Effective financial planning is the cornerstone of any successful brewery business.
While crafting an annual budget might seem like a straightforward task, it’s anything but that.
At ZenStrategies, we’ve developed a distinctive approach to brewery budgeting that transcends traditional methods.
We call it the “Holistic Profit Approach,” and it brings a unique perspective to the financial landscape of breweries.
In this article, we’ll delve into the Holistic Profit Approach and provide you with valuable insights for your brewery’s financial success.
Let’s dive in.
Rethinking Brewery Budgeting: The Holistic Profit Approach
Conventional budgeting approaches often prioritize revenue over profit. However, at ZenStrategies, we advocate for a different mindset – one that focuses on profit as the primary goal rather than simply sales figures.
Here’s a fundamental distinction:
Traditional Brewery Budgeting: Calculate sales levels first and determine net income.
Holistic Profit Approach: Establish net income goals first and work your way up to the necessary sales levels.
The Holistic Profit Approach ensures that profitability is at the forefront of your financial strategy.
It sets a baseline of profitability that aligns with your business objectives.
Whether you require funds for capital investments, working capital, loan repayments, or retirement planning, this approach helps you anticipate and address your cash flow needs.
Brewery Budgeting in the Modern Era
A Step-by-Step Guide to the Holistic Profit Approach
Assess Short and Long-Term Factors:
Begin by evaluating both your professional and personal goals. Examine your brewery’s current state and consider short and long-term factors that may affect your finances. Do you anticipate rapid growth, necessitating a substantial workforce expansion? Are your working capital reserves insufficient? Is equipment replacement on the horizon? Simultaneously, assess your personal goals, such as your compensation structure, education fund for your family, retirement plans, or exit strategies. Compile a comprehensive list of these factors and the annual cash flow requirements they entail.
Determine Required Profits:
Calculate the profits needed in the upcoming year to fulfill the cash flow demands identified in step one.
Build from the ‘Bottom Up’:
With your ideal net income in mind, construct your financial spreadsheet from the ‘bottom up’ to ascertain the sales levels required to attain this profit.
The sequence should be: Profit → Operating Expenses → Cost of Goods Sold (COGS) → Sales.
Analyze the Figures:
Scrutinize the results. Are the projected sales levels realistic based on your business’s trajectory for the upcoming year? If they appear feasible, fantastic! If not, proceed to step five.
Fine-Tune Your Strategy:
If the projected sales figures seem overly ambitious, adjust your business variables – specifically, gross profit and overhead expenses. Explore ways to reduce overhead costs to make a significant impact on your required sales levels. After optimizing your overhead, fine-tune your gross margin.
As a last resort, if sales targets still appear unrealistic, consider revising your net income goals while keeping an eye on your long-term plans.
Budgeting Your Brewery: Strategies to Trim Expenses
We would be remiss if we did not address trimming your brewery expenses when it comes to financial planning. It’s an essential aspect!
Here are some strategies to consider:
Overhead & Indirect Expenses:
Begin by thoroughly assessing your overhead expenses, as these can have the most substantial impact on your required sales levels. Even a small reduction in operating expenses can significantly decrease the sales volume needed to reach your financial goals.
While not as impactful as reducing overhead, improving your gross margin can still make a significant difference. Even a modest increase in your gross profit percentage can lower the required sales volume, offering more financial flexibility.
Align with Business and Personal Goals:
As a last resort, consider revising your net income goals to make them more attainable. However, exercise caution, as this may affect your long-term planning. Ensure that your adjusted targets align with the realities of your business and personal aspirations.
Need Help With Your Brewery Budgeting?
Budgeting for your brewery is a critical task that requires a strategic mindset.
If your budget falls short of your cash requirements, you risk facing financial challenges throughout the year.
On the other hand, overshooting your budget can hinder your long-term growth objectives.
For expert guidance and support in navigating brewery finances, we’re always here to help.
We’ve been helping brewery owners manage their finances holistically – from strategic planning, to budgeting, cash flow management, tax services, and more – for more than 20 years.
You can schedule your complimentary call by filling in the form here.
We’re here to help you achieve financial success in the world of brewing!