Neil Stevens, our director who heads up our specialist brewery and distillery team, recently penned this article for Brewers Journal.
A successful brewery can take many forms and there is no one measure of what it means to be a success. Over the last 18 months in particular, survival itself should be seen as a success. However, regardless of the aims of the business and goals you are trying to achieve, making a profit underpins the financial stability and sustainability of the brewery.
At Bromhead Chartered Accountants we help our clients achieve their growth plans while remaining profitable through our use of systems and expertise in some fundamental areas.
Is there a clear ambition for the business?
Growing any business can mean many things – increasing turnover, market share, owner’s lifestyle, employee numbers, reputation or profit. Understanding how the owners, investors and management team measure “growth” will ensure operations are aligned and the whole team is pulling in the same direction. This shouldn’t be just financial but include lifestyle and other factors, such as environmental sustainability.
Have a plan to achieve these goals
You may call this a budget, a forecast, a projection or a financial model, the name is less relevant but it should be a roadmap of where you want to be and how the numbers need to look in order to achieve this. These valuable documents will ensure your target is achievable and your plans will actually make the profit you require.
Once you know where you are and where you want to be you can work on how to get there and performance can be monitored against the milestones. Running a business without this key information is like driving a car without a dashboard. Are you driving too fast or overheating?
Funding and investment
Your plan should include a cashflow forecast to help you view what funding you will need, if any, and when you will need it. As you grow you will need to fund new equipment, marketing costs and new employees to enable you to meet the increased demand. Being prepared for this and having facilities in place beforehand will ease the pressures on the business. You should also be aware of grant funding that may be available and opportunities such as research and development tax incentives.
Know your cost of production
Some key financial information is needed to feed in to your plan. Importantly you need to know how much it costs to make your beer. This should be on two levels, the ingredients, packaging and labour that go into producing each pint (your direct costs) and a contribution towards the overheads of the brewery, including the premises costs, sales team and office costs (your indirect costs).
This information will tell you how much profit you should make on each pint and allow you to monitor whether this is being achieved. You can use this information to help set your pricing and assess opportunities as they arise.
Plan your marketing spend
To grow your brewery, you will need to raise the profile and market your product, which will of course have a cost. Choosing where or how to spend on marketing and advertising is difficult, but plan it and set a budget for this area. This budget shouldn’t be set in stone as you will need to adapt and identify the activity producing the best results. Monitoring the results alongside your financial budget or forecast will help keep you on the right track.
When focusing on growth and ramping up operations, overheads can potentially spiral. Regular monitoring alongside your forecast or budget will help pick this up at the earliest opportunity.
Routes to market
Depending on the beer you are producing, there are many routes to market for you to consider. These routes to market will often achieve very different profit margins. For instance, supermarkets could achieve a high volume of sales but at a low margin. Direct to consumer sales through your website will likely achieve much lower volumes but at a higher margin. Interestingly £150,000 of sales at a 20% profit margin and £50,000 of sales at a 60% margin will achieve the same profit. Which works best for reaching your goals?
Track your data
Successful businesses use the data from recent periods to make changes and sculpt the future of the business. It enables you to identify successes and importantly where improvements can be made.
Fundamental to using this key information well is to ensure your systems capture the source data accurately and efficiently. You really don’t want to be spending too much time gathering this information or doubting its reliability as analysis needs to be timely in order to be most useful. Software can be used to effectively gather much of the financial and non-financial data if the systems are designed and configured correctly.
Great beer isn’t always enough
Last but certainly not least is your beer. Producing great beer is fundamental, but great beer by itself will not make a sustainable brewery. The quality of your beer is only recognised when people are drinking it. Establishing your brand identity and unique selling point will help ensure you reach as many potential customers as possible and hopefully they can tell others how great it is!