But How Do You Know?
From a birds-eye-view it looks pretty simple: Money comes into the brewery and you pay wages and expenses and anything left over is profit.
Well then, making beer is pretty simple too, right? Add some malt to hot water, strain it then boil with some hops, cool it, and add yeast. After a couple weeks you have beer. Voila!
You of course would never make beer in such a simple approach. It’s not only the recipe and the ingredients you choose, but the pH and water chemistry, fermentation temperature, cleanliness and so on. And don’t get me started on head retention with tight dry foam! It takes a lot of skill and love of the craft to make great beers.
If you go to that much trouble to create beer that people keep wanting to come back for, why wouldn’t you also dig deeper into how you do your accounting? I know, not sexy at all. But I’ll tell you what is: Having enough money left over at the end of the year so that you and your key employees can take a trip to Belgium to do a brewery tour, or purchasing a better piece of equipment, or giving people enough of a raise so that they can live decently for God’s sake.
If you are not doing so already, I suggest you cough up a few thousand dollars to pay a good bookkeeper to help you set your books up properly so that you know for a fact what your profits are and if or where you are leaking money. This is how I set my numbers up.
Sales
Divide what you sell by category. For example: beer, wine, liquor, food, merchandise and non-alcoholic beverages. Each one has a different profit margin, so you need to track each.
Cost of Goods Sold
For each thing you sell you need a corresponding Cost of Goods Sold. Beer for example would include what you spent for grain, hops, and yeast. You could or not include clarifying agents, salts and the like, but I don’t I keep it simple and use just the main ingredients.
Same goes for all the others. It’s just what you buy to sell. So I don’t include labor. That’s an expense.
Controllable Expenses
After Cost of Goods Sold, I divide my expenses up into two categories; controllable and non-controllable. As the business grows, I want to bonus my managers on the expenses that they can actually control and not penalize them for things like rent and loan payments and the like.
So my Controllable Expenses will include; labor, labor taxes, advertising, utilities, supplies, maintenance and repairs, office supplies, travel and the like.
Non-Controllable Expenses
Non-Controllable Expenses will include; credit card fees, accounting, interest expense, depreciation and rent.
What’s left over is Net Profit.
At the end of the month, you can print one of these reports from your accounting software and then compare it to the previous month or last year. You can spot trouble and deal with it before it bankrupts you.
I knew a brewery once that only had a clue they were making any money if there was a positive balance in their checkbook. One partner was selling out and wanted to know what his share was worth. I did not know, however, what the business was worth because they didn’t keep any records. He negotiated his own deal, but I know he got screwed. Not that his partner screwed him, but because his partner also did not know what the business was worth. It was a self-inflicted wound.
Hiring a bookkeeper to set up your accounting for a few thousand dollars will be the best money you spend. And because you have an accounting system, you will actually know that was be the best money you’ve spent.
