Craft Brewery Financial Training Podcast
Craft Brewery Financial Training Podcast
Beyond the Spreadsheet: Transforming Brewery Financial Planning
We dive into mastering your brewery budget with a practical three-step approach that transforms financial planning from overwhelming to achievable. This workshop provides tools and strategies to create a useful financial roadmap that aligns with business goals.
• Begin with the end in mind – set one clear financial goal (typically 10-15% profit) before planning anything else
• Know your stakeholders – identify requirements from banks, investors and others to incorporate into your plan
• Set firm deadlines – create a budget preparation timeline with clear responsibilities and milestones
• Use historical financial analysis to establish context for your projections
• Break down planning by department and involve team members to create ownership
• Consider balance sheet and cash flow implications, not just P&L
• Implement weekly financial huddles to shift from lagging indicators to leading indicators
• Use visualization tools like dashboards to make financial data more accessible
• Remember that budgeting isn't just about spreadsheets but about creating a financial roadmap
Join the Beer Business Finance Association to access the complete Brewery Budget Course with all tools and templates discussed in this workshop.
Today on the podcast, you're going to hear the audio version of our recent brewery budget workshop, and in this workshop we discussed ways to master your brewery budget. The fundamental problem with budgets is that brewery owners and managers really struggle to create something that's practical and useful in a financial plan and we often find it overwhelming to know where to start, what to include and how to align the budget with both our business goals and our stakeholder requirements. So if this sounds like you, this podcast is for you. We talk about a three-step budget solution. First, we begin with the end in mind what are we trying to achieve financially? How do we align our budget with those goals? Second step we need to know our stakeholders, identify the key stakeholders owners, investors, our banks and understand their specific needs. The third step is we need to set a deadline to get that budget done, Create a firm deadline for when the budget's going to be started, when it needs to be finalized, to keep your planning process on track. So we have lots of tools and financial models and resources, but for now, please enjoy the audio version of our Brewery Budget Workshop. Welcome to the Craft Brewery Financial Training Podcast, where we combine beer and numbers to provide you with tips, tactics and strategies so that you can improve financial results in your brewery.
Speaker 1:I'm your host, Kerry Shumway, a CPA CFO for a brewery and a former CFO for a beer distributor. I've spent the last 20 years using finance to improve financial results in our beer business. Now I'm helping other craft breweries to do the same. Are you ready to take your brewery financial results to the next level? Okay, let's get started. Financial results to the next level Okay, let's get started. Just a quick note. We'll be right back to the podcast.
Speaker 1:I want to let you know about a new network for beer industry professionals. It's called the Beer Business Finance Association. It's an organization of financial pros just like you, looking to improve financial results, increase profitability, connect with your peers and share best practices. So I'd love to tell you a little bit more about this. If you are interested in learning more, please email me kary at beerbusinessfinancecom. That's K-A-R-Y at beerbusinessfinancecom. Or you can visit bbfassociationorg. That's bbfassociationorg to learn more.
Speaker 1:We're talking brewery budgets, financial planning. I'm going to run through a deck. I've got some spreadsheets, tools I want to show you, but I want to make sure you guys know this is designed to be interactive and you know so. If you've got questions, I would love to hear them. Just feel free to unmute, ask. If you're in a spot where you can't, you know, drop them in the chat. I'll do my best to look at them there.
Speaker 1:But what I would like to know as we kind of kick things off and you can drop this in the chat, it's probably the easiest is like brewery name, where you're from and kind of where you are at in the process. Are you in planning, Are you already open? And then, lastly, like, what are you hoping to get? What are your goals for this? Because that's really the point of this, right, you guys, your time is valuable and I want to make sure this is kind of on point and valuable for you. So if you want to drop those in the chat, that'd be awesome. What your brewery name is, your name, your startup or in business, and what your goal is, what you hope to get from this. So that would be. That'll help me kind of dial in like where do I want to spend a little more time or kind of cover more quickly if it's areas that are more or less important to you guys Housekeeping. So if you do have questions again, we have a relatively small group, Go ahead and ask and happy to set up a call, jump on a call with you guys. Just shoot me an email and we can make that happen. And carry a beer business finance and we can make that happen. Carry a beer business finance.
Speaker 1:Now, this recording, along with all of the resources that I'm going to show you, and more, are going to be in the brewery budget course. That's in your portal. So if anyone has trouble accessing the portal or can't, just let me know after. I'm going to update all that, probably tonight, so it should be good to go for you tomorrow. But this report, this recording, this deck and then again all the pieces and parts, because I'm going to have to move pretty quickly, but in the course I move a lot more slowly. So there's, there's going to be that as a resource for you. So, with that as a backdrop, maybe I could just pick on you, Kate, with one question. So you're here today. Your time is valuable, Like what's your? What do you hope to get from today? Is there like one goal that you have or one thing that you'd like to hear in today's workshop?
Speaker 2:I'm just looking for different strategies on budgeting methods that work for people and work for breweries, because we're a small brewery so it's a lot of just working with individuals, personal skills and abilities and making sure that the system we have works for the individuals, because we're not so big that you can just create a system and be like everybody has to do this system that's's a great point.
Speaker 1:I really like that. Yeah, my usual response to that question would be you know, kind of financial literacy training for the people that you're going to include in that process. So we have this brewery financial planning overview. Basically it's kind of like here's what you need to know about brewery finances and it's really geared towards non-financial people, because that's most people. So I would recommend you look at that or share that with your team and basically just what. What is a good overview, kind of as a start, as a sort of a baseline, because then everybody's kind of speaking the same language and can kind of understand all the particulars there. What was the name of the document?
Speaker 1:again, it's the. I did just mess up the name, but it's basically in the portal. It's the Brewery Financial Training Program. Okay.
Speaker 1:So it's a comprehensive sort of DIY. You know, go through it yourself at your own pace. You can set up multiple people if you want them to each have their individual access. Well, why I recommend that as a starting point is it's like we all want to get the budget done and we want to give everybody key metrics, and then we want those key metrics to align. We want all the things, but sometimes we get ahead of ourselves and be like, oh, they don't even know how to read an income statement, they don't know what it is. We get ahead of ourselves and be like, oh, they don't even know how to read an income statement, they don't know what it is. So we got to kind of back up and say, all right, let's go through the basics, let's speak to people in terms of a business sense they know what they're doing in their job and then correlate that to the numbers. So that's one thought there. And Matt, how about you? Do you have a specific thing you're looking for?
Speaker 3:Yeah, it's actually Matt Saunders. I just put my name in there as Matt.
Speaker 1:S Got it. Sorry about that.
Speaker 3:You know, no worries at all, you never know right, it could be Matt's for all we know. Known some Matt's in my day, yeah yeah. So I put it in the chat too. But you know I'm a new controller at Liftbridge Brewery in Stillwater, minnesota, which is a suburb of the Twin Cities. I haven't worked as a controller or in brewing before.
Speaker 3:I've spent a lot of my career, or all of my career really, in mostly the income tax space and working for large companies, large multinational companies, and that's been a rewarding career. But I was kind of I've been playing around with just doing something on a smaller scale, a little more local, that you can move the needle on and not be talking to people all over the world in different time zones all the time, and just just a different feel. So I saw this opportunity come up and I'm I've been a craft brew lover for many, many years and so it's been a lot of fun and I'm really I'm just, you know I'm kind of getting up to speed in the role. I've been here about four months and trying to understand kind of how our brewery operates currently. I'm pretty articulate, I guess, or financially literate, I should say. Overall, I've got a lot of experience in accounting but just trying to get those specific brewery nuances and understand how we can move the needle forward.
Speaker 1:Makes sense yeah, I hear that a lot. Folks coming from other industries. I get the needle forward Makes sense yeah, I hear that a lot. You know folks coming from other industries like I get the financials. I don't get the particulars of, like you said, nuances of. So I would say yeah for you too. I mean, check out the brewery financial training program, because it's a lot of jargon, right, you know, right. So, and I'll go through a lot of that jargon in the course because it's like, all right, you're used to seeing it this way. You know this is what this means. This is typically how people talk and look at things and you know it wasn't that long ago. I had to learn it too, because my background was, you know, I was CFO for a beer wholesaler and then I was CFO for a brewery and all the things, and they're similar, but there's a lot of differences too. Sure, sure, that's a great point. Thanks for sharing that. So maybe one more anyone else want to weigh in on what you're hoping to get from today?
Speaker 5:What's most important to you, maybe what your goals are. I do modeling for budgets and forecasting and stuff and I've always curious about how other people do it, because I come from a winery background. But I think as far as budgeting, it's all account codes and tying in a cash flow, but it's all in Excel and it's very manual, yeah. So I was just curious how other people do it.
Speaker 1:Does anyone want to? I have some thoughts, but does anyone want to tackle that one? Weigh in on how you do your budgeting.
Speaker 3:Yeah, again, being relatively new, I'm not an expert yet, but we use a combination of our, our erp, our orchestrated beer, um platform, right and and excel. So we're kind of exporting out and then making our tweaks in excel and then we import that back in and use some of the reporting out of orchestrated beer then to kind of compare budgets to actuals and so on and so forth.
Speaker 7:And I can try to make any improvements.
Speaker 4:Oh good Kind of the process and I've kind of revamped it a few times and I've kind of revamped it a few times. What's worked the past maybe few years, is getting usually actuals and seeing where we are preparing for the next year. We use QuickBooks, so getting that information for all of our accounts, and then I work with our other kind of senior director team. Usually this starts probably around, I would say, october, october, november, before the year starts.
Speaker 4:The next year starts and we, you know, talking to them so like wholesale is like okay, distribution, what are we projecting? What does their forecast look like? Same with, like beer cogs, kind of some of the big areas. So I hit kind of the big picture stuff, um, and we start putting together, like you know, payroll benefits, that kind of thing start rolling around. Then, um, and then I've just usually seen some consistencies of being able to um forecast some of the other categories, like there's some I'll know about, like insurance costs. Usually by then you know some of those things that are negotiated and then seeing some things that just kind of how they trended the year before and where we need to either grow in budgets or we need to decrease budgets and try to build it through that and the hope is to try to get that all kind of done by the end of the year and then it is shared with all of our other managers and whatnot, for their different areas.
Speaker 5:So, eric, do you do all that in Excel or do you have a budgeting platform program that you use?
Speaker 4:Pretty much all in Excel and just formulas of being able to take kind of some things and say, hey, if we're anticipating this percent increase, letting that apply or decrease whatever and applying that. So the first year was the hardest to build it and now it's easier to maintain. So and to plug in the yeah, plug in the other information and so, so that's been helpful.
Speaker 1:Thanks, Eric. Chris, you want to go ahead?
Speaker 6:Hi everyone. First off, to us brewing in Auburn, california. We're a tiny brewery Less than 600 barrels a year, neighborhood scale. For our own sake, we've been open to the public for not quite 18 months now but through past experience in other startups that I've done in the space and in other disciplines, I'm always looking for tools and approaches that are friendly to small businesses who don't may not have access to. You know more complex SAS. You know systems. Yeah, yes, we use QuickBooks. You know we have a relatively good number of different tools that we've built out actually in Google sheets to kind of keep it in the cloud and easier to share, looking for ways to kind of up-level this but do so in a frugal way so we don't have to spend a lot of things. Kerry, actually when we were getting started, I did actually I was signed up for your class and took all the things that you had offered a few years back. Signed up for your class and took all the things that you had offered a few years back and that was super helpful in getting us started as well.
Speaker 6:But you know, besides just the day-to-day kind of financial tools for me, you know my background's in engineering. I like to have dashboards. I like to be able to see data fairly regularly, not just annually, but, you know, can we see trends on shorter time periods? Do I have levers that I can pull across the different aspects of the business, whether that's, you know, in our logistics, whether that's kind of the HR side and with staffing, et cetera, et cetera? So very active in our guild out here. So there are a lot of small breweries in Northern California and it's always interesting the conversation around here of like, what are things that we can share amongst ourselves in terms of, particularly for people who may not have a lot of financial knowledge, once they get past the hurdle of learning the basics, how can they more easily adopt tools that help them be more aware of what their business is doing? So it's pretty broad, but I'm hoping to pick people's brains.
Speaker 1:Nice, yeah, no, I think that's spot on. I want to show you guys this. I think we've talked about this in a past meeting, but so you know, did my screen change? Can you see this thing that looks like a bridgie um.
Speaker 1:So to phil's original, like whatever the people do, you know, like always on excel met myself excel Sheets integration to some degree with our financial accounting software, but usually there was a lot of a manual and you know, you build the models and they work and you just kind of get stuck like this is just what I'm going to use, and inevitably they break and a formula doesn't work and I didn't update it and it's just like, oh my gosh, it's like this love-hate relationship with Excel. So, anyhow, this is a tool that I've discovered and I've been using actively with my clients. It's called Reach Reporting. To Chris's point, it is affordable. You have to check. It's like there's a lot of systems that are like wow, that's way too expensive. But this I want to say is like less than a hundred bucks a month maybe. So we'll give you a quick flyby here. This is not an infomercial for reach, but it's a tool that I've used that's kind of changed the game in terms of solving all the problems that Excel brought to me while maintaining the flexibility. So, for example, this this is a terrible demo because it's you know this doesn't line up to breweries, but the concept is the same. You know, here's your chart of accounts, here's your budget across the top, and what it can do is it can sit on QuickBooks or whatever your accounting platform is, and it basically pulls the data in. It will not push the data back to your QuickBooks, it will not change anything, but what it's going to do is serve as effectively Excel without all the problems. So in these tools you can come in and do formulas. So if you go in and you say, well, our cost of goods sold for our package product usually runs around 42%, I'm going to go into that cell and I'm going to type a formula equals 0.42 times some other reference point on the sheet. I'm going to enter that it's less than zero. So that was a bad example, but the concept is you can do the same type of formulas that you could do in Excel. Furthermore, it's got all the other tools too.
Speaker 1:If you go through and you want to update, you know, say, a line item, I don't know this is looking for a good one. We can use here Payroll expenses. You can go in and update this based on the prior year and based on a change, because sometimes that's what we do in Excel too, and then we just hit that number and it updates here. Lastly, you can go in and overwrite stuff. You want to do it that way and it'll highlight, recalculate and nothing breaks so. So there's a lot to this. The other thing you can do is as you go throughout the year I mean, we're sitting here in July, so this budget, I don't need to look at it, but I'd like it to turn into actuals. Let's say, june is not closed yet It'll update all your actuals. Then you convert that to a forecast and then you just re-forecast the months that are actually coming up.
Speaker 5:Which is a formula. So will that work with O'Bear?
Speaker 1:up, which is a formula. So will that work with obere? This is grabbing. I'll have to see what they integrate with them, and they integrate with most of the major financial accounting packages, obere specifically.
Speaker 1:I'm not sure you guys using obere financials yeah yeah, my, my guess is it would, but we probably have to check and see. Or maybe the the other way, phil, and this isn't a great answer to your question, but you can do the sort of data dump from Obeer to throw into a trial balance, upload it here. Don't love it because now you're separated, but that's an option too.
Speaker 3:So what is? If I can ask, what does that do when you hit that convert to forecast button?
Speaker 1:Yep, so you convert to forecast and what I'm all we're really doing here is we're going to fix the actuals here so that when I open it next time I'm looking at the actuals and I'm not looking at what my, what my budget was last. So the so the parlance here is my budget is when I first do the year right and once the year starts, well, I'm just now, I'm just forecasting the rest of the year, so it's really just that's kind of what it's doing. Okay, now to. I think Chris or Eric, maybe one of you guys had talked about dashboards. Chris, did you mention that? Yeah, so that's sort of the meat and potatoes of this thing. Now, the dashboard we're just going to get out of there. This is pretty cool because this is what you're asking about Now. Again, there's some you got to go in and you got to set it up and you're going to make sure things are working. But there's templates where you can get this type of visual dashboarding, you know, so you can see what your cashflow is, your trends, some summarization of your P&Ls balance sheet. This is just a nice clean look and it's easy to kind of jump in and access it. And then there's other you know custom dashboards that you can add, but you kind of get the idea. Lastly and I will stop after this, I promise reports Because I know, as a CFO, I was constantly like I got to get this into Excel.
Speaker 1:I got to update it. The I was constantly like I got to get this into Excel. I got to update it the way I want. I got to do a narrative summary. I want to make some graphs. That take forever With this. It's basically clicking the button. Okay, so you click this thing, you open it up again demo data but what we're saying is like what's the month? Let's just say you just finished June. You want June for the month. You want June, year to date? Bang out.
Speaker 1:This report gives you a little customized table of contents. You can add in what you want here, but it's going to kind of, at a glance, show you profitability. There's my profit, there's some trends, balance sheet stuff, so on and so forth. So it's a combination of like wow, it looks really nice, there's some eye candy there. It may be easier to digest than a straight spreadsheet, particularly and I hear this all the time Like if you know, if you're the finance person and you're sitting down with ownership? They're not, and they don't really care. They're going to. They're not really paying attention to most of what you're saying. So this can help, you know we can. Maybe this makes more sense than something like that. But I guess the takeaway is it's like kind of done for you and ready to go. So, phil, I don't know your thoughts on something like that. If that worked with OB, is that something you'd want to try out, or yeah, I'd be interested in looking at it.
Speaker 5:I mean, it's kind of a hard thing. I've been here two years and just trying to get ownership up to speed, you know, on having but they never had budgets, and so it's kind of like they're trying to wrestle with what is the real benefit of having these budgets when you're at a point where you're not growing, you're just kind of maintaining, and so what I'm, you know, basically offering is like a cash flow. Let's take a look at our cash. Okay, what are we going to do with it? This is how much is being spent on debt servicing? You know, it's kind of like giving them the tools to start planning instead of just reacting. Yeah, so, but and but. What I like about this is those trends, those four, those financial models, the trending and all that that's. That's really good, because I usually just kind of present numbers and explain them. Right now, I'm like um, trying to tell a story of what the financials are saying, where sometimes those models, um, are really helpful for like non-financial people yeah, yeah, I think so.
Speaker 1:So something for everyone. There is a little narrative summary too, so that it does use I'll use the word loosely, it's. There are some ai capabilities here where it's going and doing the analysis, but but I still like to use this. Ai is great. I just want to make sure. But, just so you know, it can present this quick narrative summary as well as the charts, graphs and all the things. So that's.
Speaker 7:Is that just focused on P&L side or does that do anything with balance sheet or cashflow forecasting?
Speaker 1:Yep, all the above Right? That's a great question, ben, too, because a lot of times, you know, when we say budget, almost like 99% of the budgets I've seen are just P&L, that's it. It's like wait a minute, you've got a balance sheet that's got a tremendous cashflow implications. So with the reach tool, you can, you can do so. Basically, you would budget the balance sheet which people do, but it's rare and that's going to then create your cashflow forecast. So it'll walk you through those steps, like, well, what does that mean? It's like well, what's your inventory balance going to look? Like, well, I don't know. Well, what's your sales? Well, it's going to correlate and then you can kind of go from there. So, yeah, I think super, super cool. So, so, yeah, I think super, super cool. So I'll just run through this real quick, then I'll share some models and whatnot that I've been using.
Speaker 1:But I think the fundamental problem with the budget Phil, you made a great point it's like what is the point of this? Nothing's changing. Why do we need a budget? And I think that's a lot of like what are the business goals? How do we align them? How do we start? It can feel a little overwhelming, you know, and we've talked about like budget obstacles in the past, like why don't you have a budget? Well, it's like, takes forever, it's usually wrong by the time it's done, it's obsolete. So you just what's the point? But I would argue that it is your financial roadmap and there are ways to do it better. Just because it hasn't worked in the past, now. So this is the problem, right, those obstacles.
Speaker 1:I think the solution is these three steps. So step one is begin with the end in mind, which you've heard it a million times, just like I have, and I sit down to budget. We immediately forget because we get just buried in all the details. Begin with the end in mind and I would really challenge each of you. If you don't already have one singular number for your goal and have that be profit, net operating income, be able to call it what you want, bottom line, just start there. You can choose another one, but this is going to be the single biggest determining factor of financial success. If you have one number and you know what it is, and your team knows what it is and you can communicate to it. That's step one. So begin with the end in mind before you do anything else sales plan payroll, et cetera.
Speaker 1:Next is understand who your stakeholders are and what their requirements are, because a lot of times we forget. The big one here is banks. Right, if you have a loan, you've got to deal with the bank. You've got to deal with the bank. You've got to deal with the bank. You've got a loan agreement, you've got covenants. There's financial calculations. You can go sideways fast. If you've got investors that have requirements, we've got to know what they are. Bake them into the plan.
Speaker 1:So step one begin with the end in mind. Step two know who your stakeholders and what their requirements are. And step three, as simple as this sounds, I'll tell you what it's a real success, a determination of success, set a deadline. So this is going to guide your planning process. Nothing focuses the mind like a deadline. Got to have it Super simple, easy to do, not often done. So I think if we can sort of center and I'll try to center our discussion here today around this, I think that's going to put you guys ahead of 95% of the other breweries that are out there in terms of they're just not doing these things. So what does that look like when we're done? Maybe to Phil's point is you know. You've got a clear, actionable financial roadmap. You've got the ability to make those informed decisions, which is what we all want avoid unnecessary spending and ensure the brewery's financial health. So all good things necessary spending and ensure the brewery's financial health so all good things.
Speaker 1:And then what I would encourage you guys to do after our workshop today, in the coming days and weeks, is to get into that brewery budgeting course. Go through these, you know, pick a section, kind of go through it, get the templates and share it with your team. Right, this isn't. This is something that you know. It's hard to one person can't. I've so many times I've worked for companies where they're like well, kerry will just build the budget and I'm like Kerry can build a budget. That's wrong. But I need to talk to the sales manager, the ops manager, I need to talk to this and that I need to talk. I need people to tell me what they do so that we can quantify it, and then we can talk about sharing the responsibility, because there's no way one person, it's just. There's no point in that. So that's important, I think, to kind of share that and then just to kind of restate it.
Speaker 1:It really is about begin with the end in mind, know who your stakeholders are. Get started right away. All right, so let me take you through some of these templates and kind of show you how I approach this, and then you can kind of use what makes sense for you. So let's see our first one. All right, so a little template here for step one. Start with the end in mind. Kerry, are you supposed to be sharing screen?
Speaker 1:Yes, you don't see this.
Speaker 2:No, I just see you. I don't know if I've got the wrong thing on you. You guys see, this.
Speaker 3:Yeah, I can see it.
Speaker 5:I can see it. Oh, my computer's about to crash. I'll be right back.
Speaker 1:Okay, I'll be up for a minute no problem, we'll see you in a minute. So these are just sort of little printables, downloadables that you can take, fill out. But basically it's set that clear, definitive financial goal right 10% and when I'm working with brewers the more successful ones are generally in that 10 to 15%. So that number it really depends on where you are. But kind of looking at that, so that's kind of step one is fill that thing out. The next would be so that's kind of step one is fill that thing out. The next would be looking at your stakeholders.
Speaker 1:So I'm kind of a big fan of like writing this stuff down, putting it on paper, so that it's easier to you know, you can remember it, you can communicate it. But who are your stakeholders and what are the requirements? So if you've got a bank and you've got investors, what is it that you're going to need to do? So? The bank, clearly. If you have loans, you've got some sort of payment schedule. So we want to make sure we understand what that is and bake that into our plan. Often it's not.
Speaker 1:That kind of goes to Ben's point of balance sheet and cashflow planning. This is one component of it, but it's a big super component If I think about a boil down to one issue that the breweries run into. The biggest problem with is debt and paying that debt back and all of a sudden be like this this isn't sustainable. So this isn't going to solve that, but it's going to put it front and center for you so that you can kind of keep that as a priority. The second one is your loan covenants. Do you guys get involved with loan covenants? Do you guys get involved with loan covenants? You have to work with this, work with your bank. So better to know before it's going to be a problem, and the best way to do this to be measuring it on a regular basis. So, number one understand what it is so your stakeholders, your bank, the requirement of these loan covenants, and then make sure that's in your financial plan.
Speaker 5:Hey carrie, can I get make a comment about covenants and then make sure that's in your financial plan? Hey Kerry, can I make a comment about covenants? When I got here, I had to figure out what the covenants were, and the most frustrating thing was trying to understand how those covenants were calculated, because they had been calculated wrong and it was throwing the ratios off. They had been calculated wrong and it was throwing the ratios off, and so I worked really hard with the bank to make sure our calculations were correct. And when we had one situation that we were out of covenant um, no fault of anybody was um had some, some tax payments that had to be made and it threw our covenants out. And the bank actually worked with us and changed our covenants, gave us allowances, so we were not out of covenant. So I find the budgeting process the biggest thing I'm doing is making sure that in the future we're within covenant, um. You know, besides cash flow, which I find more important than any of the other statements yep, but no no, that's great.
Speaker 1:Thanks for sharing that. Folks, you're right. I mean it's one of those things that I talk about it a lot because you get it's like not something that's typically on people's radar. I mean it is for you and that's that's great, because those are things that can cause real problems, cause if you start tripping these covenants, cause here's the thing that can happen is you think things are probably, you know, profits, okay, cash flows, we're getting by, it's okay, we're making our payments, but we're missing the cut. We don't even know you're missing a debt service coverage and now you're getting a nasty gram from the bank and you're in violation of your covenant. Now they might let you away with it once or twice or never, but the last thing you want to be the doomsday scenario is they call the loan. Now, that is a doomsday scenario. A lot of things happen to happen between now and that occurring, but you don't want to be like in the 11th hour of oh so do the calculations understand it? And again, this is under the umbrella of. They are a stakeholder if you've got loans, and what are their requirements? Now, investors, again, just a couple of examples. But your investors might require some sort of distribution from the brewery. So you'll need to understand, like, who are our investors? What are the terms of this? Do we have to give distribution? Like, how does that work? And if there's requirements in there, that'll be in your operating agreement, your partnership agreement. We just want to make sure that's in our financial planning mindset as well.
Speaker 1:So these again are just examples. You may have others, but again, the idea here is list it out, make it as clear as possible. So those are the first two. Begin with the end in mind, define your stakeholders and requirements, and then the next is setting those deadlines. So this is just that simple budget prep outline and if you do, a great starting point is simply just setting these deadlines start and finish. When you're going to start, when you're going to finish, what are these sort of interim dates between, and then outlining who's involved in this process.
Speaker 1:Usually what I'll do is I'll look and look at the, the pnl and some cash flow items and say, all right, I've got a person who's in charge of creating my sales plan, you, who is it and when is their plan due and what are my expectations of that individual and where are they going to get the information and what templates am I going to give them or train them to use? But this is that concept of breaking down the planning process and sharing the responsibility breaking down the planning process and sharing the responsibility and this is going to give you a lot. It's going to give you better information, but it's also going to help your team take ownership of the numbers. Because we often talk about what. Is it Top-down budgeting? Is it bottom-up budgeting? Is some hybrid? We've seen it all over the place, but this is kind of more of a bottom up approach.
Speaker 1:Like you know, I want my this might be my sales manager or my taproom manager. You know they're closest to the sales. You know they've got the best sense as to. They know what they're going to do every day, but they might not necessarily know how to create a forecast Gross profit and cost of goods. Same idea, you know we want to map out what are we going to sell. We want to map out any changes, any new brands, items that were coming in, operating expenses. We want to just go through each department.
Speaker 1:So this schedule is designed to kind of keep everybody on track and showing everybody what they're responsible for and what the deadlines are. It's like everybody's singing off the same sheet of music. So again, pretty straightforward Simpler is better, I find, but this is something that I've used in the past, especially when you're working with two or more people, if you're going to have three, four, five, six people. You got people moving at different speeds, they have different levels of understanding, but this kind of helps keep things organized. So, as a tool, does this sound? Is this something that might be useful for you guys? Have you done something like this?
Speaker 5:Yeah, that I think that's really useful. I mean, that's kind of how I approach it. I tend to keep the budget close to me just to kind of control the numbers, but I rely on my sales manager to give me all the sales numbers. She has a very complex by SKU, by distributor, you know how she's going to sell for the year, and then they have to work with production Vinnie and I get with Vinnie on CapEx and so, yeah, I'm relying on people to give me the information. Of course it changes throughout the year. It can change, especially CapEx. There's always something they're trying to buy. But yeah, it's been very helpful. I agree, I like that layout a lot.
Speaker 6:Great. So, kerry, what's interesting is there's a much smaller place where the team is me, at least for the business side. The thing I like about this is so I'm checklist driven and so I've developed basically SOPs on, you know, for the financial side as well, but it's effectively a similar thing. But even though the designated responsible individuals myself, by having a checklist that has these kinds of tasks, it's a repeatable process now. So I remember what to do, give myself accountability of getting things done on time. You know, off chance, I do have to ask some of the other team members. That's fine, but just want to point out that, even if you're a smaller place, having something that's a plan, that's written out and can be used as a as a ongoing procedure is super useful.
Speaker 1:Great Thanks for that, chris. Yeah, no, I agree it's. You know, we will correlate things back to, like the brewing process, right. It's like you don't just go brew beer, right, you have a checklist, You've got a, you've got a recipe, you've got very specific things that have to happen in a specific order, and you got to keep your eye on the ball, otherwise things are going to go bad sideways, and this is really no different. So it's using that same checklist, mindset, repeatable process. I like how you said that, because that's all we're trying to do is we're just simply brewing financial statements, we're brewing a budget, and if we kind of take that same approach, you know, and then you're going to have to refine it, right, because if your recipe's like, ah, it's not quite right, right, okay, you tweak it, you tweak it and then you nail it, and so that's the thing with this, too is it's like this might be a pretty good starting point, but you might find, ah, that's, I got to be more specific here, I got to take this thing out. So it is kind of a working recipe, if you will. So, again, these will all be in the portal for you guys to download. Check out, they're all Word docs so you can adjust them as you like.
Speaker 1:Okay, what I want to show you next is a set of sample QuickBooks reports. So when I start the budgeting process and I'm curious to hear if this is something you guys do or have thought about is I really need to set the context of the historical financials, like where have we been? What are the trends look like? Where are we now? Where have we had what's happened in between? And so I'll start real high level and look at this like on an annual basis. So if you've been open for three or four or five years, you know whatever makes sense. We've got COVID in there, we've got some weird stuff. You gotta throw some years out. But the point is like I want to kind of I want a 30 000 foot view step back and I want to see how are we doing. And generally I'm going to just focus on kind of three or four subtotals here sales, margins, expenses, bottom line. It's probably I don't necessarily need to get into. I may look at things like payroll, like how has payroll expanded over the last year, two, three, four, what do the trends look like? But this is just a simple report.
Speaker 1:Going to QuickBooks custom date, start, finish, do it by year, dump it to Excel and then kind of look at your trends. All right, what's going on with food? All right, it's sort of flat. Oh, it's ticking up, nice, okay. What's going on with food? You know, all right, it's sort of flat. Oh, it's ticking up, nice, okay. And then clearly we're going to look at sort of these year to date percentage changes.
Speaker 1:But this is really just a starting point to give me a sense, like where are we headed? Like big picture, I'm going to look at maybe, if we're in a wholesale sales, what's going on there in total income. And I'll come down and look at maybe my specific cost of goods for the different revenue sides, like what's happening with my gross profit. Then we want to zip all the way to the bottom and do the usual thing what's going on with expenses? What's going on with net operating income? Where am I actually as a percentage of sales? Because I keep saying shoot for 10%, 10 to 15%. You know, oh, we're real close there. You know we're seeing some improvement from year over year, that's we're heading in the right direction. What's going on? You know, it looks like good operating expense control. We're growing sales a little bit.
Speaker 1:So this is just again kind of setting the context. So that's report number one. One report number two that I'll run and I should note that these are things, these other reports I'm going to show you like things that I'll run generally on a monthly basis. Um, but classes and quickbooks are really just a way to kind of show you your different departments, right. So different revenue streams, wholesale, self-distribute, taproom, very different economics. I might want to know what is my gross profit at wholesale versus retail. You know, do I have? Because sometimes you're like, wow, that's not what I thought it was at all, that's quite a bit lower than. But this will show you kind of quickly the different revenue streams.
Speaker 1:Then it's our more traditional comparative P&L this time period versus the same time period last year. Basic stuff, right, are we growing? Sales are up about 7% Great. What's going on with my margins? Let's look at that. Wow, up 18%. Good trends there. What's going on with overall profitability? Wow, really nice growth. Opex is everything's click, click, click. It's looking good.
Speaker 1:So this is going to help if I'm budgeting, because we usually do our budgets October, november, whenever your calendar or fiscal year ends. But this will help again kind of set the context of what does sales growth look like, what's our gross profit, et cetera, the monthly P&L I know this is pretty small here Love the trends. I want to see what these trends look like. So within months I might run, you know, 18 to 24-month trends. And here again I'm looking for, maybe seasonality, right. So if I'm going to be budgeting next year, I kind of want to know like what is how did the sales kind of spread by month, right? And then how might that apply to the new year? Then I can use that same type of seasonality. I'd also want to look at, you know, what is my gross profit looking like on average and what kind of fluctuations might I be seeing. So if I come in here and I say, well, I got like 16 months worth of gross profit, historical, and I'm running around 26.2%, I can at least set that in my head as I like. The number I don't, but it is what it is, that's kind of what it's averaging, and when I'm doing my budgets I'll have that in my head Like, well, we usually run around 26%. If we want that to be more, we got to figure out where we're going to change it. And I may notice things like this why was it 7% there and 34% there? What's going on with the volatility? So it just brings up additional questions for you.
Speaker 1:And then the last report is just the balance sheet. What's going on with cash? What's going on with receivables and payables and inventories? Is there anything in here that we need to be checking out? So, for example, accounts receivable is going up. Do we have some collection issues?
Speaker 1:I want to run that aging, see what's happening. I may notice inventory hasn't changed in a year. Doesn't look like we're counting inventory. That's going to be a problem for a cost of goods sold. Need to get in there and count it.
Speaker 1:I may look at accounts payable. Do we have some overdue items? If you're in wholesale distribution, you've got this gnarly little thing called the keg deposit, which all this means is we're collecting the deposit. If that number keeps getting bigger, it means the kegs aren't coming home. They never came, so that's a red flag. So we might want to look like oh boy, that's going up a lot. So do I have missing kegs out there? So these are some things your balance sheet can tell you that your income statement just doesn't know about. So that's again just kind of a run-through of. I want to set the context when have we been, where are we going? And this helps me do that. Do you guys do anything similar to that in terms of your reporting? And this might look similar to your monthly reporting packets. All right, so the next one I want to show you is and I might have missed it, but is anyone in planning phase startup, or is everybody?
Speaker 3:in active open. Active open for another two months or so.
Speaker 1:Okay, active open for another two months or so. Okay, so I'll skip, because I was going to kind of show the this startup model. But I'm going to kind of skip over that and show you what I'll use for the budgeting process, and this might be very similar to what you guys do already. So, once I've kind of set the context right, I've done the reviews, I've followed the three steps. What's my end goal? Who are my stakeholders? What are my deadlines? Organizing my team Now I got to have some tools for them to use.
Speaker 1:Now, as I said, I'm using the reach reporting now, but I always I still do find myself using some spreadsheets because it's just like a security blanket, you know. Like I know it works and it's really comfortable. So I'll do this too. So basically, the approach that I take and I'm curious to see if it's something similar for you guys is I may go through and dump a bunch of data from QuickBooks, so I'll go in and I'll say, all right, give me from Jan 23 to current. And the reason I'm doing that is a couple of things. One is I do want to see these trends. So that's going to kind of help inform the forecast and I want to see sort of percentage changes year over year. No-transcript. So the way this particular spreadsheet sets up is I've got in this example all of 2023, all of 2024, and then this column is simply showing what's the what's the difference between 24 and 23. So if I'm doing this budget, say in January or December, these, these dates would make a little more sense of the context of where we are today.
Speaker 1:But here all I'm trying to do is say, like, what are these line items doing? I mean, are they growing? Are they declining? It helps me kind of understand how I might want to set the goal for the new year. So, for example, if I look at in my sales section, you know I've got taproom beer. You know it was down 7% last year. So when I go to budget this thing, I need to kind of keep that in mind, to be like all right, well, it was down doesn't mean it's going to be down this year. But what's what's driving? So it's going to just ask prompt you to ask a few questions, but to fill out the template, we're going to try to arrive at just a number and say, all right, we've talked this thing through, we see what's driving, that we're actually going to do a price increase, we're going to train our staff on offering more to-go beer, we're going to run more, offer more flights. You know things that are going to kind of drive that. What are the things that we're going to do? And then, in terms of this, you know we're going to get this to 5% growth. So I'll just input 5% and it's going to do that calculation.
Speaker 1:So now what I'm doing here is very similar to what Reach is doing and maybe similar to what your models do, eric and others, is. I'm just looking at what did we do in January of 24? That's all this cell is doing and I want to increase it by 5%, and that math kind of follows through each of these. So that's all this is doing and again, pretty simple model. But it's trying to say what did we do last year? What do we anticipate doing this year in terms of growth? I'm going to have a section over here where I'm going to put some notes Like well, why is we were down 7, you're plus 5. What's going to happen? And here's where I would want to say we're going to increase 50 cents per pint, we're going to do this, this and this, and that's how I'm justifying kind of that turnaround. So I'm going to stop there for a second and just kind of get your feedback on this approach. Is this similar to what you've used? Is it different?
Speaker 5:It's very similar to the way I do it. I break it down by month. The revenue really for wholesale comes from the manager and for the pubs we just try to figure out. You know it's going to be pretty flat. We figure the increase of food costs and all that. But then when it comes to the operating expenses I definitely do like a two percent, two and a half percent cost of living on all my, my expenses even. I can do it, even for cost of goods sold. You know we just figure everything's.
Speaker 5:I do calculate payroll separate. I have a whole module on payroll headcount and all that we try to figure out. We increase in our headcount by title, by area, then calculating the payroll taxes and the benefits and all that stuff. A 401k is all part of that module. And then CapEx is a big deal of course. I try to figure out CapEx and when is it going to go into service and distributions? Owner distributions we're an LLC, so the brewery doesn't. I think most breweries are probably LLCs but so we don't pay income taxes. Ownership pays income taxes but the brewery funds them to be able to make those taxes and those go out as distributions. So we have to figure out when those are going to be. Um require payments, work with the tax accountant and then it. We try to isolate IT and repair and maintenance. You know what is going to happen. But then everything else like brewery supplies and all that, that's just calculated on a percentage based on, you know, last year actuals.
Speaker 1:Yep, great Thanks for that. No, those are checking all the because you you hit on a number of things or like the distributions in particular, you got to bake that in and also you're speaking to like these sub subsidiary schedules like separate schedules for payroll it right right, that feeds the big model and I had to step away for a minute.
Speaker 5:But did you cover cash flow?
Speaker 1:We did not. Was there a specific cash flow question?
Speaker 5:Well, I was just curious. If you build the cash flow model, my model is all tied in. It's one big cycle. So on my balance sheet, the bank balance is based on what the cash flow says and the and the pnl net income is feeding the cash flow from the pnl. So if my balance sheet doesn't balance, I know something's not working in my calculations. Then I have to go back and figure out.
Speaker 5:I do budget a balance sheet, so basically I usually have to plug it in accounts payable. But I find the hardest part with the cashflow is okay, where's your accounts receivable going to be? Are you going to collect more this month? You didn't collect less, you know bill more. And then your accounts payable balances and I I break out my hop contract separate from my accounts payable because that is my biggest number in there. I just want to see what my accounts payable trade number looks like versus my hop contract, which I have a lot more control over Because I'm trying to figure out you know what we're going to be buying, what comes from the brewmaster actually and then I just try to figure out the payment schedule.
Speaker 5:But yeah, it's all linked and I really like that. It gives me confidence in my budget and that the financial statements are working. Maybe not accurate, but at least they're working.
Speaker 1:Right, it's nice when they all add up. Yeah, a hundred percent, like I don't have this for today's presentation, but exactly what you're just saying. You would take this and this is probably what you have is this is P&L, and then I'd have a separate second tab where I'd have my monthly balance sheet and the balance sheet, just literally, just like you here, would go all right, tap from beer, I think it's. It was minus seven, I think it's going to be plus five, and I repeat this process throughout the whole deal. Um, I would do the same, and you've done the same, I think, for the balance sheet where you've got all of those different line items that you need to estimate.
Speaker 1:So a lot of them correlate, right. So receivables, if you're in distribution, correlates to wholesale sales, and then the correlation is often what are your credit terms, what are your collections? So I mean like, oh well, whatever I sold last month this 30-day term, I'm going to collect roughly this month, right in the new month, and so I can link my receivable balance as a, as a fraction of or a factor of sales. Yeah, inventory, you know that's a tricky one too, right, I mean, geez, we buy a lot, or you know that can be tough. But you know inventory is going to correlate generally to your cost of goods sold. So your cost of goods sold is going to correlate to what your production, your sales are. So you can kind of reverse engineer inventory that way as well. So it takes some thought to set it up. But yeah, I'll focus on receivables, inventory, payablesables, any capital expenditures and a few other balance sheet items.
Speaker 1:Yeah, cool thanks phil um eric anything. Do you do anything different there?
Speaker 4:um, I'd say, yeah, it's actually pretty similar, um the same processes.
Speaker 4:And then one thing I've learned, maybe over doing this a few times, is then going back and adjusting the forecast. So I go kind of monthly and I see, all right, this is what we invoice for wholesale, so I can better tune in the next month's cashflow, because that's where I found in the past you create it and then it's just like, yeah, you find out, you're wrong. I always relate it to like a weather forecast we don't know what six months is going to be like in the weather exactly, but it's the same idea financially is I have an idea, but once we get closer and get more data, then we can refine it and share that out with all the you know more of the managers, stakeholders, but help people make better decisions with how we think the next month is going to go or the next quarter. And so I found that kind of a real adding that to my process after doing it all is not just setting it up and calling it good, so, but it's. This is a very similar process that I do as well.
Speaker 1:Good, that's a great point. And you know, that's really the X factor, right. It's like we're not just doing this for the sake of doing it, right, it's we're doing this so that we have a financial roadmap that we can share with the people in our business that can make a difference, and so that's. Sort of phase two of this is and I actually just did a talk on this yesterday for a different group was you know, how do we train our departmental managers in financial accountability, like, how do we do that? And here again, kind of I think three steps is you know, one is we got to teach them what financial literacy means, because most people just don't know, and if they don't know they're probably not going to ask. So that that training is critical too is to involve them in this planning process. That was the biggest game changer for me is when I stopped trying to do it all myself and said, all right, I need to sit with my taproom manager because I mean I could look at the numbers, but you know she's the one that's doing this day day and may have some ideas. Let's have her take ownership. So high involvement, planning, sit with my head, brewer, et cetera. And then the third step is a system of regular communication on the numbers, and that that could be. A lot of breweries use the EOS system level 10 meetings. Many will use like standup meetings quick, efficient, you know, once a week, once a day, hitting our key numbers get out.
Speaker 1:As I've talked about in the past and I've implemented and I'm a huge fan of, is the is the huddles, weekly financial huddles. So that's doing what you're talking about, eric. It's every week the people that actually are responsible for these numbers are sitting down reviewing them, not once a month, a month, every single week. And you're like well, how do you know They'll figure it out? So at first it's hard because you're like well, how would I forecast what I'm going to sell? Well, look at the historical. What are you going to do this week? Who are you calling on? Or, if it's the taproom, what was the same day, week, month, last year? Let's use that as a baseline and then let's develop some key metrics and let's forward forecast those. So most of financial accounting reporting is these lagging indicators. What did we sell? What did we have for margins? Can't do anything about it, oh good. But these regular system of communication is more leading indicator. What are we going to do in order to achieve a specific outcome? So if you can put equal or greater emphasis on those leading indicators and bake it into that system of communication, that's really where the magic happens.
Speaker 1:Because building a budget, I get it. It's not super enjoyable, but being able to control the numbers and saying, all right, I get it, it's not super enjoyable, but being able to control the numbers and saying, all right, I get it. You gave me some financial literacy training specific to breweries. You involved me in the budget and the planning process and now I'm included in these weekly. I'm looking at my numbers, the cadence of it and the consistency is so important Because I'll hear that a lot too. Well, yeah, we used to do those meetings and then I don't know what happened. Haven't had one in six or seven months. Well, okay, so there's the discipline that's involved there. But, yeah, I think that's super. Is anyone doing that? Any kind of weekly monthly huddles or level 10 meetings? Matt, you are.
Speaker 3:Yeah, we in our leadership group meet every every week and you know each one of us is responsible for a different set of metrics and so we populate our eos um screen with with the different metrics and we talk about them. You know what are? What are shipments going out this week? What are our open sales orders with our distributors? What are um if we're doing any contract brewing, what's our our um queue will look like for for doing that, and so on and so forth, and so you're kind of seeing week to week, what are, what are those trends, uh to, and then you can talk about it and if you see numbers that are abnormal, yeah, you got a chance to do something about it.
Speaker 1:Cool. And ben, did you have um? Do you guys do weekly meetings or yeah, not quite, not weekly.
Speaker 7:We do pretty in-depth monthly meetings with the heads of each of the departments. Ben, do you guys do weekly meetings? Not quite, not weekly. We do pretty in-depth monthly meetings with the heads of each of the departments. What we do do weekly with the Fenton County team is pull together all the forecasts for the future. So we'll take what our sales team expects the month to look like so how that's shaping up to plan the month to look like so how that's shaping up to plan.
Speaker 7:We've tried to get all our distributors to lock in three, four weeks out at this point, which is really helpful for production. It's also really helpful for planning. We self-distribute here in Cincinnati too, so we get kind of a mix of self-distribution and these big distributors that work within nine states. So that's been really helpful too to be able to say, okay, here's what we think July is going to look like in the second week of July, knowing what the forecast for we have, for we do have a tap room here too. So knowing the forecast for the tap room but also knowing the forecast for commercial sales, it's really helpful.
Speaker 1:Nice, that's great. Thanks for sharing that Cool. Well, we are at time, everybody, so I want to be respectful of your time. Thank you for joining us here today. We'll have the replay. Ian, I know you just jumped on, but it's all good, I'll send you the video replay.
Speaker 7:Right or wrong on my calendar, obviously.
Speaker 1:No problem, man, you can and certainly I'll send you that and you hit me with any questions that you may have after checking it out. But thanks so much for jumping on Again. This will all be in the portal. If you have any trouble accessing it, just reach out, let me know. We'll have all the resources there for you too.
Speaker 3:Awesome. Thank you so much. Thanks, guys have a great rest of your day, thank you.
Speaker 1:Thank you for listening to the Craft Brewery Financial Training Podcast, where we combine beer and numbers so that you can improve financial results in your brewery. For more resources, tools, guides and online courses, visit craftbreweryfinancialtrainingcom. And don't forget to sign up for the world-famous Craft Brewery Financial Training newsletter. Until next time, get out there and improve financial results in your brewery today.