Q&A from 2019 Brewery Accelerator Workshop

While attending and speaking at the 2019 Brewery Accelerator Workshop in Denver, I answered questions following my presentation: Business Advice for the New (and not so new) Craft Brewer.

Q: What kind of software is there for keeping track of inventory, current state of finished beer/fermenting beer/future beers, etc.? Are there all-in-one applications or do you need to get a few different programs to do everything?

The dominant configuration that I see is Ekos Brewmaster with a QuickBooks back-end. There is no dominant POS system, but I see Square being used often, and interest in Toast. That being said, don’t implement something that you are not prepared to keep updated. There isn’t a system out there that will make your staff track inventory.

One of the hardest cultural shifts for a brewery is going from an artistic endeavor to a manufacturing company. That shift is necessary for true beer and production efficiency.

Q: Many products promote their back-end analytics (Ekos, Square, Untapped, etc.) What is the best source for sales analytics?

That is a great question and one that is very hard to answer. Since most breweries are privately-held, craft brewery information is hard to find. There are a few resources that I would look at:

  • Anything that Bart Watson publishes
  • Take a serious look at Beer Business Daily and Craft Beer Business Daily
  • VIP if you are a distributed brewery

Q: I need to know everything about TTB reporting!

I agree that there is not enough written about the federal and state excise tax. It is its own taxing system that has its own rules.

  • Review the TTB website. There is a lot of info there that you should know when setting up a brewery.
  • Know the TTB phone number and where the TTB field offices are. They are there to help you for free.
  • The TTB booth at CBC is staffed by field auditors. They are there to help you.
  • I did a series of blog posts about excise tax. That should give you the basics.

Q: How do you account for barrel loss or contaminated batches in pricing?

I believe you are asking about cost drivers. The market determines the price and typically you cannot mark up a batch of beer that has increased cost due to brewing errors.

Q: How do I determine initial pricing for my area if there are no breweries within 50 miles to compare with?

You have a market, even if it is 50 miles away. Most beer falls into the $4-8/per pint (or 12oz).

Q: For a small, self-distributing brewery hoping to obtain tap handles among those of larger craft brewers, how vital is it to match their prices?

If you don’t, what other compelling reason would a bar pay more for your beer? That being said, if you self-distribute your beer, you may be able to match a distributed beer PTR (price to retailer). Typically, most bars keep a rotating craft handle. That is the best way to introduce your beer to patrons of the bar.

Q: Would it be better to price higher and then drop the prices later, or to start prices lower and then raise on demand?

It is a lot harder to raise prices. That being said, make sure that the beer is good enough to price it at a premium. Most beer is sold according to the local price matrix. I don’t know many instances where you can set your own pricing.

Q: How do I know how much beer to have brewed on a daily, weekly, or monthly plan?

That is the $20,000 question that you will refine throughout your career. All breweries struggle to answer that question and it changes every year and even in the middle of the year. The best example is during the end of the summer. All of the beer that you can possibly make is sold as soon as you package it. Then an invisible whistle goes off and people suddenly stop drinking beer. That is the scariest time for the brewery and it happens every year at slightly different times during the year.

Q: How much inventory should you keep on hand at any given time?

That depends on your ability to forecast and your beer planning. When you are able to plan in the intermediate and long term, you can perhaps order in larger quantities. Most smaller breweries only have the space and the cash to hold an ingredient inventory of two weeks.

Q: I would like to understand purchase contracts for hops and any other raw material they might be recommended for.

Hop contracts are a futures contract that obligate the brewery to purchase a set amount of hops at a set price. It used to be that there was not a secondary market for hops. Because of the glut of capacity, there is also a glut of hops. That is why there are so many different ways to purchase hops today.

I don’t typically see futures contracts for any other ingredients. Your volume is too small to warrant purchase contracts.

Q: What are some good ways to track materials inventory?

You need to match the physical world with the virtual world ALL of the time. Inventory changes constantly and you need to make sure that all inventory moves are tracked in a system.

Q: What (if any) kind of personal income could a new brewer expect? I personally think the scariest part of starting up a brewery is quitting a well-paying stable job.

Basically, nothing for the first couple of years. Not matter how much you plan, there is always a shortage of cash. The easiest place is to cut your salary so that the funds stay in the brewery. I agree, a well-paying job is a really hard thing to let go.

Breweries need full-time attention. It is a living-breathing organization that needs time, attention and energy. Done well, it is very hard to have two full-time jobs. No one has that much energy. Even full-time brewery owners tend to burn out by the third year.

Q: I would like to know how a brewery grows on their own.

By growing the fan base and the demand for the beer. That is done in several different ways, but the short answer is that the beer needs to be available in more and more places. That requires more and more infrastructure to service customers.

Q: What are the most effective tools for a brewpub (that does limited distribution)?

Make sure that if it is legal, you make To-Go beer available. You are limited in the space for people to consume your beer. If they can consume it at home, the ability to grow the fan base is almost unlimited.

Q: What are the major overhead costs?

The best way to answer that question is to ask what items are current listed in your bill of materials (BOM). Those costs will automatically flow to the cost of goods sold item when the beer is sold. Typically only malt, hops and adjuncts are included in the average BOM.

But we all know that it takes much more to make beer. That is why I lump all of that together into a ‘cost of goods manufactured’ subcategory. That way I can see what total overhead costs exist.

Typical overhead costs include: the complete cost of labor (wages, taxes, worker’s comp insurance and other benefits), brewery supplies (including utilities), a proportional share of rent, excise tax, and keg lease costs.

Q: How much should I pay an accountant for services when I'm generating $200K or less per year in sales?

That depends on your management group. What kind of financials do you want and when? Most breweries at this stage rely on one of the founders to catch up on accounting before tax time, or they rely on volunteer labor to do the basic accounting. If you want strong books from the beginning, I would at a minimum employ a bookkeeper to keep things up to date. That ensures that the books keep some semblance of reality to them.

Q: Should we have a CPA from day one?

It is always a good idea to have a CPA as part of the team. At the start-up phase, you’ll need an accounting professional to give you tax advice on what will work for you. There are so many ways to structure a company. It is important to check in yearly in the fall to make sure that they understand your company and where you are going.

Once the depreciation is exhausted, breweries are a profitable venture. Make sure that you and your tax professional are ready for that change.

Q: What are some templates and basic suggestions for setting up the books, minimum reporting, and working well with your CPA?

Everything begins and ends with the chart of accounts. That is the basic structure of how the brewery captures and reports data. Every service provider (including me) should provide their standard chart of accounts. The art is in implementing the data capture and the associated reports.

That being said, accounting professionals are not cheap. Do not book their time unless you have the mind share to really focus on what they are saying. Keep an eye on the bills; they can be multiple thousands of dollars. Ensure that you understand what you are getting for what price.

Accountants speak a different language. They are highly skilled people who are one of the most expensive consultants that you will employ. Make sure that you understand what they are recommending (do not just shake your head). And if you don’t understand something that they said, stop them and ask them to restate it.

Q: What are the top three accounting errors that startup breweries commit?

GREAT question. Everyone thinks about accounting, but few really focus on it. Once the beer is flowing, there are so many different demands on your time and it’s hard to keep everything straight.

  • Error #1: Doing accounting for the IRS and not for the brewery. Not putting enough resources behind the accounting function is a really common problem. Financial statements have a shelf life just like your beer. If you don’t complete the month-end close in a short amount of time, the business will have moved to another month and the financial statements have lost their ability to tell a true story about your company.
  • Error #2: Not matching the physical world with the virtual world. If you don’t trust your system, then you have to spend a whole lot more time trying to figure out what the truth is on the production floor. It is far more efficient to log into a system, then it is to get up and find someone to ask them about inventory.
  • Error #3: Not following a plan. Everyone should have an annual budget and an updated forecast. That way management has a plan in their head about how the company should proceed. If you don’t regularly check back with your expectations, you don’t have any idea on how you are doing OR if you should proceed down a different path. The funny thing is that everyone has a business plan, once the beer starts flowing, they don’t check back to see how and where they differ from the plan.
  • Error #4: Your books should be speaking back to you. Everyone should understand the operational metrics of the brewery. That way everyone will understand their part in creating a profitable brewery.
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