Latest / Craft Brewery Financial Training Podcast / Brewery Budget Basics

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Brewery Budget Basics · Craft Brewery Financial Training Podcast

• 0:00
  Kary Shumway: Today on the podcast, we're going to talk brewery budget basics.
• 0:03
  Kary Shumway: How do we build a budget?
• 0:04
  Kary Shumway: I think most folks would agree that we need one, and most folks don't have one.
• 0:08
  Kary Shumway: So why not?
• 0:09
  Kary Shumway: What are those obstacles and how do we overcome them?
• 0:12
  Kary Shumway: And a lot of times I think we're just not sure where to start, how to build it, and then what to do with it exactly once it's done.
• 0:19
  Kary Shumway: So that's what we're going to talk about today.
• 0:21
  Kary Shumway: We're going to talk about those common obstacles and how to overcome them.
• 0:24
  Kary Shumway: I'm going to give you a budget, quick start guide, three easy steps to get you rocking and rolling.
• 0:29
  Kary Shumway: Then we'll get into the details.
• 0:30
  Kary Shumway: How do we build this plan?
• 0:31
  Kary Shumway: What models, tools, templates do we use?
• 0:34
  Kary Shumway: And then once it's built, how do we install this?
• 0:36
  Kary Shumway: We're going to talk about a financial cadence, how you can use the plan every day to help achieve your financial goals.
• 0:44
  Kary Shumway: So for now, please enjoy our podcast on brewery budget basics.
• 0:49
  Kary Shumway: 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.
• 1:00
  Kary Shumway: I'm your host, Carrie Chemoi, a CPA, CFO for a brewery, and a former CFO for a beer distributor.
• 1:06
  Kary Shumway: I've spent the last 20 years using finance to improve financial results in our beer business.
• 1:12
  Kary Shumway: Now I'm helping other craft breweries to do the same.
• 1:15
  Kary Shumway: Are you ready to take your brewery financial results to the next level?
• 1:19
  Kary Shumway: Okay, let's get started.
• 1:25
  Kary Shumway: Just a quick note, we'll be right back to the podcast.
• 1:27
  Kary Shumway: I want to let you know about a new network for beer industry professionals.
• 1:32
  Kary Shumway: It's called the Beer Business Finance Association.
• 1:35
  Kary Shumway: 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.
• 1:46
  Kary Shumway: So I'd love to tell you a little bit more about this.
• 1:48
  Kary Shumway: If you are interested in learning more, please email me, Carrie at Beer Business Finance.com.
• 1:54
  Kary Shumway: That's K-A-R-Y at Beer Business Finance dot com.
• 1:58
  Kary Shumway: Or you can visit BBFassociation.org.
• 2:02
  Kary Shumway: That's BBFassociation.org to learn more.
• 2:06
  Kary Shumway: Today is a solo podcast.
• 2:08
  Kary Shumway: Just me and just you, and we're going to talk about budgeting basics for your brewery.
• 2:13
  Kary Shumway: So I think we know that we need a budget.
• 2:16
  Kary Shumway: It's a roadmap, it's a game plan to help us really build an amazing business.
• 2:21
  Kary Shumway: Um, but most folks don't have a budget.
• 2:24
  Kary Shumway: So I wanted to kind of explore why that was, talk about the obstacles, how we can overcome, and really just give you some starting points because I think that's the hardest part is building that momentum.
• 2:34
  Kary Shumway: Sometimes we're just not sure where to start and how to build this thing and what exactly to do with it once it's done.
• 2:42
  Kary Shumway: It feels like a really big task.
• 2:44
  Kary Shumway: So I'm wondering for those listening, who has a budget now?
• 2:49
  Kary Shumway: And if you have one, are you using it?
• 2:52
  Kary Shumway: And do you see the value in it?
• 2:53
  Kary Shumway: And if you don't have one, you know, just explore why that is.
• 2:57
  Kary Shumway: You know, what are the what are the reasons, what's holding you back?
• 3:00
  Kary Shumway: So that's what we're going to talk about.
• 3:01
  Kary Shumway: We're going to start with some budget questions, the basics.
• 3:04
  Kary Shumway: I find these useful.
• 3:05
  Kary Shumway: You know, the who, what, where, why, when, and how.
• 3:08
  Kary Shumway: So we'll kind of go through that.
• 3:09
  Kary Shumway: I'll go through the obstacles that I've heard and experienced as to why a budget doesn't get done and how you can overcome these.
• 3:18
  Kary Shumway: I'll give you a budget quick start guide, really three steps to hopefully get you off and running.
• 3:24
  Kary Shumway: Then we'll get into the details.
• 3:25
  Kary Shumway: How do you build this plan?
• 3:27
  Kary Shumway: What are the models that we can use?
• 3:29
  Kary Shumway: What are the tools and templates?
• 3:31
  Kary Shumway: And then, lastly and importantly, is how do you use this plan every day?
• 3:36
  Kary Shumway: So we'll talk about how do you can install a financial cadence into your business so that you keep the budget, the plan front and center every day and every week.
• 3:50
  Kary Shumway: So the budget basics, let's start with the who, what, where, why, when, and how.
• 3:56
  Kary Shumway: So the the who is just asking who's gonna be involved in this plan.
• 4:00
  Kary Shumway: So kind of sketching that out.
• 4:01
  Kary Shumway: You know, there's different ways to go with your budgeting, top-down budget, bottom-up budget, some sort of hybrid of those, but who do you want to have involved in creating this plan?
• 4:12
  Kary Shumway: Think about that.
• 4:13
  Kary Shumway: Next is what tools are you gonna use to do this, and what information do you need?
• 4:18
  Kary Shumway: So tools might be as there are software that you've used or could use, are you gonna use uh spreadsheets like I often do?
• 4:26
  Kary Shumway: You can use a combination, and what sort of information, what kind of historical data do you need in order to project?
• 4:33
  Kary Shumway: Because I think that's the challenge too, is you know, budgeting, forecasting is really trying to predict the future.
• 4:38
  Kary Shumway: I think we'd all agree that's really hard to do, but it's made easier if you have some data to look at.
• 4:44
  Kary Shumway: Again, I like to look at a lot of historical information, I like to look at kind of where we've been, what the numbers tell us, like look at the trends, like you know, what is what is happening over time, um, you know, comparative data, ratios, lots of lots of stuff.
• 5:03
  Kary Shumway: So, what tools and what information will you need?
• 5:07
  Kary Shumway: Next, where will the work be done?
• 5:09
  Kary Shumway: Kind of a simple question, but you know, are we gonna gather in a conference room?
• 5:13
  Kary Shumway: Are we gonna meet and where are we gonna do this?
• 5:15
  Kary Shumway: Off-site, on-site?
• 5:17
  Kary Shumway: Why is the budget important?
• 5:19
  Kary Shumway: You know, that's really the first question, of course, is you know, this is this is our tool to give us a roadmap to show where we are and where we want to get to.
• 5:28
  Kary Shumway: And ultimately, you know, if we don't have that plan, you know, we just we could end up anywhere, and very often we won't like where we end up.
• 5:37
  Kary Shumway: So the budget's important so that we have a roadmap that everyone can follow to get us to the financial promised land.
• 5:44
  Kary Shumway: The when of this is when is the process going to start?
• 5:47
  Kary Shumway: When's it gonna finish?
• 5:48
  Kary Shumway: And how, how will the plan be used?
• 5:51
  Kary Shumway: How are we gonna implement this?
• 5:53
  Kary Shumway: So, just some questions.
• 5:54
  Kary Shumway: Again, I think the budgeting process it feels so big and overwhelming.
• 5:58
  Kary Shumway: Sometimes we can just start really small, really simple, uh, with those questions that kind of provide some clarity.
• 6:05
  Kary Shumway: So let's talk about a few more common obstacles.
• 6:08
  Kary Shumway: You know, we're not always clear on how to start this thing and how to finish it.
• 6:13
  Kary Shumway: When do we call it done?
• 6:15
  Kary Shumway: And the project can feel overwhelming, like any big project, you know.
• 6:19
  Kary Shumway: So we get to start with the small pieces, break it down.
• 6:23
  Kary Shumway: Sometimes it feels like the budget is obsolete once we complete it.
• 6:27
  Kary Shumway: Because business changes super fast.
• 6:30
  Kary Shumway: Like, how can we possibly create a plan that's gonna be useful tomorrow, let alone in six months?
• 6:36
  Kary Shumway: So that that feeling like, what's the point of this?
• 6:39
  Kary Shumway: It's impossible to predict what's gonna happen.
• 6:42
  Kary Shumway: Or maybe there's a little bit of baggage.
• 6:44
  Kary Shumway: Maybe you're like, ah, we've done this before, and you know, we never use the plan, and it's just a waste of time.
• 6:49
  Kary Shumway: So there's lots of kind of bad feelings sometimes around a budget.
• 6:54
  Kary Shumway: So, how do you overcome these things?
• 6:56
  Kary Shumway: You know, the common big problem, break it down into small, mini projects.
• 7:01
  Kary Shumway: So when we look at the budget, we've got different building blocks.
• 7:04
  Kary Shumway: You can think of it like a puzzle, um, you know, your sales plan, margin, expenses, capital expenses.
• 7:10
  Kary Shumway: So I would say start with some small wins, some things that are approachable, that make sense.
• 7:15
  Kary Shumway: Uh the budget has many pieces, uh, but you don't have to do them in order necessarily.
• 7:21
  Kary Shumway: So maybe you start with your capital expense plan.
• 7:24
  Kary Shumway: You know, everybody has ideas on what we need to buy.
• 7:27
  Kary Shumway: You know, we need more tanks, we need more kegs, we need this, we need that.
• 7:31
  Kary Shumway: So start with that.
• 7:32
  Kary Shumway: That's a listing of what do you want to buy, what's it gonna cost, when do you need it, um, are you gonna get a return on that investment?
• 7:39
  Kary Shumway: So just start with something like that.
• 7:41
  Kary Shumway: Get those small wins.
• 7:43
  Kary Shumway: Next is, you know, enlist your team.
• 7:44
  Kary Shumway: You don't have to do it all yourself.
• 7:46
  Kary Shumway: I think there's a feeling maybe as an owner or a GM that like you have to do it all yourself, but you know, frankly, you get better engagement and better results when you when you involve your team.
• 7:56
  Kary Shumway: Next to overcoming these obstacles is to have a mindset shift.
• 8:01
  Kary Shumway: So plans, the the as the saying goes, plans are useless, but planning is essential.
• 8:07
  Kary Shumway: Uh, but when you put a microscope on the numbers, it's amazing what you can find.
• 8:11
  Kary Shumway: When you dig in there and you really spend some time, um, you can find some really cool stuff.
• 8:46
  Kary Shumway: So the planning process really is an unlock.
• 8:50
  Kary Shumway: You know, the plan itself is is a nice byproduct, and we got to get stuff in writing.
• 8:54
  Kary Shumway: But once you dig in, you know, that planning can really uncover some cool stuff, opportunities.
• 9:01
  Kary Shumway: And, you know, lastly, on overcoming obstacles, I would say think about this as an opportunity to dream about your business, not just bang out a bunch of spreadsheets.
• 9:10
  Kary Shumway: So it's an opportunity to talk about strategy and goals and objectives and really get excited about things to come.
• 9:17
  Kary Shumway: Uh, so that maybe gives you a little bounce in your step as you're digging in on these spreadsheets.
• 9:23
  Kary Shumway: So I'd encourage you to think about this for yourself.
• 9:25
  Kary Shumway: You know, what are your obstacles to building and using your budget?
• 9:30
  Kary Shumway: You know, what's happened in the past?
• 9:31
  Kary Shumway: What are you going to do differently going forward?
• 9:34
  Kary Shumway: Um, and think about that because it's really hard to get started if you've got these obstacles in front of you.
• 9:38
  Kary Shumway: So it helps by naming them, identifying them, figuring out how to go over, around, or through it.
• 9:46
  Kary Shumway: All right, let's talk about getting you started.
• 9:48
  Kary Shumway: Here's a budget quick start guide that you can think about, really a three-step process.
• 9:53
  Kary Shumway: So, step number one is just begin with the end in mind, setting a bottom line goal.
• 9:57
  Kary Shumway: Because very often we see in the budgeting process that you know we just don't do it.
• 10:01
  Kary Shumway: You know, we do the sales plan, the expenses, this, that, and the other.
• 10:05
  Kary Shumway: And, you know, the bottom line just sort of happens.
• 10:08
  Kary Shumway: You know, it's a result of doing all these other pieces.
• 10:10
  Kary Shumway: I would recommend flipping the script and set that bottom line goal first.
• 10:14
  Kary Shumway: The second step is list out your stakeholders and their requirements.
• 10:17
  Kary Shumway: You've got people that are relying on your business, um, you know, banks, investors, you know, what do they need?
• 10:24
  Kary Shumway: Uh, make sure we get that in the budget.
• 10:27
  Kary Shumway: And then the third step is just let's get set the structure for this.
• 10:31
  Kary Shumway: Let's complete a budget prep outline.
• 10:33
  Kary Shumway: Who's involved?
• 10:34
  Kary Shumway: What are the deadlines, uh, and so forth.
• 10:38
  Kary Shumway: So, beginning with the end in mind, just to kind of put a little more meat on these bones, we need the specific targets that we're gonna hit.
• 10:44
  Kary Shumway: And I typically recommend set a net operating income goal.
• 10:49
  Kary Shumway: So, your bottom line, what is that goal?
• 10:51
  Kary Shumway: What is that profit target?
• 10:52
  Kary Shumway: And let's just say for easy math, you want it 10%.
• 10:55
  Kary Shumway: So at the bottom line, I want the net income to be 10% of sales.
• 11:00
  Kary Shumway: Okay, that's set in stone.
• 11:02
  Kary Shumway: We're gonna, you know, that's our stake in the ground, that's non-negotiable.
• 11:06
  Kary Shumway: And then everything else becomes a little bit easier after that.
• 11:09
  Kary Shumway: Because now you know where you're headed, you know where you want to go.
• 11:12
  Kary Shumway: Whereas traditional budgeting might be, well, we've got to do our sales plan, let's let's bang that thing on.
• 11:17
  Kary Shumway: All right, then we'll do our expenses, and then you know, whatever the end result is, is is what it is.
• 11:21
  Kary Shumway: But if you turn it around, it really gives you that target to shoot for.
• 11:25
  Kary Shumway: Uh, it doesn't mean it's easy, but at least you're clarifying.
• 11:28
  Kary Shumway: So that clear financial goal, profit target of 10%.
• 11:34
  Kary Shumway: I also think there has to be a sense of urgency when you're doing your budgeting.
• 11:38
  Kary Shumway: You know, don't wait, set those weekly deadlines to finalize each section, get it done.
• 11:45
  Kary Shumway: You know, done is better than perfect.
• 11:47
  Kary Shumway: You've heard all these quotes.
• 11:49
  Kary Shumway: For your stakeholders and requirements, you know, if you think about your bank, if you've got a loan, um, you you've no doubt got uh a lender asking you for information.
• 11:59
  Kary Shumway: So let's get those in our in our budgets.
• 12:01
  Kary Shumway: You know, what information does the bank need from us?
• 12:04
  Kary Shumway: Usually there are loan covenants, uh, debt service coverage requirements, um, leverage ratios, things of this nature.
• 12:12
  Kary Shumway: So, how do those things work, right?
• 12:14
  Kary Shumway: You know, sit with your banker or do do some research online or ask some questions or um you know talk to a fellow brewery owner, like how does this stuff work?
• 12:25
  Kary Shumway: You know, so once you understand it, then you can make sure that these requirements are going to be um met by your plan.
• 12:34
  Kary Shumway: So, for example, if your loan covenants require a debt service coverage ratio above a certain level, say 1.3, 1.4 times, what they're really saying is that they want to look at how much money is coming in versus going out.
• 12:49
  Kary Shumway: And they want 1.3 times as much coming in as is going to go out to cover your debt.
• 12:54
  Kary Shumway: So you can usually think of this as like a net operating income compared to your debt service payments, and then you can kind of map that into your into your budget.
• 13:04
  Kary Shumway: Leverage ratio is usually a comparison of debt to equity.
• 13:09
  Kary Shumway: What does that ratio look like?
• 13:11
  Kary Shumway: So without getting into too many details, the the bottom line here is who are your stakeholders, what are their requirements?
• 13:18
  Kary Shumway: If you've got investors, you know, maybe they have a requirement to get annual distributions.
• 13:23
  Kary Shumway: Uh, perhaps to cover tax liability, perhaps something else as a as a part of their agreement to invest.
• 13:29
  Kary Shumway: So what are they?
• 13:30
  Kary Shumway: You know, who are your stakeholders, what are their requirements?
• 13:33
  Kary Shumway: Make sure they're in the plan.
• 13:35
  Kary Shumway: For that budget prep outline, we just have a simple like one-page document where all we want to do is list out when are we gonna start, when are we gonna finish.
• 13:44
  Kary Shumway: The deadline is is essential to getting this thing done.
• 13:47
  Kary Shumway: And then who's gonna own each section of the budget?
• 13:50
  Kary Shumway: So one responsible person.
• 13:51
  Kary Shumway: So you might think we have one person responsible for the sales plan, one for the department expense plan, capital expenses.
• 13:59
  Kary Shumway: So listing that out and being clear, and then having specific expectations for each owner.
• 14:05
  Kary Shumway: You know, what do they need to do and how do they need to do it?
• 14:08
  Kary Shumway: So being as clear as possible there.
• 14:11
  Kary Shumway: Um so those are three steps to really get you started is begin with the end of mind, set that bottom line goal, list out your stakeholders and their requirements, and fill out that budget prep outline just to provide structure and who's responsible and you know, most importantly, set that deadline.
• 14:29
  Kary Shumway: As you start diving into your budgeting process, there's there's different approaches.
• 14:33
  Kary Shumway: There's a top-down approach, a bottom-up approach, there might be a hybrid approach, that's sort of a blending of the two.
• 14:39
  Kary Shumway: So, top-down budgeting in in this, you know, traditionally what that means is the leadership or ownership is gonna build the budget and give it to the managers to execute it.
• 14:49
  Kary Shumway: Uh and it's generally a little quicker to create these.
• 14:53
  Kary Shumway: Uh, we're we're using a lot of assumptions and trends and comparative data to build this thing, but we can usually get it done.
• 15:01
  Kary Shumway: It's usually done by people that have done budgets before, so there's not a lot of necessarily a lot of training that needs to go into that.
• 15:07
  Kary Shumway: And of course, the challenge with that is you you were handing budgets to managers that didn't have a say in how they were built and may not even understand where the numbers came from.
• 15:15
  Kary Shumway: So that can cause some confusion, maybe even irritation at times.
• 15:19
  Kary Shumway: Uh, some people like it.
• 15:20
  Kary Shumway: They like just they just tell me what to do and I'll go do it.
• 15:23
  Kary Shumway: Uh other managers really don't like it so much because it's like, well, I didn't have any say in how this is going, and now you're holding me responsible.
• 15:32
  Kary Shumway: So there's some some pluses and minuses there.
• 15:35
  Kary Shumway: Budget up, uh, I'm sorry, bottom-up budgeting is more like high involvement planning.
• 15:41
  Kary Shumway: That's where we're including, say, department managers in the process of creating their plan.
• 15:47
  Kary Shumway: And it often will take a little more time to get it done.
• 15:51
  Kary Shumway: It takes some faith because we're trusting our managers with financial information.
• 15:55
  Kary Shumway: Um, but we're more likely to get that buy-in, that understanding, uh, because they they had a hand in making the budget.
• 16:03
  Kary Shumway: Uh, so it does require some training, so not every manager really understands how to build a budget, and frankly, most do do not.
• 16:10
  Kary Shumway: So we've got to train them on how to do it.
• 16:12
  Kary Shumway: Uh, but the end result can often be uh quite a bit better.
• 16:15
  Kary Shumway: But the trade-off is, yeah, it takes takes longer.
• 16:16
  Kary Shumway: A hybrid approach might be you know, leadership sets these bottom line targets, 10% of net operating income, and then they ask the managers to build a plan uh to achieve those goals.
• 16:28
  Kary Shumway: So, you know, any one of these can work.
• 16:31
  Kary Shumway: Um, so I think it's experimentation, it's what what's the culture of your business, what makes sense to you.
• 16:38
  Kary Shumway: You know, I prefer the bottom-up budgeting because I want to involve the people that are going to be, you know, tasked with executing the plan.
• 16:46
  Kary Shumway: And furthermore, I I learn a lot in that process.
• 16:49
  Kary Shumway: You know, everybody's got different perspectives, and the people that are actually doing the work um know what they're doing, you know, and so it's useful to talk to them and ask them, you know, what do we need this year?
• 16:59
  Kary Shumway: How do we get better?
• 17:00
  Kary Shumway: Where where are our strengths, weaknesses, opportunities, and threats, and then how do we how do we build that into the plan?
• 17:08
  Kary Shumway: Some tips and tactics.
• 17:10
  Kary Shumway: So these are sort of high-level um approaches that you might think about taking.
• 17:16
  Kary Shumway: I love uh these decision models.
• 17:19
  Kary Shumway: I have a book called 50 Strategic Models.
• 17:22
  Kary Shumway: It's called the Decision Book, and it's got some really cool models in there.
• 17:25
  Kary Shumway: One one of which you might be familiar with, the Eisenhower Matrix, where you're just sort of identifying the tasks that are urgent or important or not urgent, not important.
• 17:35
  Kary Shumway: You know, you've probably seen it the four quadrants there.
• 17:38
  Kary Shumway: So this particular book has a number of other models like that that can can help kind of unlock.
• 17:45
  Kary Shumway: I'll just kind of reference my book and give you a couple here that I like that.
• 17:47
  Kary Shumway: So one was uh feedback analysis, which I think is kind of interesting.
• 17:51
  Kary Shumway: And we're we're looking basically what we're looking at is what's the expectation?
• 17:56
  Kary Shumway: What do we think is gonna happen, and then what actually happens.
• 17:59
  Kary Shumway: So expectation and result, just continually testing.
• 18:02
  Kary Shumway: Uh and I think budgeting this fits very well with that.
• 18:04
  Kary Shumway: And the book says, you know, most people think they're no most people think they know what they're good at, but they're usually wrong.
• 18:11
  Kary Shumway: So feedback analysis is a super helpful way to kind of test those theories.
• 18:15
  Kary Shumway: What do you think is gonna happen?
• 18:17
  Kary Shumway: Uh and then test the result.
• 18:19
  Kary Shumway: You know, and one of the practical ways we do this is when you're installing your your financial meetings, that financial cadence.
• 18:26
  Kary Shumway: Uh it's a great way to get that feedback analysis.
• 18:29
  Kary Shumway: I'm going to project what I think is going to happen from a sales expenses, net operating income.
• 18:34
  Kary Shumway: And then next week we're going to come in and look at the numbers and what actually occurred.
• 18:38
  Kary Shumway: So my expectation a week later, what's the actual result?
• 18:42
  Kary Shumway: Oh, I was way off.
• 18:43
  Kary Shumway: What happened?
• 18:44
  Kary Shumway: How can I do better?
• 18:45
  Kary Shumway: And then you repeat that process.
• 18:47
  Kary Shumway: Uh so that's that's uh feedback analysis.
• 18:50
  Kary Shumway: Another one is a market analysis, a gap in the market model.
• 18:53
  Kary Shumway: It's kind of interesting.
• 18:53
  Kary Shumway: It's like how to recognize a bankable idea.
• 18:56
  Kary Shumway: So, like most models, you know, you've got a y-axis and x-axis and this and that.
• 19:01
  Kary Shumway: And it's basically walking you through a series of different questions uh that you can use to try to figure out hey, is is this product or um you know a service?
• 19:12
  Kary Shumway: Is this is a good idea?
• 19:13
  Kary Shumway: Should we roll this thing out?
• 19:15
  Kary Shumway: So you can kind of stress test that.
• 19:17
  Kary Shumway: So that's 50 strategic models of the decision book.
• 19:20
  Kary Shumway: You can check that out.
• 19:20
  Kary Shumway: Another book I really like is um it's called The Book of Beautiful Questions.
• 19:26
  Kary Shumway: And basically, it has a whole bunch of prompts questions, and what I liked about it was it says basically the m your mind can't resist answering a question.
• 19:38
  Kary Shumway: So the specific quote is Um You can't resist trying to answer a question that has been posed.
• 19:46
  Kary Shumway: So basically, if you're asking, if you're framing this in terms of questions, like how might we increase sales, how might we bring in more customers, how might we increase the average guest check?
• 19:58
  Kary Shumway: You know, your mind sort of jumps into action, and you gotta stay with it.
• 20:03
  Kary Shumway: But that's the basic concept, and there's a whole bunch of you know other prompts and questions uh that can help you in the process of doing your planning.
• 20:12
  Kary Shumway: Um, and then a third one is this workshopper methodology, the workshopper playbook.
• 20:18
  Kary Shumway: Uh so you can Google that, grab it online, and it's basically a process by which uh you can brainstorm with your team, but in kind of a non-traditional way.
• 20:26
  Kary Shumway: So traditional brainstorming, we all sit around the table.
• 20:29
  Kary Shumway: All right, we're gonna talk about ways to increase our you know revenue per barrel.
• 20:33
  Kary Shumway: All right, everybody, what are your ideas?
• 20:35
  Kary Shumway: And it's can be effective, but often it can be a waste of time too.
• 20:39
  Kary Shumway: So workshop or playbook is you have the same prompt, everybody's around the table, but they're gonna work independently.
• 20:45
  Kary Shumway: So they call it you know working together alone.
• 20:48
  Kary Shumway: So rather than you know, kind of a free-for-all discussion, uh, which I do think there's a place for, um, this methodology says, all right, the prompt is how do we increase revenue per barrel?
• 20:59
  Kary Shumway: And everybody's gonna take six minutes and you're gonna write down on as many ideas as you can on these sticky notes.
• 21:05
  Kary Shumway: And then at the conclusion of those, we're gonna put those sticky notes up on the board.
• 21:08
  Kary Shumway: So this gives you a little bit of, it's a little bit anonymous, so people don't have to think, uh I probably have a dumb idea, I don't want to say it, but maybe they'll write it down, and maybe it's a good idea.
• 21:17
  Kary Shumway: And you put these up on the board, you remove any duplicates, like I might have had an idea that's the same as a couple other people, we only need one of those, and then you're left with, you know, uh X number of ideas that are up there, and then the plan is to take those ideas and then filter them through a system of you know what would be the highest impact and what's the easiest to implement.
• 21:41
  Kary Shumway: So a basic grid whereby you can kind of prioritize um and then figure out which ones you're gonna take action on.
• 21:48
  Kary Shumway: So I love the concept, I've you know done it in practice a number of times, I think it's really cool.
• 21:52
  Kary Shumway: Um, and these can be ways to make the budget come to life a little bit more as well, uh, or or even get better because I think one of the things with the budget is yeah, it's numbers, but it's really about actions.
• 22:04
  Kary Shumway: Like, what are we gonna do in order to achieve these outcomes?
• 22:08
  Kary Shumway: Um, so that workshopper methodology can give you a whole bunch of really cool ideas, uh, and best of all, you can kind of crowdsource them from your team.
• 22:17
  Kary Shumway: So, some more budget tips and tactics.
• 22:20
  Kary Shumway: These are more numbers based, like these are the things that I look at as I'm doing the budgeting or getting ready for it.
• 22:27
  Kary Shumway: I'll look at a lot of historical information to set the content.
• 22:30
  Kary Shumway: Where have we been?
• 22:31
  Kary Shumway: So I might go back three to five years.
• 22:33
  Kary Shumway: What am I seeing?
• 22:34
  Kary Shumway: Where were we?
• 22:35
  Kary Shumway: Um where are we now?
• 22:37
  Kary Shumway: Um, what's realistic?
• 22:39
  Kary Shumway: Because a lot of times we might say, I want to grow sales 10%, but we've never grown sales 10%.
• 22:44
  Kary Shumway: Like, how are we going to do it?
• 22:45
  Kary Shumway: So being a little bit of realistic, setting the context.
• 22:49
  Kary Shumway: I also like to look at a lot of trends so I can spot patterns, problems, opportunities that might be out there.
• 22:57
  Kary Shumway: Of course, using metrics and ratios to summarize, to simplify a lot of complex reports.
• 23:03
  Kary Shumway: And we do a lot of like per barrel metrics, labor, dollars per barrel, revenue per barrel, things like that.
• 23:10
  Kary Shumway: And then I'll look at year-to-day comparative data.
• 23:12
  Kary Shumway: You know, how are we doing kind of year over year?
• 23:16
  Kary Shumway: And where are the plus-minuses and you know, where are the areas where um we we might have problems, things like that.
• 23:23
  Kary Shumway: So just a few tips.
• 23:24
  Kary Shumway: It's just really kind of getting familiar with the numbers and the context so that as we're you know projecting and doing our budget, we feel a little more confident because we can kind of see, all right, well, I see where we've been and now I can hopefully project where we're going.
• 23:40
  Kary Shumway: Alright, let's get into the nitty-gritty of building your plan.
• 23:44
  Kary Shumway: So to simplify, you know, the big problem, we break it down into our six building blocks.
• 23:49
  Kary Shumway: So those building blocks are your sales forecast, your cost of goods, or your margin plan, operating expense plan, capital expense plan, debt service, or a loan schedule, and your cash flow drivers.
• 24:03
  Kary Shumway: So for each of these building blocks, if you will, you're gonna have you know a separate game plan.
• 24:10
  Kary Shumway: And what's important to note is you don't have to do these in order.
• 24:13
  Kary Shumway: In other words, a lot of times we'll see, oh, we need to do the sales forecast first, and then we'll do this, then we'll do that.
• 24:18
  Kary Shumway: Sales forecast is often the most difficult.
• 24:21
  Kary Shumway: I it's hard to project, particularly if you're you know relatively new and you don't have a lot of historical data.
• 24:27
  Kary Shumway: So start where you've got some low-hanging fruit, and as I said before, maybe your capital expense plan is a good place to start, because we often know what we want to buy or what we hope we can buy, and we have a pretty good you know idea of what it might cost, and we get a pretty good idea of when we would want to buy it.
• 24:48
  Kary Shumway: Then we need to think about where are we gonna get the money for that?
• 24:51
  Kary Shumway: Uh, are we gonna borrow money?
• 24:52
  Kary Shumway: Are we gonna use cash?
• 24:53
  Kary Shumway: It can be a combination.
• 24:54
  Kary Shumway: Uh, but you could start with any of those items, you don't have to go necessarily right in order.
• 25:00
  Kary Shumway: The operating expense plan might be the second easiest place to start because we typically know where we're gonna spend money or what we've spent money on in the past.
• 25:08
  Kary Shumway: And you know, if we look at do an 80-20 analysis, like what are the big operating expenses?
• 25:14
  Kary Shumway: Where should you spend most of your time?
• 25:16
  Kary Shumway: It's payroll, occupancy, and everything else comes after that.
• 25:22
  Kary Shumway: So you can kind of list out building out a payroll plan can be super helpful.
• 25:27
  Kary Shumway: Like, who who's on the roster now?
• 25:29
  Kary Shumway: What are we paying them?
• 25:30
  Kary Shumway: What additions do we intend to make?
• 25:32
  Kary Shumway: What changes to compensation?
• 25:35
  Kary Shumway: Uh, get that all listed out.
• 25:36
  Kary Shumway: That can be a super useful tool because I think we do find the budget is, you know, once it's done, we're like, all right, how do we actually use this thing?
• 25:42
  Kary Shumway: So a payroll plan can be very helpful for your managers.
• 25:45
  Kary Shumway: Like, well, what's approved?
• 25:46
  Kary Shumway: Like, are we gonna add, you know, that assistant brewer, like we talked about?
• 25:50
  Kary Shumway: Is it in the plan?
• 25:50
  Kary Shumway: Yes or no?
• 25:51
  Kary Shumway: You know, what do we have set aside for funding for that?
• 25:54
  Kary Shumway: And the plan can always change, but if we can get it down on paper, that's gonna be a great tool to help our uh managers run the business.
• 26:02
  Kary Shumway: So that's just one example of operating expenses.
• 26:04
  Kary Shumway: You dig into the details, you know, what what is occupancy cost?
• 26:07
  Kary Shumway: So it's like rent, utilities, water, sewer, things of that nature.
• 26:12
  Kary Shumway: Those we can kind of you know, we got a lot, we typically will have historical data on that.
• 26:17
  Kary Shumway: If you're a startup, that's it's a different scenario, but you know, listing those things out.
• 26:22
  Kary Shumway: So the point of this is get the six building blocks, don't have to do them in order, start with low-hanging fruit, something you understand, or you know, feel like I got a fighting chance to fill that one out or predict it, um and then just kind of keep working through it.
• 26:38
  Kary Shumway: So your sales forecast, cost of goods and margin plan, operating expense plan, capital expense plan, your debt service and loan schedule, and then your cash flow drivers.
• 26:51
  Kary Shumway: So your cash flow drivers are things like live on the balance sheet.
• 26:56
  Kary Shumway: Inventory, accounts receivable, accounts payable, for example.
• 27:01
  Kary Shumway: So think about how to plan these things out.
• 27:04
  Kary Shumway: You know, inventory, each of these cash flow drivers has an underlying measurement with it as well.
• 27:10
  Kary Shumway: When we think about inventory, the the question is, you know, do we do we have the right amount of inventory?
• 27:15
  Kary Shumway: It feels like we might have too much.
• 27:17
  Kary Shumway: Maybe we don't have enough, we're we're always running out.
• 27:19
  Kary Shumway: So the question is, what's the right amount of inventory?
• 27:23
  Kary Shumway: And the answer can be provided by certain ratios.
• 27:26
  Kary Shumway: So for inventory, it would be the number of inventory turns or turnover, or inventory days on hand.
• 27:32
  Kary Shumway: So you're you're really calculating what are my forecasted sales and what do I need to have on hand right now to reasonably meet those forecasted sales, but not too much, so I'm sitting on excess.
• 27:43
  Kary Shumway: So when you do these measurements, you'll be able to kind of calculate what the right amount of inventory is.
• 27:49
  Kary Shumway: So those are your six building blocks, and then of course, there's lots of tools and templates that you can use.
• 27:56
  Kary Shumway: So for me, I'm still, you know, I'm using a tool called Reach Reporting, and I'll share the link if you want to check that out.
• 28:03
  Kary Shumway: I I find it very useful.
• 28:05
  Kary Shumway: It's it's sort of like Excel, but it doesn't break like Excel does.
• 28:08
  Kary Shumway: But often what I will do, truth be told, is I'll start the budgeting process in Excel.
• 28:15
  Kary Shumway: So most breweries that I work with use QuickBooks.
• 28:18
  Kary Shumway: So you simply go in and I'm gonna run a series of reports.
• 28:23
  Kary Shumway: Um go in and run the income statement by month, and I'm typically gonna run 18 to 24 months worth of data.
• 28:32
  Kary Shumway: I'm gonna dump that into Excel, and then I'm gonna basically create some formulas so I can roll forward to the new year.
• 28:39
  Kary Shumway: So I'm gonna look at last year and say January through December, and I'm gonna roll it forward to the year ahead, and then I'm gonna keep a lot of the seasonality.
• 28:49
  Kary Shumway: So for example, you know, January sales versus July, so they're very different.
• 28:54
  Kary Shumway: Um, but particularly if you've been in business for a while, you can kind of see the the patterns, the trends.
• 29:00
  Kary Shumway: Um so I'm keeping that same sort of month-over-month um pattern, if you will.
• 29:07
  Kary Shumway: So if for example, if we you know, over the course of a year, if we sell six percent of our sales in January and 11% of our sales in July, I'm keeping that that same rough seasonal factor that's baked in.
• 29:22
  Kary Shumway: And then I'm just applying another factor, which is if I'm gonna grow or decline.
• 29:26
  Kary Shumway: So is it gonna be flat?
• 29:27
  Kary Shumway: Am I gonna be up five, down five?
• 29:29
  Kary Shumway: What's that number?
• 29:30
  Kary Shumway: So just creating a series of formulas so that I can pretty quickly, and it's not super accurate, but it's a good kind of first cut on this, is get a good prediction on what are the trends for sales.
• 29:41
  Kary Shumway: And of course, if I've got tap room and wholesale and others, I'm looking at you know the individual line items, you know, what are the trends, what do I think is gonna happen from an increase-decrease standpoint?
• 29:51
  Kary Shumway: Plug in those numbers, and then importantly, I want to have some sort of action item related to it.
• 29:57
  Kary Shumway: So if I if I'm expecting to grow or even decline or stay flat, or deviate, I guess, from the trend, you know, what are the things I'm gonna that we're gonna do?
• 30:07
  Kary Shumway: What are the action items?
• 30:08
  Kary Shumway: You know, what are the notes?
• 30:09
  Kary Shumway: Because a lot of times we do the budget, then we revisit it maybe down the road, and we're like, how did we come up with that number?
• 30:15
  Kary Shumway: So if you're putting notes in as you go, you have you know, first just a justification for what why did you choose you know to be up 5% when you know we were down 5% last year, for example.
• 30:26
  Kary Shumway: And then you might say, Well, yeah, I I did choose that.
• 30:29
  Kary Shumway: However, we're gonna have a price increase here, you know, we're gonna add more marketing dollars there to whatever it may be, but to put those action items in can be useful.
• 30:39
  Kary Shumway: If you're gonna be assigning uh you know financial accountability to your managers, it's also useful to put uh names on your budget.
• 30:48
  Kary Shumway: So there's this concept of one number, one name.
• 30:51
  Kary Shumway: So as you're doing your budget, looking at each of your accounts, put a name there.
• 30:57
  Kary Shumway: So you have a very specific owner that's gonna help you, that's gonna help them uh to really clarify what am I responsible for?
• 31:04
  Kary Shumway: So now you've kind of got it all in one package.
• 31:06
  Kary Shumway: Like, what are the historical numbers, what are my expectations for changes and projections, uh, who owns this number, and what are the action items that we're gonna take uh in order to hit it.
• 31:19
  Kary Shumway: So, in a nutshell, that's how I do it.
• 31:22
  Kary Shumway: Now, in the Reach Reporting tool, um a lot of this is automated.
• 31:28
  Kary Shumway: So it'll connect directly with QuickBooks, it'll grab that information, uh, put it right into the software.
• 31:33
  Kary Shumway: You don't have to do it, you just click a button.
• 31:35
  Kary Shumway: Because that is the challenge, of course.
• 31:37
  Kary Shumway: One of the many challenges with Excel is it if you want to update anything, you gotta go in and re-re-update it, right?
• 31:43
  Kary Shumway: Type everything in, or oh gosh, a formula broke.
• 31:46
  Kary Shumway: Uh so the Reach tool doesn't have those problems, and it can sync and update.
• 31:51
  Kary Shumway: And then once you're done with your budget, I think another challenge with doing it in Excel is how the heck do I get that thing in QuickBooks so I can do budget to actual numbers?
• 31:59
  Kary Shumway: Well, it's not easy.
• 32:00
  Kary Shumway: Uh in Reach, it is quite easy.
• 32:02
  Kary Shumway: So you simply just uh build the budget in Reach.
• 32:05
  Kary Shumway: You're connected to QuickBooks each month.
• 32:08
  Kary Shumway: You click a little button and it says, Alright, show me my budget to actual, show me my variance.
• 32:13
  Kary Shumway: Uh Reach has also got some really cool dashboarding tools.
• 32:16
  Kary Shumway: Takes a little bit to set it up, but once you do, you can get a real nice look at, you know, we we typically talk about these key metrics and scorecards and dashboards, and I do a lot in Excel there as well because it's just easier to kind of sh demonstrate here's here's what the metric is, and here's how we calculate it, and here's why it's important.
• 32:34
  Kary Shumway: Whereas Reach can really automate all that.
• 32:36
  Kary Shumway: So if you think about some common metrics, might be um, you know, what's our revenue per barrel through the tap room, revenue per barrel through wholesale distribution, uh you can pop those numbers in and uh it will report them for you and do it in a graphical form as well if that's useful.
• 32:54
  Kary Shumway: And I'll also create um kind of pre-packaged month end, quarter-end, year end reports, whatever time period you want.
• 33:01
  Kary Shumway: And that can be a real time saver as well, because I know for me at month end, if I'm going in, I go, okay, I gotta run my income statement, my comparative, my my balance sheet, my cash flows, I got some of this, some of that, and it it takes a while.
• 33:15
  Kary Shumway: Um, and now I gotta send it to whoever needs to see it.
• 33:18
  Kary Shumway: Whereas you go into reach, you literally once once your month is closed.
• 33:22
  Kary Shumway: I mean, you have to do the month-end checklist, you gotta make sure you know your numbers are complete and accurate and ready to go.
• 33:28
  Kary Shumway: Um but that report will generate basically at the click of a button, and you can dump it into PDF format, looks really good, and you can email email it off to the people that need to see it.
• 33:39
  Kary Shumway: So if you've got other you know, ownership, investors, you know, obviously your key managers and whatnot, uh, that can really really be a great time saver and give you um really good information.
• 33:51
  Kary Shumway: Alright, so those that's just a little bit about budging.
• 33:54
  Kary Shumway: Obviously, there's a lot more involved, but you know, the the point of this and what I want to talk about is to is to really overcome the obstacles and get started, get that momentum.
• 34:05
  Kary Shumway: Um and then the the devil's always in the details of sitting with the numbers and building out a template.
• 34:11
  Kary Shumway: Um, but you start small, it's like the the puzzle, you build that puzzle one piece at a time.
• 34:17
  Kary Shumway: So let's wrap up with alright, the budget is done.
• 34:21
  Kary Shumway: Now what do you do with it?
• 34:22
  Kary Shumway: How do you put the budget into practice?
• 34:25
  Kary Shumway: Because I think we'd all agree the traditional annual budget that you might you'll have a picture in your head of what that is, not super useful.
• 34:32
  Kary Shumway: So we need to use some common sense here and think about well, what would make it useful?
• 34:38
  Kary Shumway: What would make it useful is when maybe I have some daily, weekly targets.
• 34:42
  Kary Shumway: So how do I think about that?
• 34:43
  Kary Shumway: How do I give my taproom manager or maybe my food manager or my my distribution sales manager, what what are their daily, weekly metrics, targets, and how do they, how can I make them align with the budget?
• 34:56
  Kary Shumway: So, in a simple example, you've got your annual plan, you've got your expectation for taproom sales, here's my sales forecast, here's what it is January through December.
• 35:06
  Kary Shumway: Let me just break that down, you know, into weeks and weeks into days.
• 35:10
  Kary Shumway: And a lot of times your point of sale system can just do this automatically.
• 35:13
  Kary Shumway: So you don't even need to, but we want to make sure that the goals align with that annual budget.
• 35:19
  Kary Shumway: So now your taproom manager every day can say, um, you know, here's my here's my goal for the week, here's my goal for the day, and then we're focused on that.
• 35:28
  Kary Shumway: And then as we're thinking about installing that financial cadence, those weekly meetings, that becomes the number your taproom manager brings.
• 35:37
  Kary Shumway: What what's your goal for the week?
• 35:38
  Kary Shumway: Where are you at?
• 35:39
  Kary Shumway: What's your goal for next week?
• 35:40
  Kary Shumway: You know, what are what are we projecting?
• 35:43
  Kary Shumway: Uh and you can push that concept down to your different department uh manager.
• 35:47
  Kary Shumway: So we're looking for real-time or near real-time information, you know, not the month-end financial reports that come out three weeks after the month that's close.
• 35:56
  Kary Shumway: We still need those, but not super helpful in running the business.
• 36:01
  Kary Shumway: As I mentioned before, the payroll schedules, I find those super useful.
• 36:04
  Kary Shumway: Um show exactly what we're managing to.
• 36:08
  Kary Shumway: So, for example, if you're like, hey, we don't want any overtime, we're not going to hire anyone new, we're putting a cap on increases, you know, whatever the expectation is, you know, we can build that uh into the plan.
• 36:22
  Kary Shumway: So the financial cadence is really a three-step process.
• 36:25
  Kary Shumway: One, build your financial budget, your annual and monthly plan.
• 36:29
  Kary Shumway: Two, create these daily and weekly metrics that make sense for your managers.
• 36:35
  Kary Shumway: And three is install the financial huddle system.
• 36:39
  Kary Shumway: So the mindset is that budgeting is not one and done.
• 36:42
  Kary Shumway: It's living, it's changing, it's evolving.
• 36:45
  Kary Shumway: And these weekly financial meetings, these huddles, uh, ensure that you're going to get at least 52 touches per year on your plan.
• 36:53
  Kary Shumway: And that's 52 chances to get it right, 52 chances to improve, and 52 chances to, you know, constantly see how we're doing relative to the plan.
• 37:05
  Kary Shumway: So these financial meetings, these are the form for communication and for accountability.
• 37:09
  Kary Shumway: I think that's super important too.
• 37:10
  Kary Shumway: Is we're not just going in and you know spitting out all the numbers.
• 37:14
  Kary Shumway: We're saying, you know, where are we at?
• 37:15
  Kary Shumway: What's the goal?
• 37:16
  Kary Shumway: What's the gap?
• 37:17
  Kary Shumway: How are we going to close the gap?
• 37:18
  Kary Shumway: What are the action items we're going to take?
• 37:20
  Kary Shumway: I'm going to do A, B, and C.
• 37:21
  Kary Shumway: Next week, you report on that.
• 37:24
  Kary Shumway: I did A, B, and C and it worked, or I A worked, B and C didn't.
• 37:27
  Kary Shumway: I'm going to try X and Y, whatever the case may be.
• 37:30
  Kary Shumway: But it's what are you going to do to close the gap?
• 37:33
  Kary Shumway: Hold them, hold each other accountable, um, support each other.
• 37:36
  Kary Shumway: All right, here's an idea, let's go try this.
• 37:38
  Kary Shumway: But constantly watching, you know, did that thing work?
• 37:41
  Kary Shumway: And that that maybe speaks a little to that uh sort of feedback analysis.
• 37:45
  Kary Shumway: What's your expectation and what's the actual result?
• 37:49
  Kary Shumway: So it's a structured, efficient meeting to keep you laser focused on your most important numbers and create action to ensure your targets are being hit right in the bullseye.
• 37:59
  Kary Shumway: So again, at a minimum, it's 52 times per year laser focused on the financial results of your business.
• 38:06
  Kary Shumway: So let's wrap it up here.
• 38:08
  Kary Shumway: Um so for next steps, what are you gonna do?
• 38:13
  Kary Shumway: I would I would throw out there that you commit to building your financial plan, that you create those daily and weekly key metrics that align with your plan and engage your managers in actively monitoring them, and install a financial HUDL system, that financial cadence that keeps the financial plan front and center and keeps you laser focused on your most important numbers.
• 38:38
  Kary Shumway: So that is all I have for you today.
• 38:40
  Kary Shumway: I hope this was helpful, gives you some starting points.
• 38:44
  Kary Shumway: Um, if you're interested in learning more about Craft Brewery Financial Training and the Beer Business Finance Association, this is what I do.
• 38:53
  Kary Shumway: You know, I can help you build your budget.
• 38:54
  Kary Shumway: Uh we've got courses on it, uh, I work one-on-one with folks.
• 38:58
  Kary Shumway: You can just reach out and let me know.
• 39:01
  Kary Shumway: Carrie at Beer Business Finance.com, K-A-R-Y at Beer Business Finance.com, or you can click the links that will be in the show notes or in the blog post, uh and you can get more information there.
• 39:13
  Kary Shumway: So, regardless, I would encourage you to build that budget, create those daily metrics, and install a financial meeting system in your brewery.
• 39:23
  Kary Shumway: And believe me, if you do so, your income statement will thank you.
• 39:27
  Kary Shumway: Thank you for listening to the Kraft Brewery Financial Training Podcast, where we combine beer and numbers so that you can improve financial results in your brewery.
• 39:36
  Kary Shumway: For more resources, tools, guides, and online courses, visit Craft Brewery Financial Training dot com.
• 39:42
  Kary Shumway: And don't forget to sign up for the world famous Kraft Brewery Financial Training newsletter.
• 39:47
  Kary Shumway: Until next time, get out there and improve financial results in your brewery today.