Craft Brewery Financial Training Podcast
Craft Brewery Financial Training Podcast
Meet the Brewery That Hangs Its P&L on the Wall
Thor Cheston shares the remarkable journey of Right Proper Brewing Company, from its successful 2013 brew pub opening to the challenges of expansion and the transformative power of implementing open book management.
His candid insights reveal how focusing on core products, financial transparency, and efficient operations turned their struggling production facility into a thriving business with healthy EBITDA.
• Starting as a Georgetown student who fell in love with craft beer while working at a pizzeria
• Opening Right Proper Brewing in 2013 as a neighborhood hub with immediate success
• Expanding too quickly in 2015 with a production facility that struggled for years
• Pivoting in 2019 from creative-driven to leadership-focused business model
• Implementing open book management with full financial transparency
• Reducing product line to focus on consistent, marketable core beers
• Displaying financial statements on 8x16 foot whiteboards for all employees to see
• Creating incentive programs where employees share in profits when goals are met
• Understanding that profit enables purpose rather than being the purpose itself
• Building a business model specific to Right Proper rather than copying other breweries
You can reach Thor Cheston at Right Proper's Brookland facility at 202-247-6274.
He welcomes text messages and is always happy to talk with fellow brewery professionals.
Today on the podcast, we hear from Thor Cheston from Wright Proper Brewing in Washington DC. This is our brewery spotlight on the business of beer real-world insights from breweries who are making it work. So each month we're going to explore and shine a spotlight on one exceptional craft brewery to explore what makes their business thrive. And in my conversation with Thor Cheston from Wright Proper, we go beyond the beer to uncover best practices, smart financial strategies, creative sales tactics and the real-world lessons that they have learned. So for now, please enjoy this conversation with Thor Cheston from Right Proper Brewing.
Speaker 1: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. 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. Just a quick note. We'll be right back to the podcast. 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, kerry at beerbusinessfinancecom, me kary at beerbusinessfinancecom. That's K-A-R-Y at beerbusinessfinancecom. Or you can visit bbfassociationorg. That's bbfassociationorg to learn more. Hey, thor, welcome to the podcast.
Speaker 2:Hey, kary, this is great. Thanks for having me.
Speaker 1:This is great. It's great to have you here. So for today, why don't you start off by giving folks a little bit of background on you and your brewery?
Speaker 2:Sure, my name is Thor Cheston. I'm the co-founder of Right Proper Brewing Company. We have a Right Proper started as a brew pub concept in 2013. And then in 2015, we opened a packaging brewery just a couple of miles away from our original location. I think I am most well known for well known in the industry as Leah Cheston's husband. So the Leah is the board chair for the Brewers Association and I am I'm her adoring husband in the background.
Speaker 1:That's a good, that's a good title to hold. Yeah, yeah, cool. Well, tell us a little bit about your origin story. Like you could have done anything right, but you started a brewery.
Speaker 2:Oh yeah, yeah, I wanted I went to, I was. I did my undergraduate work at Georgetown University. I got a great liberal arts degree there, thought I was really interested in the sciences and thought I might want to pursue a degree in medicine. I was attracted to that. I actually went back to Georgetown to do a two-year post-bac pre-med program. So just all the sciences. I would need to take the MCAT and it was really.
Speaker 2:You know that I was really kind of much more of an adult at that point in my life and you know that's when I really came across better beer, I would say when I was a return student to Georgetown and then to, you know, help pay the bills. I was also working at a local pizzeria and they had some really great beers on draft that were not you know the kind of light lager stuff that I was drinking while a college student, and so I was just I just loved it. You know, I loved everything about it. I love not just the products themselves but just you know the stories behind the, the, the brands. I mean they had Chimay, uh, triple on on draft and that was just like just learning about the history of Belgian brew.
Speaker 2:I was just completely enamored and I said to my mom once, when we were just kind of talking about the trajectory of my career and how my studies were going, I said you know, I just envision, you know, my, you know, retiring from the medical field and opening a brewery. And my mom, my mom, she said, well, if that's the ultimate goal, why not do that now?
Speaker 2:I mean best mom ever right. Wise words from mom the best, the best, and I was shocked.
Speaker 3:And she said I'm serious, you know what?
Speaker 2:Just this? Look at it, you know.
Speaker 3:And so I did.
Speaker 2:And so what I did was I looking at the way Washington we were in Washington DC and what Washington DC. If you're a DC resident, you know there's a difference between the District of Columbia and Washington. They're very different. Washington is what you see on CNN. The District of Columbia is where 700,000 people you know men, women live, you know raising their families, sending their kids to school, working, you know all these things. And so it's kind of there's a real rich community here and it's made up of these tiny little pocket neighborhoods that each have their own names and histories and identities and even these little micro economies. And so I really thought that a really fun, interesting and viable way to start a beer brand would be to align ourselves with one of these historic neighborhoods. And so what I did was I said you know, the best way to do that would be a brew pub, be a kind of a neighborhood hub of activity. You know, seeing how brew pub culture in the rest of the country, you know it really wasn't here in DCC. And so I immersed myself in the restaurant industry, learning, I mean, the brew pub business model. It is a restaurant. So I learned that I worked for 13 years in the in the restaurant industry. I took any job that I could At the end of my career. I was the general manager of a very, very large Belgian-inspired restaurant in Washington DC and managing partner at another restaurant that was owned by the same chef, and I just really had a great grasp of the industry or at least I thought I did of the restaurant industry. I did of the restaurant industry and so I quit my job in 2011, my very lucrative, uh, job that gave me things like health benefits and a paycheck and, uh, my wife Leah uh aforementioned Leah she, uh. She continued to work and kept the lights on, paid all the bills while I wrote the business plan and raised the money for our first location. We brought on a great partner. He's no longer a partner in the business, but he does own the facility where our manufacturing facility is now, which is the building that I'm in right now. He's just the absolute best. He's a very close friend and the best landlord ever, and so, with his help, we opened our first location in 2013. It was a smashing success. I mean, the day we opened, there was a line around the block. My first thought was oh my God, what have I done? And that's what you know. That's when the real work started is managing that business.
Speaker 2:We are, I would say, a victim of our own success. We we opened our first business. We opened our brew pub. We came in $500,000 under budget, so we had close to $600,000 in cash in our bank account when we opened Our first year. 38% of our revenue came from our house brewed beer, which had a profit margin of 96 percent um, and so it was this engine. You know, that brewery was this engine, um, our, that house brewed beer. It just flooded our, our bank account.
Speaker 2:I. We were very, very cash flow positive. Now, what happened was because of that, I did not learn how to manage business from a cash flow perspective, because it was always there. So we got a little big for our britches. So we got a little big for our britches, I would say now, in retrospect, with the smashing success of our group hub, we started paying out dividends to our equity investors quarter one, and we did that every quarter. Leah might correct me on this, but I believe it was every quarter until 2019.
Speaker 2:And in 2014, after being open for a year, we started planning our production brewery I. It took me two years to raise the money for our brew pub, for our production brewery. It took me 18 hours, um, because of just the success of the first one, um, and so you know once again, just you know, the wind at our back. We didn't feel like anything was uh was holding us back and so we opened this, open this production brewery. That was in hindsight. We opened it for just about $2 million. We try for the first four years we tried to run it like the brew pub, expecting a line around the block, people coming in to get you know our sour beers and farmhouse sales and things like that, things that we were really known for at the pub, and then to be able to distribute those beers you know, widely and easily. I think we were expecting about 25 percent of our income to come from in-house sales and 75 percent through distribution. Percent of our income to come from in-house sales and 75 percent through distribution.
Speaker 2:Um, after we got up and running, signed a contract with a uh, uh, uh, premium uh reyes company here in dc. They're still our distributor today. We have a wonderful, wonderful relationship with them. Um, we, um, and they said, hey, look, we, we can, we can sell the beer, but we need you out in the field. You know we need you, we need thor, we need the founder, we need to going out there shaking hands and and telling your story. And I couldn't wait. You know, I got out there I. My first stop, uh, was a, a small bar and restaurant just two blocks from our brew pub, our original location, which I mean this 5,500 square foot, smashing success packed to the gills. Every day it felt like every week we were being covered in the weekend section of the Washington Post and some. You know.
Speaker 2:I just felt we were really the darling of kind of the local press. And I walked into this and I said, hey, this is I'm Thor, I'm from Right Proper and we're distributing our beer. I'd love to talk to you about maybe getting something on draft. And the guy was like Right Proper, I haven't heard of you guys. Are you guys local? And I said oh no, oh, no, no, no, oh no, oh no, no, no, no, no, this is hard, this is bad.
Speaker 2:I realized that our story was being so well communicated and told within our four walls that people were coming in and we controlled everything. We controlled the food and the staff and the lighting and the music and the whole everything, and so we had full control. But there was a captive audience that were coming to us, choosing to find us going out and trying to tell that same story, you know, with the same momentum and gusto. And reception loving reception that we were getting from our guests inside our brew pub to the outside. You know, as a solicitor, was very, very different and we struggled for the first four years. We really struggled, you know.
Speaker 2:We tried to stick to our kind of what we thought were our core values in terms of the beers that we were going to be producing, how we were going to be producing, how we were going to be talking about them, which is these. You know, I would lovingly, you know, I would lovingly, you know, describe them as esoteric in their design and description and everything. And the beers were absolutely positively delicious, but they were, for, you know what we realized, a very small subset of the beer drinking community. We, you know, almost begrudgingly, continue to make our best selling beer, what is continues to be our best selling beer today, our pale ale raised by wolves.
Speaker 2:This, you know, just wonderfully aromatic, 5% alcohol pale ale, thinking that that was just something we had to do so that we could brew the beers we really wanted to make. And we, we tried to force our business into our ideals, you know, for a very long time. And then, yeah, so that that was. And then and then since you know I can get into it if you want me to, but 2019, we had some changes, we made some changes. Let's hear it Get into it.
Speaker 2:You know the business wasn't working. We had an AP, an accounts payable list, that was well into the six figures. You know that we couldn't keep up with. I was paying myself, you know, $40,000 a year you know, which is below subsistence in the heart of Washington DC.
Speaker 2:Our brewpub was still doing very well. It was cash flow positive. However, it had begun to decline by 2019. I think the enthusiasm for this kind of new thing called craft beer the craft beer drinker was starting to slowly age itself out, I believe was starting to slowly age itself out, I believe, and I had I don't know I had an epiphany where we needed to refocus and go from making a large variety of small batch specialty products that we would then try to sell through wholesale to a short list of core beers that were produced throughout the year on a regular basis and that were easy to describe and filled particular niches that you know I worked hard to identify within the local craft beer scene, and so we had. We said we had to say goodbye to some team members who didn't see eye to eye on that, you know, and you know some of them. It was just time that they needed to make a change and it just it worked. It worked for our was just time that they needed to make a change and it just it worked.
Speaker 2:It worked for our business that that they needed to make that change and um, and we then had to say goodbye to another round of employees, um, that you know were holding on to this um, uh, to this idea that we could produce these beers and kind of force the market to appreciate them. And then, you know, we had a wonderful, wonderful head brewer who we love dearly, and he ended up moving away. He moved to open his own project in South Carolina and that really was. It was a big shock to us that we are losing this key employee that had really grown up with us and that really forced me to take a look at the business as a complete whole and say, okay, who's in leadership, who is driving the business and who's ultimately, I guess, steering the ship? And it had to be me. It no longer had to be this kind of.
Speaker 2:I came from the restaurant industry where a particular part of the restaurant industry that's kind of like chef-driven, the creative-driven, and we had embraced the creative driven brewery, um, for a long time and it worked very well in the pub side of things. It didn't work in the production and wholesale distribution side of of the brewing industry. For us, this is just our experience, you know. And so, um, we then shifted to finding leadership in the brewery that could produce um consistent, well-crafted, classic styles of beer um cost effectively. You know the highest, but also have the expertise to make them efficiently, and so our brewing team today, our head brewer, chris Broom, is just a phenomenal talent in brewing himself. He's also an engineer, and so he, when it comes to production efficiency, he has every tiny little detail figured out and we hired a longtime brewer from Gordon Beers.
Speaker 2:You know someone who knew exactly how to make really good lager beer. You know really good lager beer. You know, um, and we went all in on and so, uh, in 2020, um, we lost uh 60 in on our packaging efforts and limited our product line to. I think we had I don't know, one packaged product, if I remember correctly at the start of 2020, that we could produce efficiently, which was raised by wolves, and so we any money that came our way in terms of you know, we got the restaurant relief fund and there were a couple local brands and things like that we put in to make our packaging operation so that we could make our core products as efficiently as possible for the packaged market. And so when our conversation with our distributor here in DC premium was, I said I'm not going to ask you to sell anything but Raised by Wolves six-pack cans and I promise you that they are going to be always in stock, always fresh and packaged to sell.
Speaker 2:So we redesigned our cans, we got painted cans, we got branded case trays for the first time all these things that would make us as attractive and easy to sell into the retail market as possible and it really worked. You know, we didn't, we were, we were low lift for them in terms of what we were asking them to do and so and then we supported them as much as we could with the consistency of our product and they really appreciated that because they could really rely on us and we were uncomplicated. And so when we came out of the pandemic we heard from Giant Food, for instance, they're like you guys did it perfectly. You weren't bombarding us with all these different products and tried to sell us all these things. You were just gave us the one thing over and over and over again. It was consistent and sold well you know, thank, thank God it sold well.
Speaker 2:Yeah, so we really we doubled down on that. We got out all of. I raised 200, about a quarter of a million dollars between 2020 and 2021. I don't, if you ask me how I did it, I don't know how. I think I blacked out for six months and came to.
Speaker 2:You know we sold. We had these big 45 hectoliter French oak fooders. We had barrels, you know, racks high, and then we were. We had some 30 barrel conicals that were dedicated to. You know, we're putting Brett into them, we were using lactobacillus, and so we we got out every piece of equipment that could not make clean pale ale, let's say, or clean beer. We got out of here.
Speaker 2:So we sold the fooders, sold the barrels, sold the racks, the conicals that had lacto and brett in them. We nuked to hell and then added five more 30 barrel conicals, started making a lager full-time. A light lager full-time is a historic washington dc recipe from the hyrek brewing company called senate beer and that really took off and uh, so that we, um, we went from one full-time product to three. We had a little Belgian-style wit beer to complement that and then we just held there for as long as possible, trying to make those three products work and continue to work on the efficiency of those Based on the products that we're making and our facility's capability of producing those sale.
Speaker 2:I could then easily, very easily, attach a dollar figure to our production capacity. So with that we identified our production capacity, the revenue associated with that capacity, and then my job, moving forward, was to make the business plan work with that revenue. So my job was everything below that revenue line to make sure that the addition of those costs and those expenses that went into maintaining that top revenue line were less than that top revenue line.
Speaker 2:So a lot of financial modeling and you know I can say it's been an incredibly hard job. So since 2019, I often describe it as we were turning. We had to turn the ship, but the ship was an aircraft carrier and they don't turn on a dime, you know.
Speaker 2:So it takes a long time to turn that ship and you know it's. I got it's. It's turned now. You know it took, it's taken a long time. It's turned now and we're we're in a much, much better position today. We're actually thriving. Today we have a very healthy EBITDA, you know, earnings before interest, taxes, depreciation and amortization which is a wonderful KPI.
Speaker 2:It does not reflect how much cash is in our bank account, I can tell you that. But it is a wonderful metric that says, hey, we're doing something right, you know something positive, you are doing something right, and so now we have a healthy EBITDA. We have a clear path to improve our efficiency within our own overhead here, improve our production capacity within our own overhead. So we are willing to and raising money currently for an expansion, but we are not expanding outside of our four walls because we realize where one of our real strengths is is our overhead cost. You former business partner owns the building that we're in. He is the best landlord ever. His definition of success for this property is our definition of success for this property.
Speaker 2:So those two things being perfectly aligned means that I can ask, go to him for anything, and he is more than willing to accommodate and to make it happen because he sees that the success of his property ownership is based on the success of our business. I, that is not the case. You know, I have friends that own breweries close friends, very, very close friends that also own breweries and they can sometimes be in contentious relationships with their property owners, you know, and that can cause an incredible strain. Or you know operators that you know saw, you know, saw the universe as open and wide and accessible, and they said that, you know, sky's the limit with my brand, it's going to be amazing. And so they confidently went in to sign a lease for, you know, their dream space. But at the end of the day, when you look at it from us, what they're paying per square foot and the use of that square footage, it doesn't match up. And so we were so lucky and we dodged that bullet. It was nothing that I did, it was no intelligent move on my part, it was just luck or the grace of God, whatever you want to say, that we ended up with the occupancy situation that we have, and so we have. We were able to to operate.
Speaker 2:Today. We're going to be just we're a bit. We'll be about 5,100 barrels this year. 80% of that is distributed, sold FOB, to four different distributors. The vast majority of that stays in Washington DC with premium. They are a priority. They're wonderful to work with and we are able to make the business work because our contribution margin is low.
Speaker 2:It neatly fits within our business plan and that's really what's fueling us. That's really what's fueling us today. And so if someone asked like now the demand for our beer has outpaced our ability to produce and I said, okay, we will pursue an expansion, I will pursue the money to raise this expansion, I will entertain taking on debt again. And the only reason I feel confident of that is because today we have EBITDA. We have a healthy EBITDA, so we know the business model works and that we can improve that EBITDA. We can improve our profit margin by adding production with the fixed costs that we have. So we don't need to open another facility and we're contracting brewing right now with another brewery and by bringing that production in-house we see a tremendous cost savings. And, carrie, these are all numbers that you helped us with.
Speaker 3:For those who are listening. This was a great idea that I we for those who are listening.
Speaker 2:You know this was, this was a great idea that I had, you know, maybe while in the shower or on for on a run. But I had to turn to you, carrie, to say, hey, am I right If I went? All you know if, is it really cheaper for me to produce the beer in-house versus at another brewery? You know, when you factor in overhead costs and labor and all these things that you know, my pea-sized brain was too small to tackle.
Speaker 2:And today, you know those numbers that you've produced for us, you know, are really. They're the backbone of our the financial models that we're taking to banks and to individuals in pursuit of these funds.
Speaker 1:That's great. That's great. Well, it's quite a journey and an evolution of your business. You know, and you guys have been, and you personally have been very thoughtful along the way and trying. It's hard to, you know, be working in the business all the time but be able to step back and say, all right, we were creative driven. We need to think about being leadership and process driven and having quality control and consistency and listen to the market, and so that's not easy. I think the evolution that you guys made is one that a lot of breweries maybe didn't you know, and that's probably the one of the key success factors. When you need to, you know, the key word now is like we got to pivot Right. You got to, but it's more than that. You got to kind of reimagine how your, how your business, is operating.
Speaker 2:Well, and that's a good point how our business is operating. You know, and realizing that you know there isn't a template for a brewery business model. Let's say, you know our industry is brewery brewing. There isn't, there isn't a template that you can just drop right in. You know, there's some, you know some kind of benchmark metrics that you can shoot for, just as as KPIs, just to say, hey, am I, am I in the right zone here? But when it comes down to our, our business model is, is our business model the right, proper, it's entirely ours? I can't say, you know, we have, we have another half location here in DC.
Speaker 2:I mean, those guys are awesome, you know, oh my God, their ability to market and just like their presence is phenomenal and the creativity and like that is great, you know, and to be able to look at them and appreciate all of that just amazing work in crafting that. But then stepping back and looking at it objectively and saying, okay, I wish I had their ability to create a brand, you know, or their marketing power or their messaging and their ability to attract, you know, these great crowds to you know, to be able to step back and say, well, wait, that's a business model. That's not our business model. How does our business model work? And so it was, you know, kind of training myself to you know, not lead my business by what other awesome breweries are doing. You know that I can't be as as well crafted as Allagash and Sierra Nevada are in their messaging.
Speaker 2:I can't be as beautiful and creative and and kind of um and and and energy generating, as as Aslan or um, or uh, uh, uh or other half. You know these amazing marketers.
Speaker 2:You know and they're you know they have devotees of their beer from japan you know, like, like I can't get distracted and say, oh, I'm gonna try and be aslin or I'm gonna try and try and be Sierra Nevada. You know I have to be right proper. Who is right proper and right proper is our art comes down to the products that we have, our facilities, ability to make those products and the how much money is left over is left over. You know, within our what, where are we? And just figuring out where those strengths are and going all in on those strengths and kind of have blinders on you know and I tell our guys all the time you know, like for years I've heard hey, did you hear what these guys are doing?
Speaker 2:Or did you hear what these guys are doing? We? You hear what these guys are doing, we should do this. And me saying, hey, guys, that it's that's. Let's praise them, let's, let's applaud them, let's cheer them on. That's amazing.
Speaker 2:But that's not us. This is us. We, we are, we are these beers, we are this brand, we are this facility. That's who we are, and if we try and be somebody else, we're going to fail, and by fail, we are going to spend money chasing something that we can't do. We can't execute them, and so we're going to. Let's stop spending money. Stop spending money trying to be Aslan. Let's stop spending money trying to be Sierra Nevada. Let's celebrate them and be in awe of what they're able to do, but let's be us and do us every day.
Speaker 2:And so everything today comes down to the realities of our business who we are, where we're going and how we're going to get there. And I'm preaching this over and over and over again is we work so hard on the financial goals and the benchmarks for the year ahead of the year, so we start our financial planning. We started in June this year and I think we got a late start. We just finished our budget for 2026. It's dependent on a few things going the right way.
Speaker 2:We're trying to get this expansion done, but we put so much time and effort into that so that and this is what I'm telling our team all the time so we don't need to think when we come to work. All we have to do is execute. We know the plan, we know the direction, we know the steps we need to take to get there. All we need to do is take those steps. So every day, we're executing, executing, executing, executing. We are not thinking, we are not wondering. We are not coming to work in another brewery, we're not arriving here and our head is at another brewery. Oh, if we only had a bigger brew house. Oh, if we only had a better yeast drink.
Speaker 3:If we only you know, whatever it is.
Speaker 2:We're not there, we're here, we're doing our plan with our equipment and our facility, with our products. And so we instituted, with Larry Chase, who is a great game of business coach, we instituted open book management. 2023, I think was our first full year. 2023, I think was our first full year. I don't know, Things get kind of blurry. I think 2023 is our first full year with open book management. And so every day, I mean every day, every week, the department heads, so the departments are production outside sales and inside sales are production outside sales and inside sales, and those department heads report to me and the rest of our team. We all gather together at 9.30 am on Friday and we have these four gigantic glass whiteboards up on our and Kara, you've seen them in our brewery, near our canning line and we have an abbreviated P&L statement which is a forecast three column forecast for the
Speaker 2:month that we're in. And then we also have a comparative actual numbers from our accountant from the previous period and on the other half, and then a running chart that shows our performance year to date, year over year, and period by period, year over year. So we can track how did we do last month, year over year? And then how are we doing this year, total, year to date, year over year. And so, and what the department heads do is they have to report to me a forecast of how they think that we are going to perform on the major categories of our P&L, so our revenue lines, so wholesale and taproom sales, and then costs of goods, which includes manufacturing overhead and labor within the brewery, as well as materials costs and things like that, and then all the expenses below that, which includes everything from manager salary to employee benefits, to all the expenses and travel, phone lines and alarm system, blah, blah, blah, blah, blah. And so they what they have to do is they have to do the math, they have to do the research throughout the week and ask, the engage with the other employees that have access to the numbers and access to information on that that affect these different lines. And then so they have to do the research and then come and then do the math and then report to me how, how they think we're going to end up. You know materials costs, for you know the brewery in period seven, which is what we call July. Oh gosh, it's August. Good Lord. P8, which is August this is where we think we're going to do with materials costs.
Speaker 2:And then we do that each week and then we take our final forecast and then we move that over to the other side of the board and then, when we get our actual numbers from our accountant, we put those up and then we compare OK, how did we do so? It kind of does two things. We're managing the business, looking forward, so we're not waiting to hear from someone how we did, we are looking forward to see how are we going to do so. It allows us to make decisions and make adjustments as necessary so that we can hit our plan goals for those lines. When we do get actual numbers from our accountant, and then we do an analysis Okay, how accurate is our forecasting? And then we work on improving that, because I realized that the more information that we have, the better decisions that we can make. It's really helped me in that you know, everyone that works here has a full understanding of the financial realities of the business and how their job affects those numbers. So you know. To paraphrase, the purpose of the great game of business is you show all the numbers to the staff, you teach them what those numbers mean. You know through financial literacy numbers to the staff, you teach them what those numbers mean. You know through financial literacy, and then you show them the impact of how those numbers produce profit and, ultimately, cash.
Speaker 2:And the big thing that we're always preaching is that the purpose of our business is not profit. The purpose of the business is not cash generation. The purpose of the business is the purpose of the business. We want to be this wonderful, iconic brand for Washington DC. They can be blah, blah, blah, blah, blah, blah, blah. We want to be something that people who live in Washington DC can be truly, truly proud of, and it's one of, if not the only beer, it might be the only product that's exported out of the city, you know. So we really want it to be an icon of quality, you know, and say, hey, dc is amazing, look at what they produce. But that's not possible. Unless there's profit, we can't realize our purpose unless there's profit. So that's why profit is necessary and that's why we have to focus so much on the profit, because if there isn't the profit, we don't exist, there is no purpose, there's no you know and um yeah, yeah, I love how you tied that together because it's um, there's a lot to unpack there.
Speaker 1:But I guess I want to start with that last comment, because a lot of getting folks to maybe buy in to the whole concept, right of you know, I need to learn the numbers and I need to understand can be a challenge in and of itself, because a lot of times it's like, well, my job is to brew beer, my job is to sell beer, my job is to do this and that, and it's not to but redirecting them saying, well, it's, it is our job to understand how what you do affects these financial outcomes, so that we can achieve, ultimately, the mission. And I think people can really really dig that mission, as opposed to saying, well, we need to drive cashflow, we need to drive because they're like, yeah, for what you know, maybe I get a bonus, maybe I don't, maybe it all goes to the owners, you know who knows? But to tie it to something bigger, I really like how you've talked about that, like, this is about the mission, this is about creating something amazing together. That's something people I think can really get behind.
Speaker 2:Yeah, and we have um. No one here doesn't understand why decisions are being made that the way they are. No one. You know my staff, I'm so proud to say is is very, very well informed, and so they understand why we use the products that we use, why we have the partners that we have, why we are spending money here but not here. You know why we can't get the new brew house that they want, or whatever you know, and so it's.
Speaker 2:It's taken a lot of pressure off of me. You know, I used to have this feeling of God. I wish these guys were in my head and I almost had this kind of defensive stance where I was. My relationship with my staff was almost contentious at times because it was like, well, you just don't understand. Like if you saw what I saw, if you or you had the job that I have, then you wouldn't be saying what you're saying. But now I say I'm like okay, say I'm like okay, I'm, I'm, I'm telling you everything and you know, now I, I leave my, my financials, my cashflow is literally. It is, I think it's eight feet tall, eight by 16 or so. I mean it's massive and it's up on a wall in my brewery.
Speaker 2:You can if you're in my tap room and you look through one of the windows that looks into the brewery. In my brewery you can. If you're in my tap room and you look through one of the windows that looks into the brewery, you can see my profit and loss statement Now, because I have nothing to hide.
Speaker 2:I don't care, I don't care, I do not care. Who knows this information? What the I mean? First of all, I'm sure it's like ancient Greek to you know, the vast majority of the people who are looking at it and those of the number of people that know how to read a profit and loss statement and deduce cash flow from it are very small.
Speaker 2:The hell are they going to do with that information that's going to affect me in any negative way? And so every brewery tour that I give, I walk them past our financials and I walk them through our financials, and that is the number one thing people say they enjoyed on the tour.
Speaker 1:That's amazing. It's isn't that incredible yeah.
Speaker 2:They're like this is blue, our freaking mind, you know. You know, and I'll do a little financial exercises with you know, like you know, the four dads that got hall passes from their wives, you know, to go spend a day hanging out at a brewery. I'll walk them through a financial exercise with our P&L on the board and I'll say, hey, let's say we sold, let's say we saved. How about this? We saved five hundred dollars in travel costs or expenses this this week. Based on our profit margin, which you see down here, this, this EBITDA number, If we save $500 out of expenses to get the same effect from our from sales alone through revenue, how much beer would we have to sell to get the same effect to our bottom line as a $500 savings?
Speaker 2:And to see them, just like you know, get out their phones and try and do the math you know, and then I'll walk them through the math and their minds are just completely blown. They're like that was awesome.
Speaker 1:Well, it's so rare too. I mean you know, it's like I commented on it too. I mean you gave me the tour and that was probably you know of all the things, because we point out things in our head that are like, wow, it's different, that's unique. I've, frankly, never seen it before we had talked about. I'm a huge fan of open book management great game of business, and we ran this and I've run it and blah, blah, blah. But I have not been on a brewery tour where I'm like, holy cow, yeah, there's an eight by 16 foot P&L up on the wall that everybody can help, you know, generate the financial outcome you want. It's, it's incredible.
Speaker 2:Yeah, and I'll tell you when. When Alan are uh, you know, the guy that started working for our company as a dishwasher at our brew pub and is now our packaging manager comes to work and he's, you know, changing's changing into boots at his locker and he looks up and he's like, oh sweet, the P7 actuals are in. I did something right that day. I'm sorry, I did something right. That is awesome. That is awesome. That's a huge win. That he is excited to see those numbers, that's awesome.
Speaker 3:That's a huge win, that he is excited to see those numbers.
Speaker 1:That's amazing Because he understands what they mean and he understands how his job affects those numbers. You know, no-transcript, literally putting it up on the wall so everybody can see it. So it's not like because the traditional way of doing this, exactly the opposite. We're not going to. We're going to tell people as little as possible because that's private. For some reason I don't know how we landed on that, but you know you flipped the script and you know good on you for doing that. It's amazing.
Speaker 2:It's you know, I get, I get validation. I do get validation on a weekly basis After these meetings. I always end the meetings and I get you know I get pretty fired up.
Speaker 2:I get, you know it's. I'm standing up on a platform in front of it and we're going over the numbers, we're talking about them. I have such a sense of relief after every Friday meeting because it's everyone's on the same page. You know, it's all out there, everyone understands what's going on. That kind of openness, the communication and the bringing everyone in so that there's community and there's unity of purpose, that comes from that. It improves the camaraderie, it improves our working relationships and our personal relationships. That, um, at the at the end of those meetings, you know, uh, it's, it's an incredible sense of relief and energy. That and it's for me as well I get energized from it because I have to do. I mean, I'm in charge of a few of those lines as well. So I have have to go through, you know, and I have to show you I have this old school lines you know, oh my gosh.
Speaker 2:So what I do is I have a mechanical pencil and I use a pencil so I can erase and I go through our general ledger.
Speaker 2:You know, and I compare how is my forecast to the actuals from last month. Where am I, where are we spending money? You know I go into QuickBooks. You know I go through our credit card statement on a weekly basis and I use, and and I use, and there's something, there's something really real. The numbers become very real when you're putting them on paper with a pencil. They are real. So you know. You know Microsoft costs me 13, $13 and 25 cents this month. Adobe costs me 2119.
Speaker 2:You know we had an increase in our QuickBooks costs. It went from $104 to $121. Why, how much beer do I have to sell to make up? You know, those few dollars, right there, I, I, you could tell I didn't do, I can't do the math in my head. I'm not smart. I'm not smart, you know. But what it does is it gives me a, a. You know I have a fine too. This doesn't take me all freaking day, right? You know, I, I, this probably takes me 90 minutes a week I dedicate to this. You know there's some discipline that goes into it.
Speaker 1:Yeah, there's definitely discipline, but I like the approach that you're taking, where it's like you've got to pay attention to the details and I think that's fundamentally the point that you're making is that you know these costs can creep up on you, and they always do. They almost never go down right and it's just you never know exactly where they are, but you're watching them and I like how you're going analog with this too, because we get so caught up in all of our software systems and online gadgets and apps and this and that we kind of lose the forest for the tree sometimes. When you just sit there with your column, your gridded column, with your numbers and your mechanical pencil, that's all your focus. You're not focusing on why the Internet's not working or why this glitch no, no, no, it's right in front of you and you can see it and you can take action on any, any things that are kind of going out of whack. So I love how you're digging in on that.
Speaker 2:Yeah, and you know our general counting has gotten better as a result of this. Yeah, and you know our general accounting has gotten better as a result of this, you know. So, you know, comparing my forecast. So the other, you know I thought the other, the other month, you know, I was expecting, you know, let's, you know, $13,000 in total administrative costs. And then it comes in. Our actual numbers come in at 16. And I'm like how, what did I get wrong? Our actual numbers come in at 16. And I'm like how, what did I get wrong? I dive into the GL and I see that, you know, the entire bill that came from our tax accountant for our tax return was applied to one month. And I'm like, well, should that be amortized? Should it not be amortized? You know, then I have a conversation with our bookkeeper and we discuss, okay, should we amortize this or not? You know, are the benefits? And so now it's like then it comes down to, okay, what?
Speaker 1:is my pnl communicating.
Speaker 2:What is the purpose of my pnl? The pnl is telling a story. What story? What story do I need out of it? You know, and so that really tells me what should be amortized, what shouldn't. You know what I need, what I need the PNL to tell me is, on a monthly basis, how am I? Am I succeeding or am I failing? Am I profitable or am I not profitable? Am I making money or am I losing money? Okay, so by dumping a bunch of costs into one period that could be spread out, that's a different story. It's not giving me the information I need. We decide to amortize it. Now my brain can understand the P&L a little better, because the information I line, what would the information I need from it? It is. That is the story it is telling, you know and it's it's so.
Speaker 2:So right now we have we're planning this expansion.
Speaker 2:I have, you know, with your help and it's just amazing I'm pursuing at the same time SBA funds through a bank, as well as entertaining private investment as well Come up with two different you know kind of assumptions on how those loan structures would work.
Speaker 2:I'm not interested in selling equity because we are so profitable that my business is worth a lot of money, and so if you want to put money into my business and get equity in return, you're either giving me a lot of money or you're getting a very, very fixed, and I can prove that with my EBITDA. And I can show how we produce that EBITDA through Great Game, through the management of the business, through the numbers. So I'm not pursuing equity, I'm pursuing a loan, a private loan, and so I have. We have a bank route, private route, and then each of those has three different scenarios that I've built out private route, and then each of those has three different scenarios that I've built out, and each of those scenarios results in a cash goal, available cash goal for the next four years, and so the relief that I get from that is as soon as I know where the money is coming from.
Speaker 2:From. That is as soon as I know where the money is coming from. If the money is coming, please, if the money is coming, how, and then the details. I could easily put the details of the loan structure into that spreadsheet. It will give me a cash goal for 2026. And then I take that to our financial scoreboard, our eight by 16 financial scoreboard on the wall. That is our critical number. Guys, that's what we're doing this year Nothing but hitting that goal. And we know how we're going to do it. We know the products, we know our costs, we know how we're going to spend the money. We have the plan and all we need to do is do that. And that's our goal. Every day we're hitting that Going, going, going going.
Speaker 3:That's it. That's all we're doing.
Speaker 2:I don't give a shit what another brewery is doing. I don't care.
Speaker 3:Do it, do it. I have a buddy. He's building this gorgeous new brewery. It's probably going to look like something out of the Jetsons. You know, go build something beautiful. I love you, I will. God, I can't wait to see it. I can't wait to hang out in your tap room. I can't wait to, like you know, be close to this beautiful, fully automated. You know, I just want to see it and enjoy the experience and enjoy your success.
Speaker 2:We're not doing it, we're doing our business and our business is going to come down that cash number. That's our business, that's where we're going, and that's Well number.
Speaker 1:That's our business, that's where we're going, it's the focus I mean. What you're describing is, again, I think another key to success is that you've got to define, you know, the authentic, right, proper, what you're trying to create, and then you're quantifying it and then you're keeping everybody laser focused on that task, not being distracted by what others are doing. Sure, we can watch, we can listen, we can learn, we can be attuned to it, but we have our plan. And I think, lastly, was and I think this is a really key point to underscore is when people are coming in, they know exactly what to do and their goal is to execute. It's not to come in and question. It's not to come in and worry and wonder no, no, we've done, we've done the math, we've got our plan, we're here to execute. And I think that real clarity of focus, uh, super helpful, because there's there's no questioning, it's just we're just executing. At that point, yeah, that's great.
Speaker 2:And then you know, and, and we, we celebrate the wins. You know when we win, like so they had, um, you know, if we hit, uh, so I'll, I'll just tell you I don't freaking care, uh, the uh. You know, we set these little kind of celebration goals so that at the end of period six or the end of june, if we crossed a hundred thousand dollars in Evita we're having a, we're having a party and they crushed it.
Speaker 3:They crushed it, you know, and they all saw it coming.
Speaker 2:You know, they knew that like, oh man, we crushed it. They're like, bring on the barbecue, you know, and so we order in, you know, rockland's barbecue comes and they drop off all this like like hell, yeah, man, we, we killed it and then. So what we're doing now is we're building in. You know, great game of business has this wonderful structure of what they call stake in the outcome where there's an actual um we, we give them, you know, metrics that if, if we hit these goals, guys, you guys get extra money, you know, and they and we quantify it as days of pay.
Speaker 2:You know none of this is original to me. This is all from Great Game of Business, that and so hey, so our goal is to get you guys six extra days of pay this year and if we hit our profit goals, you get to share in that there's six extra days of pay coming your way, you know, and that it really registers them. I mean it's basically a paid vacation that we're giving them, you know. So it's, it's, it's all. It's really really powerful, you know it's. It's been hard. I mean, the first year that we did it, we we lost $130,000 that year and so it was really hard to get the motivate and see. But, you know, by focusing on, like the year over year, focusing on where the wins are, where the strengths are, and then looking at, okay, where?
Speaker 3:are we hurting.
Speaker 2:And then what? What? What it does is it shines this huge spotlight on on the whole business and if something is not working, something is not efficient, if an employee isn't Isn't contributing the way that their, their job description dictates, they have to contribute and it's, it's. It's right there in the numbers.
Speaker 3:We might need to make a change.
Speaker 2:You know we might need to make a change, you know, and so it's very, very powerful. It's very powerful.
Speaker 1:Yeah, that's a good point too, thor, that you know. I think some people that are listening or maybe have looked at OpenBook have been reluctant to do so for any number of reasons. But one could be we're not making any money. I don't want to scare people, or we're doing really well and I don't want people to think that we're rolling in cash. So it's almost like we're trying to pick the right time to maybe roll this out, given a set of financial outcomes.
Speaker 1:That's, you know, it's like this is reality. I mean, you need people to know what's going on so that they can help when times are bad, and you want people to understand when times are good so that we can make it even better and they can share in that success. So it's sort of like it's tricky. There's no perfect time to roll it out, but I think the underlying principles of what you have described it's transparency, it's honesty, it's like I'm telling you everything I know, you know, so that we can be in this together. I'm sharing the mission. So I think those are all again sort of the key ingredients of the success that you guys are finding.
Speaker 2:Yeah, it's great. You know there's an element of vulnerability, you know that comes with it. You are as the owner, you know the operator of this facility. You are I, as an as the owner and you know the operator of this facility. You know, you know I. I am exposing myself to being vulnerable in front of my staff, you know, but I, I'll play, I'll play games with it. One of the lines that I'm in charge of on a weekly basis is employee benefits reporting forecasting what our employee benefits are going to be.
Speaker 2:I can't freaking wrap my head around this number to save my life. I have done the math left and right, I've like I, I can't figure it out, and so it's kind of like on a every month we go through like how far off was thor? This is for how? How bad did thor screw up the employee benefits this month, you know?
Speaker 3:and it's just.
Speaker 1:I just, you know, you just kind of laugh at yourself and you know, hopefully I don't know, but hopefully what they see as an operator, like you know, I'm trying, man, we're really I'm trying, Well, I think that's another great point is you don't have to have it all figured out Right. I mean you gotta. I think that's another great point is you don't have to have it all figured out right. I mean you got to be vulnerable, be transparent and then learn together. Because I mean, that's the thing too, is not everybody can you know, because there's maybe this misconception of open book that I have to know everything before we start, because no, absolutely not.
Speaker 1:I mean that's the whole point of it. Is the consistency, the repetition, the forecasting on a weekly basis is you'll get better. I mean that's the whole point of it is is the consistency, the repetition, the forecasting on a weekly basis is you'll get better. I mean you'll figure it out. But the fact that you can kind of say yeah, no, I screwed that up, I'll get, you know it does it shows you're human, it shows you're trying, and I think it gets it lets other people off the hook too that they don't have to be perfect. Sure, you want to try hard to get it right, but you know it's an imperfect science too.
Speaker 2:It is a wonderful experience, no-transcript, and I find that I need to do kind of less managing. I'm not working as hard on a daily basis as long as I am managing, you know, the communication and the running of kind of the great, the great game open book platform that that really has turned into my primary focus, you know. But at the same time you know you'll often find me in alleys all throughout Washington DC.
Speaker 2:Look, you know, looking for Chet pallets to steal, soets to steal, so we can get an order out or power washing, the you know the you know the loading dock, or, you know, or loading spent grain onto the back of our farmer's truck. You know I'm also working very hard, but you know I've my I'm. Now, by focusing so much on the open book management, it has actually freed up my ability to do those things. I'm putting out less fires. I'm having less stressful conversations with our employees, especially, you know, like our management team, you know, especially our managers. They have a real understanding of their compensation, why, how their compensation is structured. Everyone, except for me and our production manager, is on a direct incentive plan that is fully transparent, where they get extra money based on performance each month. Where they get extra money based on performance each month and it's directly tied to the reality of the numbers which are presented on this giant whiteboard.
Speaker 3:You know, so they really there's no surprises.
Speaker 2:There's no surprises, you know, and so it's made my job a lot easier, you know. But, like I said, it exposed weaknesses in our staff and we had to make some changes you know, and, and some of the people that we had to say goodbye to, are wonderful, wonderful people who are extremely talented, uh, and I admire them every day to this day, and I would welcome a conversation with them at any time. It is just that it there, it just didn't fit anymore. It just didn't fit yeah.
Speaker 1:And those are. Those are the realities of of business. And just cause they didn't fit there doesn't mean they're not going to. They'll catch on somewhere else.
Speaker 2:But they've all moved on and they're great and they're doing great, yeah Well, thor, this has been awesome, you know.
Speaker 1:Thanks so much for sharing your, your journey, your evolution um open book management and how that's really kind of transformed your company, and I think there's a lot of takeaways for other breweries here that are listening and maybe trying to find their own path and learn from others. So really appreciate you sharing all that information with us.
Speaker 2:Awesome. Thanks, Kerry. I felt like all I did was talk.
Speaker 1:It was good stuff. I mean it was definitely on point and, I think, great takeaways. But, as we kind of wrap up for you, maybe give listeners if they want to connect with you, maybe learn a little bit more, maybe they want to come visit you.
Speaker 3:Oh sure, Absolutely.
Speaker 1:What's the best. Tell them again where are you located, what you got coming up and how to connect with you if, if, somebody wants to reach out.
Speaker 2:Uh, yeah, so, um, I'm. I'm based at, uh, if you Google, if you Google right, proper brewing company uh, what comes up? I'm. I'm at the right proper Brookland facility, which is our phone number is 202-247-6274. 202-247-6274. Send me a text message. Send me a text. I'd love to talk. I'd love to talk. Anytime someone reaches out to me. I have learned that it's because I'm supposed to talk to that person, so I'm more'm supposed to talk to that person. So I'm more than happy to talk to that person. That's awesome.
Speaker 1:That's the universe putting it out there to connect you with other great people.
Speaker 2:Yeah, yeah, yeah.
Speaker 1:Awesome Thor. Thanks so much for your time and all the great information. Really appreciate it. Yeah, this is great.
Speaker 2:And I can't tell you how helpful your services have been Really, really, really tremendously helpful. You know realizing what, where my strengths are and and really where I need help. You know and be like look, I need, I need someone else to to put this together. You know to, really you know take my assumptions and do the math and tell me if I'm right or wrong so that I can move forward confidently, and that you know take my assumptions and do the math and tell me if I'm right or wrong so that I can move forward confidently, and that you know just the models that you put together. You know, I remember having one conversation with I think it was you Sarah, our bookkeeper, and Chris, our head brewer, and I stop us halfway through. You're talking. I'm like can?
Speaker 3:you just tell me, am I right?
Speaker 2:Am I right or wrong here? And you're like, you're right, I'm like okay let's go, we're moving forward.
Speaker 1:Sometimes you just need that validation.
Speaker 2:I just need to hear you're right, let's go. Now we know which direction we're going.
Speaker 1:That's awesome. Well, I appreciate you saying that. It was a pleasure working with you guys and I wish you all the success into the future.
Speaker 2:Yeah, that's awesome. Thanks, kerry, and yeah, I look forward to it. I'm sure we'll be chatting soon.
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.