Q&A from 2020 Brewery Accelerator Workshop

brewery_workshop_2020While attending and speaking at the 2020 Brewery Accelerator Workshop in Virginia, I answered questions following my presentation: The Brewery CFO: Accounting, Inventory, and Pricing Seminar. 

How does a brewery owner price beer?

There are two ways to price beer: price according to market and price according to cost. Most breweries will need to stick with market prices (why would someone pay more for the same beer that they can get down the street?). You can build the case for beer price using the cost build-up method, but understand that you will probably need to stick to market price.

What are the most used pricing models for breweries that only sell from the taproom? How does/should pricing vary by distribution channel?

Selling outside of the taproom requires an understanding of the market price for the specific style and package of beer. Often, breweries will obtain a distributors price list from a friendly bar or liquor store and use it to base their pricing on the marketplace.

Cost build-ups are something that evolve over time. You’ll start with the very basics (malt, hops) and add more over time. Fully built out pricing models add labor, overhead, utilities, and excise tax. Everyone has a costing model, but the important thing is that you keep it as simple as your data allows and then reaffirm the input costs with your accounting system. Every pricing model that I’ve seen is written in Microsoft Excel. That means that you will not catch any shifts in market price if you don’t recheck your input pricing with your accounting system.

What should be factored into beer cost to ensure profitability?

That depends on if you mean Profitable at Gross Margin or at Operating Income? The answer changes depending on the lens with which you view the data. I would look at the gross margin level first, with an eye toward making sure that the brewery as a whole is making profit. This is done by setting income targets at budgeting time and then ensuring that the sales plan will yield the anticipated revenue.

Can you show a break down cost analysis of a barrel of beer including unexpected hidden costs and average losses?

The industry standard for loss is about 20%. DIPA and other material-rich beers will see a 30% loss. You will see loss in every step of the manufacturing process. To make things simple, I usually start with knockout volume in the brew kettle. I’ve never seen a reason to start the measurement at fill volume. It isn’t really liquid until it leaves the brew kettle, so knockout is the best place to start. You will lose some liquid whenever you transfer beer, but the largest two places where I see loss is in dry-hopping and in packaging. Larger breweries with flow meters can measure loss whenever beer is transferred. Smaller breweries measure knockout and don’t typically measure loss until then beer leaves the brite tank.  Inventory management systems will force you to ‘clear’ the tank. The action of clearing the tank will force the recognition of manufacturing loss at that time.

Can I outsource any of the accounting for my brewery?  

In my opinion, the brewery is better off if someone can understand the operations and the financial side of things. If that person does not exist, then you miss the important signs that your financials will give you. Also, there’s a time delay when accounting is outsourced. Financials have far less value if they are generated much past 30 days.

Should we outsource payroll vs. using Square or something similar?

Most companies outsource payroll. If you have someone on your staff that has a business background, then by all means learn how to do payroll internally. It’s not difficult and hardly ever changes once you’ve mastered it. However, you should have an advisor help you learn the system first and assume that you will make a few mistakes along the way. Most people are too worried about the complexities of payroll to handle the idea of fixing payroll mistakes. If that makes you wince, then outsource it and spend your energy elsewhere on another task.

What is the best software for brewery inventory and sales tracking?

It is my experience that a brewery needs to grow into software. Over the last couple of years, I’ve seen breweries purchase software and then struggle to use it effectively. If you are just starting out, I would recommend that you keep it as simple as possible. Stay on the cash method until it no longer works for you. Systems can always become more complex, I’ve never seen one that became less complex over time. As your understanding of your brewery grows, you will want more precise data and that will lead you to adopt a software system. That being said, the hardest part of using a system is to change everyone’s process. It must start from the top down, so if you are not completely behind the software, it will fail.

If you have determined that you are ready for a system, the dominant configuration that I see is EKOS Brewmaster with a QuickBooks back-end. There is no dominant point-of-sale system, but I see Square being used often and interest in Toast (if you have a kitchen and serve food). Arryved is a new system that specializes in craft breweries. 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. 

Is it practical to manage brewery accounting and inventory on your own? How do you price beer competitively while still creating cash flow?

That depends on the size of your brewery. Most breweries start with the owner doing everything (including brewing and serving beer). As the brewery grows, most can then afford to hire people to do specific tasks. The important thing is to have enough cash to cover the lean months of the year. You have to have enough cash on hand to make payroll and pay bills when it is cold outside and the demand for beer drops off.

What should be included in the financials section of a brewery business plan?

Your business plan is the encapsulation of all the necessary steps to run, and invest, in a business. You need to show how you are going to brew the beer and that the business will be successful enough to pay back investors. Often the business plan shows too optimistic of a case and the brewery has a hard time meeting projections. I would show five years of an income statement, balance sheet, and cash flow, and a listing of capital assets to be purchased. 

Also make sure that you highlight any previous experience that the founders possess. It’s comforting to the investors to see that someone on the management team has done the same type of work before launching the brewery.

Should every beer maintain the same margin, or should it be style specific?

Breweries tend to keep a simple pricing structure. The way that they will ‘charge’ more for beer is to charge the same amount for a smaller pour (10oz vs 16oz). That way the price is higher per ounce of expensive beer.

How do I map out the financials for my brewery?

I can provide a “back of the envelope math” worksheet to give you a general idea of what the income potential of the brewery will be. Be honest with the costs and cut your revenue projections in half to make sure that you can withstand a downturn. 

Speak to Mary Brettmann about ensuring your brewery's financial success:

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