Page 33 - Beverage MasterFebMarch 2021_Update

Craft Brewery

• Debt Service (payments on the loan) = $100,000 uments. It’s important to understand how the cal-
• Coverage (cash flow or EBITDA) = $150,000 culations work and measure actual results against
• Debt service coverage ratio = 1.5x the financial promises (covenants) that have been
made.
n this example, the EBITDA of $150,000 is divided
by the debt service of $100,000 and yields a ratio of Wrap Up & Action Items
1.5 times. In other words, EBITDA (cash in) is great-
er than debt service (cash out) by 1.5x. In the middle of the Covid-19 pandemic your most
important asset is cash and access to capital. The
A second loan covenant that is often required is working capital and equipment line of credit pro-
the debt to net worth ratio. As the name implies, vide access to cash when you need it most. The
this ratio compares the total debt of the brewery to financial pro forma demonstrates your cash needs
the net worth. Here’s an example: and ability to make loan re-payments.

• Debt = $150,000 A financing plan provides access to capital so that
• Net Worth = $300,000 you can stay in business and ride out the financial
• Ratio = 0.5x turmoil. As you set your New Year’s resolutions,
consider resolving to create a solid financing plan
In this example, total brewery debt is $150,000 for your brewery.
and net worth is $300,000. For the calculation, debt
is divided by net worth, and the result is a debt to For more information visit..
net worth ratio of 0.5x. http://www.craftbreweryfinancialtraining.com

The covenant requirements for each ratio will be
set by your lender and spelled out in your loan doc-

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