Obviously, there's more to owning and operating a craft brewery, microbrewery, brewpub, or taproom, than just brewing beer. The business end of things must be managed, and managed efficiently, if you want to be successful. Here are 20 craft brewery tips to boost growth, improve cash flow and aid in the foundation of your craft breweries future:
Determine Your Break Even Point - You should know when your brewery will become profitable, not because it will affect your cash flow, because it won’t, but because it gives you an early goal to strive for and a ready-made target for projecting future cash flow. Negative cash flow and negative profits make for a grim combination. Focus your efforts on managing your cash flow with an eye toward reaching that moment when you realize your first profits.
Focus on Cash Flow Management, Not Profits - This may sound contradictory to #1, but it’s not. Use your break even point as a benchmark. After you reach break even and your brewery is profitable, you still need to manage your cash flow, of course. You have reached another stage of your brewery’s life.
Maintain Some Cash Reserves - You will have cash shortfalls. Your brewery’s very survival may depend on how you maneuver through those shortfalls. If you start with some cash in your bank account, it will be easier to focus on cash flow and you won’t stress about the shortfall.
Know Your Debt Level - When assessing how to fund growth, it's essential to calculate how much debt you're already carrying, and your comfort level adding to that debt. If you have sizable debt, additional borrowing could have a negative impact on your credit rating, which is never a good position for a craft brewery. And your ability to secure a loan and get favorable terms will be partly dependent on existing debt as well as other elements of your financial and business profile. If you're carrying a manageable amount of debt and can secure a loan or line of credit at competitive rates, then credit may be the best option. However, if your debt level makes you or your lender uncomfortable, then perhaps establishing the discipline of using cash to methodically fund growth of your craft brewery could make the most sense.
Understand Your Operating Cycle - Regardless of size, every brewery, brewpub or taproom must deposit, monitor, and manage cash receipts; make payments; fund purchases; and invest in the company. Reviewing and understanding each step in this cash-flow cycle can help a company work more efficiently.
Review Payroll Process - If you pay your employees twice a month instead of every other week, you will be managing 24 payroll periods instead of 26 during the course of a year, making your company more efficient.
Access Capital - If you don’t have what you need for your craft breweries development, all you’re doing is paying your bills and just getting by. Having enough working capital to pay those bills on time every month is important, but to take your brewery further, its growth capital you should be paying close attention to. To do that, you have to understand how growth capital works, what it does, and how it helps your company develop from a small local brewery into to something much larger and stronger.
Track Variable Expenses - To accurately project how much your craft brewery will spend each month, it's important to take inventory of every element that creates an expense. Some of these variables are fixed and predictable from month to month, while others vary by season or year. Wages, rent and regular expenses are examples of fixed costs. Examples of variable costs include seasonal expenses, such as stocking pre-holiday inventory, and rising utility costs during especially cold or hot months. To create a solid inventory of all of your costs, especially the ones that are easy to forget about, review past years' records. Be sure to go through your expenses, to make sure there aren’t any annual fees that you forget about as they only come once a year.
Leverage Data - Leveraging data isn't just for social media sites, sports teams, and wearable fitness devices. If your brewery is growing, you're probably using data to track customers, identify market opportunities, and monitor market share. But are you using data to analyze your finances? Many breweries aren't. Although the data is available in your accounting software or financial system, few companies take the time to access it and study the numbers. You may think cash flow is only about how much is coming in and how much is going out. But if you dig deeper into your own brewery data, you can create more accurate forecasts, identify upcoming cash gaps, and help spot opportunities and threats long before they appear.
Plan Ahead - While lines of credit are reusable, craft brewery loans are lump sum disbursements that fund your brewery when the need arises. Whether you're funding craft brewery growth or tiding yourself over between a management transition, a brewery loan can give you a rapid cash infusion and the flexibility to pay that amount back over a predetermined time frame. Brewery loans can be a good choice when growth is on the horizon and they are a longer-term solution than lines of credit. They can help breweries, brewpubs and taprooms increase production, hire key talent or complete a product that will replenish your cash flow. Bottom line, the worst time to plan a cash infusion is when you need it.
Prioritize Cash Flow Analysis - The more rigorous you are about tracking cash flow, the more empowered you'll be to track dips and spikes in performance. Look for bottlenecks and challenges, problems that should be alleviated sooner rather than later. Cash flow optimization is an initiative that is equal parts logistical and strategic. In addition to making sure that numbers are tracked, focus on how you can make them better.
Create a Cash Flow Forecast - Managing cash flow is vital for the health of any brewery, and you should look for ways to improve your cash flow while also protecting relationships with your vendors and customers. Creating a smart cash flow forecast can help maximize growth for your brewery, by spotting trouble before it arrives and making sure you always have enough money on hand to keep your brewery growing.
Annual Review on Production Cost - Your year-end reporting should be able to tell you what your production costs are for each product and service you offer. When you're reviewing production costs with an eye on profit margins, there are key factors to consider. One of these factors is vendor-related costs. If you're outsourcing production of any items, a thorough invoice-level review is necessary to see where a vendor might have changed your costs. For example, they might have lowered your per-unit cost, yet increased your shipping fees. You can't find the holes unless you look. You should also consider your own costs. An annual review is a good time to examine worker wages, hiring, overtime, materials costs, and other factors that can vary year-to-year. Find your increases and decreases, and see where there can be room for improvement.
Identifying Seasonality - Examining monthly historical cash flow figures should quickly give clues as to which months are the busiest. However, one-time bumps or declines in cash flow may distort this perception. So compare averages for a given month, quarter or other period to the historical averages for the entire year. Also be aware that historical data may not tell the whole story. Consider future one-time events, such as a product supplier's planned price cut, as well as intuition, judgment and knowledge about general economic conditions when forecasting seasonal effects.
Cash vs. Credit - The old adage “cash is king" still carries weight when it comes to effectively operating and growing a brewery. It's essential to maintain operating cash to fund the daily operations of your brewery, but cash reserves beyond that can be viewed as capital that can be used to fund growth or reinvestment in the brewery. Before even entertaining the question of cash vs. credit, you should make sure you have a clear picture of what operating cash you need to comfortably run your brewery.
Preventative Maintenance - It's advisable that brewery owners take a six-month view of their overall cash flow situation. Ask yourself, what's your expected revenue for the next six months, which opportunities do you have coming up, what are your expenses, and where are your possible peaks and valleys? You need to know that you can pay your bills, and then, having this level of visibility, you can have the confidence hire additional staff, buy new equipment, invest in expanding the craft brewery, etc. Cash flow is the lifeblood of your brewery. Just like caring for your health, a bit of preventative maintenance and careful ongoing attention can keep your breweries revenues healthy and strong.
Track Your Spending - A cash flow forecast spreadsheet puts these together, breaking down incoming and outgoing cash by week, month, or quarter. A simple forecast would have entries showing cash on hand at the beginning of the period, expected expenses during the period, as well as expected receipts during the period. If the total at the bottom of any period's column is negative, a cash flow crunch may loom and action should be taken to avoid running out. Ideally, your cash flow should be managed to avoid these shortfalls and reduce borrowing costs in the long term.
Watch Your Cash Flow - Know how much you can afford to spend and when by creating a cash flow projection. Pay attention to your accounts receivable and payable before you make a big purchase. If possible, wait until you have been paid to make commitments to others. Monitoring what you are owed and what you owe will help ensure you remain cash-flow-positive as your craft brewery grows. Money management can make or break a brewery. Regular cash flow monitoring will help ensure you have money to pay bills on time and that you can make arrangements that are agreeable to all sides if the time ever comes when you can't.
Excess Cash Flow - Make sure your excess cash flow is really excess… and determine how much of it you have. While the exact answer will vary depending on overhead and burn rate, at a minimum, you should have enough cash on hand to meet short-term expenses, such as wages and rent, for a couple of months. The amount over and above your short and intermediate term needs could be excess cash. Excess cash flow can be used for growth; R&D, expansion, hiring, advertising, marketing, etc.
- Keep an Eye on Your Debt Profile - When assessing how to fund growth, it's essential to calculate how much debt you're already carrying and your comfort level adding to that debt. If you have sizable debt, additional borrowing could have a negative impact on your credit rating, which is never a good position for a craft brewery. And your ability to secure a loan and get favorable terms will be partly dependent on existing debt as well as other elements of your financial and business profile. If you're carrying a manageable amount of debt and can secure a loan or line of credit at competitive rates, then credit may be the best option. However, if your debt level makes you or your lender uncomfortable, then perhaps establishing the discipline of using cash to methodically fund growth of your craft brewery could make the most sense.
There you have it.... 20 Invaluable Tips to BOOST Growth, Improve Cash Flow & Drive Revenues Up; in Your Craft Brewery, Microbrewery, Brewpub, or Taproom. Have questions about cash flow or financing for your craft brewery, microbrewery, brewpub or taproom? We're here to help! Call (855) 998-LVRG or click the banner below to get started.