If there is one business goal that a growing craft brewery needs to focus on, it’s this: don’t run out of cash.
In recent years, the craft brewery industry has seen increased demand and competition. More microbreweries are entering the market, with even more regional breweries expanding nationally.
As with any manufacturing business, the pressure to ensure steady supply and maintain growth is important, but the ability to optimise inventory control and production planning is critical.
The nature of cashflow in craft brewing can mean that it’s often delayed. Whilst a sale might be recorded, it could be weeks (if not months) before the cash for the transaction physically hits the bank account for reinvestment.
Similarly, breweries require high levels of capital investment to get started, which can include facilities, equipment, vehicles, and more. This often means that a growing brewery is running on a very tight budget, and not having the ability to report live on the impacts of decisions and transactions presents a high level of risk.
So, what can you do to better control your cash?
There are three main ways that a brewery can better control their cash.
1. Accounts Receivable
The impact of your invoice terms have a huge impact on your cashflow, because this dictates when customers are required to pay. Negotiating these terms with customers should be done carefully, with a balance struck between removing barriers to sales, whilst optimising your cashflow for reinvestment.
Similarly, by working with your customers to decrease late payments (or even incentivise for early payments) could be the most straightforward way to improve your overall cashflow. This also means that you can reinvest into the business more quickly and regularly.
Takeaway: Do you have visibility over your “average debtors outstanding” trends? Do you have brewery management software systems in place to automate payment reminders or overdue notices? Could you benefit from a system that would allow you to do this?
2. Inventory Control
When speaking to our customers, better inventory control and the ability to automate demand planning and purchasing are two of the key drivers to looking into upgrading their existing brewery management software. Most businesses have progressed from spreadsheets to basic inventory management/warehouse management but have never built the link between sales, inventory, warehousing and accounting and finance. By streamlining this flow of information, brewery owners can make better decisions about purchasing, inventory min max policies and stock on hand.
Takeaway: Does your system allow you to automate demand planning based on sales pipeline, historical sales or upcoming marketing initiatives? If not, you might be missing a huge opportunity to make your cash work harder for you, and minimise waste and lower inventory holding costs.
3. Accounts Payable
Cashflow is key for any business, and your suppliers are no different. As a brewery grows, it gains more traction with its key supplier base, which provides an opportunity to build on the relationship – and potentially gain better contract terms. This could include price breaks for high volumes, or discounts for paying early.
If your wholesalers are anything like you, they will value the opportunity to be paid quickly, because it helps them reinvest into their own businesses. Many brewers find that once they have reached a certain size, they have been able to negotiate additional “early payment” discounts of between 1-2% depending on what they’re purchasing. There is really no easier way to lower your COGs, and what might initially seem like a small amount invoice by invoice quickly adds up and goes straight to the bottom line.
Takeaway: Are you able to see dashboards for your vendors? Can you quickly and easily see how much you’ve bought, purchasing trends or on time/late payment metrics? This information is power for a brewery and being able to quickly access this can be a powerful negotiation tool for new and existing contracts.
There are numerous benefits to having a holistic system to manage your growing brewery. If you’d like to find out more, please feel free to get in touch.
This article was written by Michael Dean, Business Consultant and specialist in ERP for Growing Craft Brewers at Klugo Group. Klugo is the exclusive implementation partner for Crafted ERP, a business management suite built on the NetSuite platform. Find out more about Crafted ERP.