I teamed up with the University of Vermont Craft Beer School to teach a series of courses called, Managing Brewery Finances. The necessary knowledge is spread over three courses taught this fall and next spring. Each course builds upon the knowledge of the other courses. My goal is to have the brewery accountant independently running their accounting system after the three courses. My aim is to make these courses practical. I am designing these courses so that you will learn something each week that you can immediately use on the job the next day.
In this post I dive into costing, cash, income, and capital to give you an overview of that portion of my first course.
Costing Overview
Everyone that I have worked with in the brewing space asks me, “how much does it cost to brew a batch of beer?” and like everything else, it depends on what filter you use to look at the data. The costing class looks at the brewery through a management accounting lens. We will use the data generated from the accounting system to generate conclusions regarding costs. We will review the Cost of Goods sold section of the income statement and make sure that all direct costs are included when analyzing cost of doing business. We will use bill of materials (BOMs) and standard costing to generate a full cost of making beer. Finally, we will look at what a breakeven analysis looks like and tying operational benchmarks to items on the financial statements.
Week 1 will be an in-depth analysis of the budgeting process. Planning is very important for any company, and the budget process should be the time to take an in-depth look at the business processes of the brewery and the profitability of the business sectors within the brewery. What is an acceptable level of profitability? It depends on what you can change and what you cannot change. Tying together operational benchmarks to budget numbers brings the operational world into the financial world. That gives you the 360-degree view of the entire company. In week 2 of the course, we start to break down the building blocks of costing. What at the component items in the Cost of Goods Sold section of your income statement? Are all of the brewery functions included within COGS or are some costs 'below the line' in expenses. What bill of materials (BOMs) are you using either in your accounting or brewing system? What is included, but more importantly, what is excluded from beer costing? What labor classifications exist in your accounting system and how do you account for labor cost?
The answer to what is not included in a batch of beer is often the hardest cost to quantify. In week 3, we will delve into standard costing. How do you determine labor and overhead cost before the beer is brewed? How do you know if the standard is correct over time? What are overhead costs and how do you go about reducing them? What are variances to standard and why are they important to cost management? All of this information comes together in week 4. What is breakeven and how do you tie it back to operational metrics. Remember week 1? If we tie the budget to operational benchmarks, now we are going to tie operations benchmarks and key performance indicators (KPIs) back to beer cost and ultimately profitability. What is the correct beer pricing matrix? With the full beer costing generated in week 3, you will be ready to determine a beer price (subject to market conditions of course).
Watch: Overview of Managing Brewery Finances Course
Cash, Income and Capital
Everything comes together in the final course where we will apply all of the knowledge gained in the first two courses to create a deeper understanding of the brewery. The question most often asked after “How much does it cost to brew a batch of beer?”, is the question “How much money are we making OR what do we need to do to breakeven?” This course breaks down that answer into 4 weekly classes. Week 1 is about all the different kinds of margin (gross, operating, contribution and net profit). Each kind of margin shows the brewery in a slightly different light. All of the views are necessary to gain a complete picture of how the brewery is doing. After we have a strong calculation of margin, week 2 is about ways to improve gross margin. Yes, the rent is fixed, but there are often many different ways to accomplish the work of the brewery. We will discuss the many operational benchmarks to measure margin. Communication within the brewery is key. If people know how they impact the bottom-line (or they are commissioned on an operational benchmark), they will make changes in every day work that will increase profitability. In week 3, we pivot into the cash forecast vs statement of cash flows. Every owner that I have every worked with is primarily concerned with “Can I make payroll?” All other questions are dwarfed by that question. The cash forecast gives the management the understanding of what cash flow looks like from a practical standpoint. The statement of cash flows is nice, but the cash forecast is critical. Also, in week 3 we will cover ratios. Formal finance classes always make time to discuss ratios. We will spend time talking about ratios and how the work in the craft brewing space. Finally in week 4 we will take all of this knowledge and calculate benchmarks to improve cash flow. You will calculate burn rate (gross and net) and gain a better understanding of working capital.
Get Started
Each course is four weeks long and costs $750 per course (there is a 20% discount for Pink Boots Society members and Brewery Association members). Each week starts with an optional web session where we discuss the week’s course material and assignment. I am designing the homework time commitment to be 3-6 hours per week. However, each assignment is meant to be very practical. You should pick up something every week that you can use in the brewery immediately. I am very mindful that no one has extra time on their hands.
Hope to see you there!
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