In 2017 I attended the Brewery Accelerator Workshop in San Diego, California and was available to answer pre-workshop questions for brewery CFOs. The topics included taxes and compliance, outsourced accounting vs. home-grown operations, start-up capital, and operational accounting.
Part 4 dives into operational accounting questions.
Q: Should I buy or lease my space?
A: It is always better to buy then to lease. You have control and you know that you won’t be kicked out with a short notice. Usually only those breweries that can raise enough capital can afford to purchase the building. It does take another layer of compilation that adds to the work to setup the company.
Q: What accounting/financial/analysis programs are most beneficial to the CFO?
A: The first CFO is an owner/founder who must also be the first salesperson and marketer. I see owners drown in sales duties before they can look at financials. That being said, any startup brewery should take a hard look at EKOS Brewmaster. It works seamlessly with QuickBooks Online, it has a low cost to implement and a low cost to manage. It will give you some idea of beer inventory and costing. At a certain production level, you will need a more sophisticated system, but I contend that you would need an annual run rate of 8,000-10,000bbls to start investing. That investment is in a system AND people to manage the system. They must go hand in hand.
Q: How many kegs are necessary? Should I buy or rent kegs?
A: It depends….if you can afford it, I would always purchase your kegs just for the simple fact that a one-time charge of $100 is less than a regular charge of $14/month per keg. That being said, most people don’t have enough investment to purchase all of their kegs.
One caveat, if you are selling beer outside of your market or have a lot of barrel-aged beers (that people tend to sit on before tapping), leasing kegs makes sense.
Q: What are typical startup brewery financial mess ups?
- Starting the brewery without a basic understanding of the income statement and balance sheet. Both must be maintained in order to make sure that the wheels don’t come off.
- Outsourcing accounting control to someone who does not have operational control. That means that they can see iceberg, but don’t have the ability to steer the ship away from it.
- Not knowing where breakeven is
- Not knowing what financial levers you can push in order to increase financial performance.
Q: What are common mistakes in managing costs?
A: The most common mistake that I see is that people don’t even understand what their costs are. They become complacent with the fact that they have money in the bank and don’t look any deeper. The truth is that you are building a manufacturing plant and each step in the process adds to cost and adds to complexity. Proper cost accounting is a must once you hit the critical stage (8,000-10,000BBLS/year).
Q: What factors should we include in the cost when working out a "per barrel" cost? What are some good ways to anticipate these costs for business plan purposes?
A: Costing is a journey that will grow with your ability to add people and money to the issue. For startups, I’m happy if you are tracking inventory and batch costing. That at least gives you a general sense of material costs.
A few years into the brewery, I start to work on labor costing. This is the beginning of standard costing which takes attention from a trained professional (“don’t do this a home people”). Then once labor is mastered, then I start on overhead costing. If you can get to that point, then you have the true beer cost.
This question also delves into financial accounting. I am a big fan of divisional accounting. You can get most of what you are looking for in financial accounting by paying proper attention to the segregation of cost and an understanding of direct vs indirect costs.