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Even if you don't expand, build your brewery like you were planning on it

About half of my posts are about how to save money building your brewery, and the other half about how to run your brewery. Along those lines I’d like to talk about one aspect on how to organize your numbers.

It may seem a small thing, but with a very simple arrangement in the way you do your accounting, you can do a lot of good in your accounting if you choose to expand. In other words, set up your first brewery as if it is the first in a national chain. It doesn’t matter if you ever do another brewery or any other type of business, this will still be very helpful. However if you ever step away from your day to day operation, this simple method for accounting will be a tremendous help.

If you are using any type of accounting software (I use Quickbooks) it will give you a Profit and Loss (P&L) report with a push of a button. What I recommend is that you set it up in a different way.

Typical P&L’s start with Sales, followed by Cost of Sales (what you pay for what you sell) and then expenses. The very last line being net profit, or Sales minus Cost of Sales minus Expenses.

Try this instead (any bookkeeper can do this in about 10 minutes). Create 2 categories of expenses. The first one is called Controlables. Expenses that fall under this heading are Labor (though sometimes this is its own category as well), Labor Taxes, Replacement, Repairs, Advertising, Brewing Supplies, Restaurant Supplies, Utilities, Education, Meals and Entertainment, and so on. These are expenses that you can control. Repairs can be less if you take care of your equipment. How you advertise depends on your own creativity, utilities can be controlled by not turning on every damn light in the building as soon as you walk in at 8:00 AM, even though you won’t be open until 4:00 PM.

The second category is called Non-Controllable Expenses. This would include Rent, Insurance, Legal & Accounting, Amortization, Depreciation and Bonus Expense (I’ll explain).

Where I’m going with this, is if you were to give bonuses based on the performance of the brewery, you want to be able to reward the managers based on the things they control. So, the larger the sales and the less the expenses, the greater the bonus could be. You don’t want to penalize the manager because you have expensive rent, or even having their own bonuses as an expense that they are penalized for.

Let me show you how we do it to better illustrate what I’m talking about. After we have finished the month, updated the inventory numbers into Quickbooks, and reconciled our checking account in case we missed anything, we can print out a very accurate P&L for the previous month. From this I can calculate the bonuses.

So for example, I take the Sales figure, subtract out the Cost of Sales, then subtract the Controllable expenses. What is left over, I consider my bonus fund. Each manager gets a % of that fund. It’s up to you to figure out what that % should be. I like from 1 to 2 or 3%. So, the better the sales, and the lower the costs through their management skills, the higher the bonus fund, and hence, their bonus.

As soon as you remove yourself from the operation of your brewery to either expand or just not work as much, you need to have systems in place so that the people running the brewery have a way to win at the game. In other words you can’t play unless you know what the score is, and an open bonus plan based on real numbers that your managers can see and actually control is truly a win/win.

I’ll leave you this week with an illustration of a small profitable brewery and how the P&L is laid out. First page is the over all, and the second is a break down of Controllable and Non-Controllable. Questions?

Over view of a 4 week period

This one has Labor separated out, but could be included as well.