The Multiplying Effect Of Profitability
In addition to running my own breweries, I have been helping folks build breweries since 1995. Mainly I just do it for fun, but something shifted a bit after 2020 and the Covid pandemic which killed over a million Americans, over 25 million world wide, and is considered the 7th worst pandemic in human history. I added that because sometimes I forget what a big deal it was!
Anyway, since 2020 and the huge pressure it put on our business, people are now asking advice on selling. I can hardly think of a time before 2020 that I was asked that question. So in this article I wanted to back up a minute to remind all the Frankenbrewers out there why we should remain penny pinchers.
Before I go further, I never cut corners with quality or anything that would affect the health of the brewery. But as in life, it’s the little things that add up. I’ve written about this before too.
Just as in personal life, we experience lifestyle creep, where we accessorize our lives to the point that we have signed up to over $200 to $400 per month in stupid subscriptions, granite counter tops and those weird little vacuum cleaners that run around the house on their own. Really?
Well, this happens in your brewery just as quickly as it does personally. You start out with the purchases you absolutely must have to operate your brewery: basic good quality brewing equipment, nice furnishings, etc. Then, you add some things that will make your life a bit easier, like a flow meter or Zahm-Nagel, or a beer engine to serve cask ale. As things go along you start to accessorize beyond what you need. Maybe higher quality chairs, or a copper bar top.
The thing is, once you start accessorizing, none of that money will make you more money. What it will do is come off your bottom line instead. And this has a dramatic multiplying effect if you ever want to sell your brewery.
When you sell a business you will be selling it most likely based on its profitability. The formula I use is to take the year end profit and loss statement, add to the net profit depreciation, amortization, loan interest, and any other expense that has to do with the owner rather than the operations (like maybe cell phones, life insurance, the owners salary if they aren’t actually working in the brewery, etc.). I average that new bottom line over the pervious three years to come up with an average yearly net profit. Next, I give it a multiplier. If business is flat or declining, then I multiply it by 2. If business is holding steady or slightly improving, then 3 or 4. If business is showing healthy growth, then 5.
Getting back to the copper bar top example. That little improvement will probably cost you about $8,000. That’s $8,000 off the bottom line. As a multiplier, it could wind up costing you $40,000 less in a sales price. That’s crazy, but it’s also real.
The key is to maximize profit every day of the week. You do this by watching your score board and when it comes to making purchases in your brewery, asking yourself, “Is this a necessity, a luxury, or an extravagance?” Because an extravagance is going to cost you in the long run. We are a business of pennies. If you watch your pennies every single day, then at the end of the year, those pennies can really add up. Then and only then, should you look at what to spend it on. A nice bonus for key people, a trip to Belgium to study different brewing ideas, or using the money as part of a down payment to buy your building, make a whole heck of a lot more since than a shiny copper bar top.
