
Types of Incentive Rewards
Today’s incentive reward
programs provide a variety of different reward types that craft beer producers
can offer to their participants. These include gift card and debit card
rewards, points-based merchandise rewards and group incentive travel. Each of
these reward types has various strengths and weaknesses, depending on the goals
of a craft beer producer and the makeup of their target audience.
For instance, gift card
and debit card rewards are highly scalable and provide an easy to understand
value proposition. However, this comes at the expense of personalization. While
a branded, reloadable debit card will keep your brand top-of-mind longer than
cash commission, it doesn’t provide much in the way of social value and will
not necessarily make a distributor sales rep feel warm and fuzzy about your
brand. With e-delivery options and reloadable cards, gift card and debit card
rewards can be awarded almost instantly, making them best-suited for SPIFFs
(short-term incentive promotions) or for sales promotions for a wide audience.
Merchandise rewards, on
the other hand, have trophy value and provide tangible rewards that indirect
sales reps will associate with your brand for much longer. With an online
rewards catalog that’s chock full of millions of exciting rewards, from digital
movie rentals and Netflix subscriptions to home theaters, a points-based
merchandise program is highly scalable and allows participants to choose
personalized rewards that fit into their lifestyle and match their level of
performance. Online merchandise rewards allow craft beer producers to
incentivize sales growth across each segment of their salesforce, while also
inspiring loyalty in top accounts with higher value, more personalized rewards.
Of the different reward
types, group incentive travel is the most memorable and emotionally impactful.
By rewarding top-performing indirect sales reps with a trip to an exclusive
locale like Tahiti or Venice, craft beer producers will have the opportunity to
really personalize their relationship with their wholesale and distributor
sales reps and create memories they won’t soon forget. However, incentive
travel isn’t very scalable. Typically reserved for top accounts, incentive
travel is better suited for building loyalty and solidifying long-term
relationships. Additionally, it’s worth noting that while the effects of
Covid-19 have put a damper on incentive travel events, demand for these trips
will be through the roof when travel resumes, and many vendors will be
motivated to provide great deals for craft beer producers who plan ahead.
Setting Reward Parameters
An important component of
reward program strategy is determining how participants will be rewarded. Craft
beer producers should consider which specific actions participants must take in
order to accumulate reward points and whether different actions have different
strategic values in helping them achieve their goals.
For instance, if a craft
beer producer’s goal is to increase overall sales, then it might make sense to
assign reward points to distributor sales reps based on overall sales volume.
But it also might be beneficial to provide point bonuses for first time sales,
sales on a new or underperforming product line, completing online educational
courses or providing referrals. All of these actions can help facilitate sales
growth in the long-term and provide distributor sales reps with a clear path
toward maximizing the value they receive from the program.
qualification thresholds and offering tiered rewards can help craft beer
producers make their program more cost-effective. For instance, it might make
sense to require distributor sales reps to sell a certain amount of beverages
before they qualify for the program or to offer a group incentive travel trip
for the top 25 performers each quarter, in addition to a card or points-based
merchandise program for the other sales reps. Doing so allows craft beer
producers to allocate their reward spend toward their most valuable supply
chain trading partners, while limiting expenditure on sales reps who may not
offer as much long-term value.
In addition to tiering
rewards based on performance, craft beer producers can leverage this strategy
to target different hierarchical segments of their indirect salesforce,
offering higher value rewards like incentive travel to sales managers while
running a points-based merchandise or card program for the individual reps who
work under them. This allows craft beer producers to incentivize from the
top-up or the bottom-down, maximizing their influence within their sales
technology offers craft beer producers the ability to easily segment their
audience, change parameters, automatically allocate points and track the impact
of these decisions on their ROI through dashboards and custom reports. For
craft beer producers, it’s important to have the flexibility to quickly adjust
elements of their reward program strategy, while minimizing the man hours
necessary to manage their program.
Expanding on the Reward
Rewards are exciting and
provide an easily understood value proposition, making them an effective tool
for marketing an incentive program; but rewards are only a small component of
the value an incentive program creates for craft beer producers, as well as
their supply chain trading partners. An incentive reward program provides new
touchpoints to improve the partner experience, such as:
• An integrated digital
hub, where indirect sales reps can connect to learn more about the brand,
explore the latest incentive promotions, track their progress and redeem for
• A communication platform
that craft beer producers can use to send customized communication and
automated alerts via email, SMS, push notifications and direct mail;
• Customizable enrollment
forms that craft beer producers can use to capture data about their indirect
sales reps in order to personalize their sales and marketing;
• Data collection tools
that make it easy for indirect sales reps to upload sales invoices or scan QR
codes in order to verify their sales claims and earn points;
• Elements of gamification
such as leaderboards, spin-to-wins and limited time bonuses to keep sales reps
more consistently engaged;
• Online surveys and
analytics tools that help craft beer producers better understand the members of
their channel and provide a more rewarding partner experience; and
• Interactive quizzes and
online training platforms to help indirect sales reps become more informed,
effective advocates of the brand.
The appeal of earning a
reward channels indirect sales reps into this funnel and keeps them invested in
the communication they receive through the program. But, more importantly, the
reward program itself provides an entire ecosystem for more personalized
communication and engaging brand interactions between craft beer producers and
members of their channels. By focusing on the partner experience, both before
and after earning a reward, craft beer producers have the opportunity to
maximize the effectiveness of their reward program, solidify brand preference
among their supply chain trading partners, differentiate their brand and target
long-term strategic initiatives.
Nichole Gunn is the VP of Marketing and Creative Services at Incentive Solutions (www.incentivesolutions.com), an Atlanta-based incentive company that specializes in helping B2B companies improve their channel sales, build customer loyalty, and motivate their employees. Nichole Gunn can be reached at ngunn@email@example.com.
Financial literacy is the ability to read and understand the
numbers of your brewery business so that you can improve financial results.
Improving financial results may include growing sales, improving gross margins
or increasing cash flow. In today’s uncertain times, financial literacy is more
important than ever.
The numbers of your
brewery business are reported on the financial statements – the income
statement, balance sheet and statement of cash flows. Each of these reports
provides vital financial information to understand what’s going on in your
In this article, we’ll
review the basic components of brewery financial statements and provide
examples of what these reports should look like. We’ll also dig into the
mysteries of the brewery chart of accounts – the building blocks of the
financials – and provide tips to make sure your financial reporting is as good
as it can be.
We’ll close out with a
list of best practices to follow so that your financial information is
accurately reported. These best practices are summarized into a handy checklist
of month end procedures to follow.
Brewery Financial Reports
The numbers of your business are organized into reports called the financial statements: the income statement, balance sheet and statement of cash flows. Each statement provides useful information about a different part of your brewery business. Below is a brief review of each report.
Income statement (Profit & Loss Statement
or P&L): The brewery income statement reports on sales, margins, operating
expenses and shows whether the business had a profit or loss. This statement
measures results over a period of time – the month, the quarter, or year to
date, for example.
It’s important to
understand that the income statement measures transactions but does not measure
cash flow. The income statement records sales when earned, and expenses when
incurred, regardless of whether cash was received or paid out.
Balance sheet: The brewery balance sheet
lists assets, liabilities and equity.
Assets are things you own, liabilities are things you owe, and equity is
the difference between the two. If
assets are larger than liabilities, you have equity. If liabilities are bigger, you have a
While the income statement
measures results over a period of time, the balance sheet measures numbers as
of a specific point in time – at month end, quarter end or year end, for
Statement of cash flows: This financial report
measures the flow of cash coming into and going out of the brewery
business. It tells you where cash came
from (collections on sales, for example) and where cash went (payments to
vendors, for example). The income
statement measures transactions, not cash. The statement of cash flows shows
picks up where the income statement leaves off and records the flow of money
through the business.
Brewery Income Statement
Now that we’ve covered the
basic financial reports, let’s look at examples of what brewery income
statements should look like.
We’ll begin with a
summarized version of the P&L.
Shorter reports are easier to read and allow you to see important
information quickly. The summary report
includes sub-totals for each major P&L category: sales, margins, operating
expenses and profit or loss.
The simple P&L shows the summarized results for a period of time (Year to Date, in this example) and presents each category as a percentage of sales. P&Ls don’t need to be five or ten pages long to be good. In fact, shorter is better. Shorter is easier to read and makes it more likely that you actually will read the report. Start with a summary P&L like this one, then expand the report by adding more details. Here’s an example:
This P&L shows sales,
cost of sales, and margins by package type. This type of presentation makes it
easy to see the margin percentage by package type (kegs, cans or bottles) which
is useful in analyzing portfolio profitability.
An alternative to this
P&L is to present the information by line of business. This might include
sales through the taproom, self-distribution and wholesale distribution.
Regardless of which method you use, it’s helpful to mirror the sales categories
within the cost of sales and margins categories. For example, have a separate
account for taproom sales, taproom cost of sales, and taproom margins.
Financial literacy is the
ability to read and understand the numbers of your brewery business so that you
can improve financial results. The income statement, balance sheet and
statement of cash flows are reports that summarize those numbers. Each report
gives you different information about the business, and each is important to
review on a regular basis.
Brewery Chart of Accounts
Accountants use the term
Chart of Accounts to describe the listing of all the things you want to track
and report on in your business. These include all of the assets, liabilities,
revenue and expenses. The purpose of this listing is to provide organization
and structure for your financial reporting. The Chart of Accounts serves as the
building blocks of your financial statements.
The level of detail in
your chart of accounts listing will depend on how much information you want to
see on your financial reports. For example, you may have three different sales
accounts, as shown earlier: Sales-Kegs, Sales-Cans, and Sales-Bottles. Each captures the sales specific to a type of
Alternatively, you may
have any number of different sales accounts to show sales by market and package
type. For example, Sales Self-Distribution Kegs, Sales Self-Distribution Cans,
Sales Self-Distribution Kegs, etc.
Be purposeful about the
level of detail in your chart of accounts. More detail may be preferable, however
this will take more time for your bookkeeper to record the transactions into
the proper accounts. Start with the kind of reporting you need to see in your
financial statements and build the chart of accounts accordingly.
We’ve covered the basics
of how to read the financial statements and understand the chart of accounts.
Next, we’ll review a month-end process you can use to make sure
your numbers are complete and accurate. A process is defined as a series of
steps, followed in order, that will lead to the right outcome. In this case,
the right outcome is accurate numbers in the financial reports.
The month-end process
should be clearly written and used as a document to train your bookkeeping
staff. An accounting manager should periodically audit the work of staff to
ensure that the process is being followed.
The process can be presented in the form of a checklist, indicating what task to do, when to do it, and who is responsible for completion. Below is an example of a month-end financial checklist:
The process checklist
should contain all the necessary steps to close the books for the month in
order to ensure the accuracy and completeness of the information. For example,
all payroll journal entries should be made on the 1st day of the new month and
all bank statements should be reconciled by the 5th business day of the month.
To create your month-end
process checklist, have your bookkeeper write down all the actions they take to
close the month. Compile this list of actions and assign due dates and a
responsible person. Each month when it’s time to close the books, use the
checklist as a guide to make sure each step is done and completed on time.
The best way to make sure
you have good financial information is to follow a good process consistently.
To download a full month-end process checklist, visit
www.craftbreweryfinance.com and enter month-end process in the search box.
Wrap Up + Action Items
Financial literacy is the
ability to read and understand your financial statements so that you can
improve results in your brewery business. Improved results may be sales growth,
margin increases or positive cash flow. You define the result you want to
achieve and use your financial literacy to make it happen.
Use the summary income statement templates presented here or create your own so that you can monitor financial outcomes. Review your chart of accounts and compare to the template atwww.craftbreweryfinance.com to identify any needed changes.
In today’s uncertain
business environment, financial literacy is a competitive advantage. Use this
advantage to drive increased financial performance in your brewery business
Kary Shumway is a Certified Public Accountant and has been working as a CFO in
the beer business for the past 15 plus years. He creates financial training
courses for beer wholesaler owners so that you can build a more profitable
For more information please visit…www.craftbreweryfinance.com.
At press time, details
about the future economic impact of the pandemic are in constant fluctuation.
However, most forecasters are certain greater challenges loom large.
It’s not for a lack of
effort. There were many expedient pivots in the craft beverage industry, from
the much-lauded manufacturing of hand sanitizer and flipping stale beer into
whiskey to crafting subscription boxes and extending off-premise sales.
So, now what? We asked business consultants to provide their
perspectives, and they eagerly offered frank but encouraging relaunch and
repositioning action steps we hope spark ideas. Our experts include:
Jacob Halls, partner, and Rick Laxague, partner, Craft Beverage Consultantsin Columbia, Missouri. Halls advises in areas of business strategy, compliance and marketing and distribution. Laxague provides plans for distribution, operations and sales and marketing. Laxague said, “Our experts have a combined 150 years in the alcoholic beverage industry, with deep knowledge in everything from sales and distribution, production and regulatory compliance to marketing, package design, event planning, IT, (social) media, hospitality and even values-based executive coaching.”
Scott Schiller, managing director of Thoroughbred Spirits Group, which specializes in helping new and established spirit companies. Schiller said, “Since 2009, our Chicago-based company has helped launch more than 30 distilleries, designed over 50 spirits brands and facilitated three exits.”
Beverage Master Magazine
(BM): Right now, there’s still considerable uncertainty in the beer, cider and
spirits industries. Is this a time to wait and see what happens, or an
opportunity to take proactive steps?
Jacob Halls (JH): Be proactive—successful
companies see their environment and adapt to it. Waiting to see what happens to
you takes you out of an element of control of the direction of your company.
See the changes in the hospitality climate and take note of how they’re not
going to be going back to how they were anytime soon and adapt accordingly.
1. Were your on-premise sales
80% of your business? Find a way to team up with your prime on-premise accounts
to set up partnered order pairs if the state allows curbside/delivery alcohol
sales. For example, if you have 200 kegs, sell them directly from the taproom.
2. Slow down production in the
areas where your sales drastically diminished, and shift to areas that have
3. Are you currently doing
curbside sales at your taproom to supplement that revenue generation? Have you
created a gift card program? Have you developed an online sales system and
where legal, delivery/distribution program for your products and merchandise? Have
you explored every option of new streams of sales? How have you maintained
connection with your customer base?
Adapt—or Get Ready to Sell Your Equipment
Rick Laxague (RL): Be proactive now! If
you’re not analyzing your business right now and what the new normal looks like
for your brand post-COVID, chances are you won’t recover from this.
Scott Schiller(SS): The spirits business is recession resilient, not recession-proof. I’m not an economist, but at the time of writing this, I don’t foresee the economy recovering quickly. As such, there’s no better time for the well-prepared—whether existing or those in the wings to enter the industry.
I take no pride in writing
this, but there are many distilleries, and companies in general, at risk before
COVID. Unfortunately, COVID is forcing their hand. The knowledgeable,
well-financed, nimble and diversified—such as those with a healthy combination
of on- and off-premise ratios and affordable price points—have the potential to
flourish. For the distiller in planning, there’s likely to be less competition
and a healthy offering of used equipment.
BM: In your
estimation, how much of a shift do you think the pandemic and its aftermath
will make in the industry?
JH: I don’t want to sound grim, but the taprooms, bars and restaurants
will take the largest hit, which passes to the alcohol producers for a decrease
in on-premises sales. Walking around or
dancing shoulder-to-shoulder in a club for three hours isn’t going to be viewed
as normal for a while. If an establishment’s happy hour was its primary
earnings time-of-day, and it could seat 200 people with the average space
between seats being two feet, how many people concerned about this will want to
sit that close to someone?
As businesses adapt, seating
space becomes less per square foot. In order to earn the same dollars-per-hour,
something has to change in the pricing or the amount of staff—both of which can
drastically change customer flow and demographic of the restaurant. Service may
go down with fewer staff, causing a less-positive experience and fewer return
If the prices have to go
up in order to maintain the same level of staffing, then some customers may now
be priced out of the establishment, as they’re financially affected by the
pandemic as well.
The brands of alcohol
purchased by the establishment may also change: a package by the smaller craft
producer that’s normally $45 per case or $200 per keg may be passed over for a
cheaper $23 case and $60 keg in order for the establishment to maintain its
customer service level of staffing and pricing.
Something will have to
give. Bars, restaurants, wineries, breweries, cideries, meaderies and
distilleries will suffer and, in many cases, cease doing enough business to
survive their existing debt loads.
RL: It’s obvious that all
segments of the industry have seen growth from new entries—that is, companies
and brands opening in the past eight or more years. Some of these segments have
triple-digit growth. This caused the glass for the consumer to be overflowing
with overloads in brand, flavor, style and marketing. There’s no loyalty to a
brand in the new 21–28 age range due to the influx of offerings. To stop the
glass from overflowing, you have the following options:
1. Get a bigger glass.
2. More space in retail
stores, as the stores aren’t getting any bigger. B: More stores, but with the
cost of real estate and larger corporate retail stores the “A locations” are
gone and a “C location” won’t deliver a ROI.
3. Turn off the faucet. Stop
the “overflow abundance.” The thinning of the crowd needed to happen, but it’s
unfortunate that a worldwide pandemic life scare is what it took. Think of
Mother Nature and our farmers who produce ingredients to make these beverages.
They burn off their fields after harvest to create new healthy growth for the
SS: The mid-size and larger distillers will benefit from this
pandemic. Part of what has hindered their typical growth patterns is the number
of new entrants and the plethora of local distillers who often gain favor.
The second tier puts an
incredible focus on companies that provide their quickest pathway to
recovery/profitability, which will likely cause some brands to have even less
attention. I believe some brands will be delisted before that dance plays out.
Once we reach the third
tier, the on-trade will rely on brands that provide value and support.
Off-trade is doing very well, but I don’t foresee these profits being poured
into unsupported/unknown craft brands, as consumer confidence isn’t likely to
be there to warrant the investment to carry them.
BM:In what ways is a relaunch
plan essential now, and how can a producer formulate one? What might it entail?
JH: I tend to have three or more plans for almost every situation—you
can never be too ready, but you can always be underprepared. One may ask how to prepare as a producer. In
order to plan, know your business history:
• Where have you struggled
• Where were you suffering
• How agile is your
marketing team to communicate your company’s changes, and in a tone that
maintains a positive message?
• How agile is your
production team in shifting from kegs to package?
• How able is your
operations team to facilitate the changes that need done: ordering disposable
growlers, cans, contactless delivery material, etc.
• How able are you as the
proprietor to manage the economic responsibilities needed to maintain changes
in your company?
• Are you able to make
hard decisions as needed?
• Laying off or
furloughing a long-time employee is incredibly hard to do. Do you have a
support system yourself for this?
Account for everything
that has happened and can happen.
RL: What is the saying: “You
have one chance to make a good impression?” Well, now you have a second chance!
Look at your original business plan and model and select all the positives—then
write a new one. You can remove things you did wrong and implement those you
thought of after the fact. You know more now, but not everything. So source out
what you don’t know, a.k.a, “phone an expert.”
SS: No matter how this pandemic is influencing your business, it’s vital to create a strategic plan with several pathways and outcomes, for there is only one who is all-knowing in this unknown, and that is neither you nor me.
With plans in place,
financial models need to be built to ascertain how much time you have, and
along with an awareness of critical decisions and time periods. Assigning
weights to the various outcomes also allows you to make a calculated risk
assessment on what should even be attempted.
three action items do you recommend to producers right now?
1. Don’t produce just to
produce unless you need to burn through raw materials already purchased. If you
can, barrel-age or delay the release dates to maintain the production/release
rate to sales rates.
2. Take a cold look at your
finances. The hardest part of that is being honest with yourself. Don’t let ego
make the decisions.
3. Be as proactive in your
community as possible. If you can, develop a T-shirt that’s available online or
curbside with 100% of the proceeds going to support your furloughed taproom
staff or a local community cause. Work with your distributors in other
communities outside your own to be supportive there as well. Be part of the
community, even if you’re not local—keep your face seen in a positive way.
1. Evaluate finances. What
can you afford to do, and what can you afford not to do, have or upgrade?
2. Branding. What can you
improve upon from a brand perspective—as in, how to reach the consumer and
engage with them? Get them to stop scrolling, and “like” (buy) your brand. I
think virtual happy hours will be a popular thing moving forward for friends and
3. Distribution. Improve
your relationship with the distributor network. This also means having adequate
sales-brand representation to work with your distribution network to secure
1. Center yourself and get
extra clear on your definition of success.
2. Develop a rock-solid
strategic plan and financial model.
3. Get your team informed and
aligned, from front-line workers to investors. Prepare them mentally and
emotionally for what’s at hand. Ensure that you have the right warriors, and
that you have the leadership and wisdom to see them through.
In what ways can producers work within their
communities and develop new marketing strategies to rebuild their businesses?
JH: As mentioned above, team
up with distributors, businesses that supported your brand well, and charities
and causes that are positively helping communities during this pandemic.
RL: Thank the community for the support during this crisis. If you
have a loyalty program, use an email marketing platform to send a direct thank
you letter to the zip codes where members reside. Make it a bounce back:
“Thanks for the support, bring this letter in for a ½ off item,” or a similar
SS: Every business is in this together, and every business is going
to need help. Distilleries and other craft producers have always been important
members of communities, from supporting other local businesses such as farms
and utility companies; to offering dependable and well-paid jobs from
production to sales to executives; and of course, providing extensive tax
revenue for their municipalities and states.
Distillers switched gears
during world wars, and are doing so now during the pandemic. This is an amazing
time to be a leading light in the community and an essential economic engine in
a town’s rebirth. We often say “support local.” This is a two-way street and
right now, distillers can lead.
Finally, “no revenue” is an obvious answer to
the question, “Should I close?” But in the current over-expanded market, what
other answers might a producer consider?
reduction. If you have a brand that’s working and some that are lagging, but
they’re being produced to fill out the portfolio to make your brand more
attractive to distributors, grocery, C-store sets or franchise restaurant chain
mandates—cut them! Focus on what’s working and do it well.
RL: Be humble. It’s more
admirable to ask for help than to never build a new door to walk through. Also
1. What’s your quality of
life? Health, stress levels, missing kids’ activities because you must run the
business and so on. This pandemic has brought families together. More meals in
groups, board game conversation and outdoor life vs. a face in a phone all the
2. Are you staying true to
the mantra, integrity and goal of why you opened the business? Some people will
say no—they’re just trying to keep up.
SS: This pandemic will
hopefully be the toughest business challenge you’ll ever face in your lifetime.
As such, it presents an excellent opportunity to confirm your commitment to
1. Is it your life’s
2. Do you have the energy and
resources to start back from where you were in the early years?
3. What will your personal
and financial well-being look like if it takes two years to get to where you
were at the end of 2019?
If you have the fortitude and the wisdom, you
can work through this. And the field will likely be even greener if you can
make it through the next 730 days.
By: Kary Shumway, Founder of Craft Brewery Finance
The Covid-19 pandemic is
wreaking havoc with our emotional and financial well-being. Now, more than
ever, cash flow planning is a survival skill.
In this article, we’ll review tactics and strategies to keep more cash
in your business during this crisis. And I’ll share the cash flow templates
that I use to monitor cash flow in our brewery.
We’ll also cover how to
build a new financial plan for the coming weeks and months to make sure you are
properly tracking revenue, expenses and cash flow. This crisis will end, but
the brewery financial skills you learn today will benefit you and your business
forever. Use them to survive now and thrive into the future.
Short-Term Planning: Survival
First things first, let’s
focus on cash. Financial survival
requires cash on hand, access to capital, and a tool to project near-term cash
flows. Start with how much cash you have on hand, and list potential sources of
Next, calculate expected cash flows for the upcoming week. List out expected collections from accounts receivable, and payments to employees, vendors and the bank. Use a simple tool like this to summarize the numbers.
This cash flow tool will
show you cash on hand, and upcoming flows of money in and out of the business.
It’s a tracker you can update quickly and regularly to keep a close eye on
short-term cash flow.
Next, dig in a little
deeper on accounts receivable (A/R). These are your uncollected payments from
customers and must be monitored closely during this crisis. Use the detailed
A/R aging report to monitor any overdue customer invoices. Accounts receivable
represents future incoming cash flow and is critical to the financial survival
of your brewery. Communicate with any
overdue customers, work out new terms if you must, and keep the cash flowing
Likewise, review the
details of your accounts payable (A/P). These are your unpaid invoices to
vendors and suppliers. Identify those invoices that must be paid on time, and
which can be pushed off. Communicate with key vendors and ask whether they will
accept extended terms. For example, if a vendor offers 30-day credit terms,
they may be willing to extend to 60 or 90 days. The goal is to slow down the
outflow of cash, while maintaining a good relationship with key vendors.
Monitor your accounts payable, communicate with vendors, and keep more cash on
Change Your Cash Process
One important skill to learn
during this financial crisis is how to aggressively manage cash flow.
Specifically, learn where cash leaves the brewery and how you can adjust
quickly to keep more cash in your bank account.
Cash on hand means you’re in business. Running out of cash means big
trouble. To aggressively manage cash
flow, I use a three-step process that looks like this:
1. Find out how and where
money leaves your business.
2. Insert yourself into the
3. Review past spending …
Step 1: Find out how and where money leaves your
To start, make a list of
the ways that money flows out of your brewery. The usual cash outflows are:
• Accounts payable
• Manual checks
• Electronic Funds
• Automated Clearing House
Pay special attention to
the last two bullet points. These are deductions directly from your bank
account and may go unnoticed in a time when you’re trying to turn off cash
Which of these cash
outflows apply to your business? Take your list and move on to the next step.
Step 2: Insert yourself into the money-out process
Put yourself directly
in-between your money and the expense to be paid. In other words, sign every
check that goes out through accounts payable, review every manual check before
it is mailed, look over the payroll report before it is processed, and get a
listing of all the EFT or ACH payments that have been processed through your
This is the only way to
slow or stop cash from flowing out of your business. You need to be directly
involved, and directly in-between your money and the expense to be paid.
Step 3: Review past spending
One of my favorite
financial reports, in good times and bad, is the general ledger (G/L). It
records every transaction that flows through your business. The G/L can serve
as a road map to reduce the outflows of cash in an emergency.
Print a copy of your
detailed general ledger for the past 12 months and review all the expenses. As
you look over the figures, ask questions: What cash outflows are recurring?
What can be shut off immediately? What upcoming payments can be delayed or
The general ledger isn’t
just for the bookkeeper, it’s a tool for brewery owners and managers to
identify and shut off cash outflows.
Use these cash flow tactics
In addition to the 3-step
process, there are several specific steps you can take right now to improve
cash flows during this crisis. These include communication with your beer
wholesaler, bank, insurance company, key vendors, and landlord. The primary
goal of this communication: Build a plan so that you don’t run out of cash.
Market changes are
happening daily, and this requires regular communication with your wholesaler
partners. Ask what they are seeing for sales trends. This will help inform
expected sales volume as well as production and packaging plans. Ask your
wholesaler what they need, and how you can help. Your wholesaler is your
biggest customer, and biggest source of cash flow. Stay close, be supportive
and responsive to their needs to keep the cash coming in.
If you have business debt,
you have monthly payments of principal and interest due to the bank. In this
crisis, your lender may have the ability to reduce your monthly payments to
interest-only. This can be a significant cash flow savings.
Take for example, a
brewery with monthly debt payments of $10,000 per month. The loan payment
schedule shows the $10,000 payment represents $8,000 of principal and $2,000 of
interest. Therefore, reducing the payments to interest-only will save $8,000
per month in cash flow.
If you have business interruption
insurance, reach out to your insurance company to determine coverage. While
this type of insurance usually excludes pandemics (go figure) it is still
worthwhile to understand how the claim process works. Legislative rules are
changing every day, and it’s possible that insurance companies will be required
to cover losses. Learn about your coverage, file a claim, and you’ll be ready
if the rules change.
Your key vendors may be
open to extending payment terms to 60 days, 90 days or longer. Some larger
vendors may reach out to you and negotiate new terms. Other vendors you have to
ask. The takeaway is to be pro-active, communicate with your vendor partners
and negotiate new terms that you both can live with. Any credit extension you
can get will improve short term cash flow.
This same approach can be
used with your landlord. If you have a lease, you have monthly rent that needs
to be paid on time. Your landlord may be open to a rent deferral in exchange
for extending the back end of the lease. For example, no rent for the next two
months, in exchange for the lease end date to be extended two months. As with
the other ideas in this section, this might not work. But if it does, it will
help short term cash flow.
Re-forecast Your Financials
The cash flow tool shared
earlier is useful for a quick look at short-term cash flows. The financial
re-forecast tool that we will cover next provides a longer-term look at
Thanks to the financial
crisis, your original forecast for this year is no longer relevant. However, it
can still be used as a starting point for the financial re-forecast. Adjust the
numbers up or down depending on changes to the business, new information that
arrives daily, and trends in the market.
To start this process,
take the annual plan and spread it out over the 12-months of the year. The
financial re-forecast model that I use looks like this:
On the left side of the model, summarize sales, margins and operating expenses. Across the top of sheet, list out each month in the year and whether the information is based on actual or forecasted numbers. For example, if you have January, February and March financials completed, input those actual results in the sheet. For the remainder of the months in the year, mark these as forecasted numbers.
The financial re-forecast
tool is intended to be a one-page plan that is quick and easy to update on a
regular basis with new information as it becomes available. Use this tool to combine all the information
you are gathering from wholesaler partners, key vendors, and changes to
legislation (such as the excise tax deferral).
Wrap Up + Action Items
Cash flow planning is a
financial survival skill and is needed now more than ever. While we don’t know
when this crisis will end or what business will look like when it does, we do
know how to aggressively manage cash to keep our business going as long as
Use the cash flow template
presented here to keep a close eye on cash balances, access to capital and
expected money flows into and out of your brewery. Take an active role in
managing this most important asset.
Use the financial
re-forecast model to build a simple, one-page plan. Keep the numbers high-level
to start – sales, margins, and operating expenses. Update the plan on a regular basis as changes
happen. And changes are happening every day.
The brewery financial
skills you learn today will benefit your business forever. Build your skills to
survive now and thrive into the future.
Shumway is the founder of Craft Brewery Finance, an online
resource for beer industry professionals. He has worked in the beer industry
for more than 20 years as a certified public accountant and a chief financial
officer for a beer distributor. He currently serves as CFO for Wormtown Brewery
in Worcester, Massachusetts.
Craft Brewery Finance publishes a weekly beer industry finance newsletter, offers online training courses on topics such as cash flow planning, financial forecasting, and brewery metrics. During this crisis, Craft Brewery Finance is offering a Free 60-Day Subscription. Visit www.CraftBreweryFinance.com for details.