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Favorite Books: Brewery Finances · Craft Brewery Financial Training Podcast

• 0:01
  Speaker 1: Welcome to the craft brewery, financial training podcast, where we combined beer and numbers to provide you with tips, tactics, and strategies, so that you can improve financial results in your brewery.
• 0:11
  Speaker 1: I'm your host, Kerry Shumway, a CPA CFO for a brewery and former CFO for a beer distributor.
• 0:18
  Speaker 1: I've spent the last 20 years using finance to improve financial results in our beer business.
• 0:23
  Speaker 1: Now I'm helping other craft breweries to do the same.
• 0:26
  Speaker 1: Are you ready to take your brewery financial results to the next level?
• 0:30
  Speaker 1: Okay, let's get started.
• 0:35
  Speaker 1: Hello and welcome to the craft brewery financial training podcast.
• 0:38
  Speaker 1: My name is Carrie Shumway and I'll be your host.
• 0:41
  Speaker 1: Today is a solo episode where I'm going to share with you some of my favorite business books, a brewery finance books, information that I've found really helpful, uh, and usable and profitable for our beer business.
• 0:58
  Speaker 1: So the first book I'm going to share with you as one that I read a long time ago, so it's a bit dated, but the concepts are timeless and the book has a great title.
• 1:08
  Speaker 1: It's called cash rules and it's by bill McGinnis.
• 1:12
  Speaker 1: It's part of the Kipling, Kipling, jurors business management library.
• 1:16
  Speaker 1: So it's cash rules, how to learn and manage the seven cashflow drivers for your company's success.
• 1:23
  Speaker 1: So what I have found is that most businesses, most brewery owners and managers will run a monthly financial statements that include the income statement and the balance sheet, and then some reports.
• 1:38
  Speaker 1: And the cashflow statement is not typically one that gets run.
• 1:43
  Speaker 1: And this is for a number of reasons.
• 1:45
  Speaker 1: One, um, it's most accounting software just doesn't handle it very well for some reason.
• 1:53
  Speaker 1: And secondly, it's not really well understood in terms of, it's a very obvious sounding statement, a statement of cash flows, but when you actually get into reading it, you're like, Hmm, what do I do with this thing?
• 2:06
  Speaker 1: You know, what is this actually telling me?
• 2:08
  Speaker 1: So what I've found is that of the big three financial statements, the cashflow statement, uh, unfortunate as it is, tends to be orphaned and not looked at very much so rather than get into why we should run one and how we do it, we're going to cut to the chase.
• 2:26
  Speaker 1: And as it relates to this book cash rules, we're just going to dig into the practical ways to manage cashflow drivers in your business.
• 2:37
  Speaker 1: So as the book title says, there's seven cashflow drivers, according to the author, the first of which is, is a sales.
• 2:47
  Speaker 1: So basically sales is a cashflow driver.
• 2:49
  Speaker 1: The next is our gross margins and the next is operating expenses, otherwise known as S G and a sales general and administrative expenses.
• 2:58
  Speaker 1: So those first three are on the income statement.
• 3:01
  Speaker 1: Those three first three cashflow drivers, the next cashflow drivers are accounts receivable, inventory accounts, payable, and capital expenditures.
• 3:13
  Speaker 1: So generally these are balance sheet items.
• 3:15
  Speaker 1: So accounts receivable, obviously that's money that's due to us from our customers.
• 3:21
  Speaker 1: And one thing that, how that impacts cash, you know, sales margins and operating expenses, I think we understand pretty clearly how those influence cash accounts receivable.
• 3:31
  Speaker 1: Once we make the sale, we have to collect it.
• 3:33
  Speaker 1: So it's affecting cash to the extent that these are sales that were not, not yet collected the cash for.
• 3:39
  Speaker 1: So really having a good aggressive system to manage and monitor your accounts.
• 3:44
  Speaker 1: Receivable is super important inventory.
• 3:46
  Speaker 1: Likewise, you know, when we invest in inventory, we're using cash cashflow to do so.
• 3:52
  Speaker 1: So managing inventory, whether that's good, a good cycle count process, a proper costing and cost flow assumptions, uh, super important as well in accounts payable, that's money that's going out of the business.
• 4:05
  Speaker 1: We really want to make sure that we've got a good system there so that we're not paying folks too early and certainly not paying suppliers too late.
• 4:13
  Speaker 1: We want to stay in everyone's good graces.
• 4:15
  Speaker 1: And lastly, as capital expenditures.
• 4:18
  Speaker 1: So these are essentially the big ticket items that we need for our brewery, whether it's new tanks, kegs, warehouse, equipment, and things of that nature.
• 4:26
  Speaker 1: So really having a good system to plan when you're going to make those capital expenditures, um, how much it's going to cost, making sure you have at least attempted to do a simplified, uh, return on investment calculation.
• 4:40
  Speaker 1: So if we're going to invest in these capital expenditures, what do we intend to get back?
• 4:44
  Speaker 1: Is there a financial return and things of that nature, it's really just controlling that whole system.
• 4:51
  Speaker 1: So again, the first one of my, one of my favorite books is called cash rules by bill McGinnis.
• 4:58
  Speaker 1: Uh, it talks about the seven cashflow drivers, sales margins, operating expenses, accounts, receivable, inventory accounts, payable, and capital expenditures.
• 5:09
  Speaker 1: Now I've sort of taken this information and applied it in our business specifically for our brewery.
• 5:18
  Speaker 1: And I've modified some of these essentially the same, but a modified some of these cashflow drivers.
• 5:22
  Speaker 1: And if you'd like to check this out, I have a course it's called the ultimate guide to cashflow for breweries, and that can be found@craftbreweryfinancialtraining.com.
• 5:33
  Speaker 1: So you can just jump on there, check that out.
• 5:36
  Speaker 1: And it takes the concepts of how to measure and manage your cashflow by looking at these cashflow drivers.
• 5:46
  Speaker 1: So check it out cash rules by bill McGinnis or the online course, the ultimate guide to cashflow for breweries at craft brewery, financial training.
• 5:57
  Speaker 1: The next book I want to share with you is the 80 20 principle by Richard Koch.
• 6:01
  Speaker 1: So the 80 20 principle, the book is subtitled the secret to success by achieving more with less.
• 6:08
  Speaker 1: So no doubt you've heard of the 80 20 principle, the parades principle, essentially what it means is that 80% of results come from 20% of efforts or inputs, 20% of there's 20% of what you do that really makes 80% of the difference.
• 6:26
  Speaker 1: And of course, the challenge is which 20% is that if I'm spending a hundred percent of my day doing stuff, only 20% actually accounts for 80%.
• 6:35
  Speaker 1: I'd like to know how to find what that 20% is.
• 6:38
  Speaker 1: Cause then I maybe don't have to work a hundred percent of the time, or I can really leverage double down and those activities that are really making a difference.
• 6:48
  Speaker 1: So the concept is really cool and there's lots of different examples of how the 80 20 principle kind of plays out in the universe and in business.
• 6:58
  Speaker 1: And, uh, really the way that I've used this in a beer business is I've applied the 80 20 principle to two specific aspects.
• 7:07
  Speaker 1: One is customers and the other is products.
• 7:11
  Speaker 1: So for example, if you take all of your customers and line them up, uh, top to bottom by say, sales volume for the last 12 months, what you will generally find is that 80% of your sales revenue comes from 20% of your customers.
• 7:27
  Speaker 1: Now, sometimes it's more radical than that.
• 7:29
  Speaker 1: Maybe it's 90% of your sales revenue come from 10% of your customers.
• 7:34
  Speaker 1: The point is it's usually very much out of balance where a small number of customers creates a very disproportionate, large number of sales.
• 7:44
  Speaker 1: So that's interesting what he'd do with it.
• 7:47
  Speaker 1: Uh, one thing to do with it is to say, well, if I've got a hundred customers and these 12 are accounting for 85% of my business, one thing I could consider doing is assessing how much time I'm spending in those accounts versus the other.
• 8:03
  Speaker 1: So for example, am I spending proportionately more time in accounts one through 12 than I am in accounts, say 90 through a hundred, sometimes the answer will surprise you sometimes you'll see that you're spreading your time, your effort, um, more or less equally, maybe not always, but that's one thing to consider is, alright, do you have this, uh, 80 20 principle, 90 10 principle occurring in your business?
• 8:28
  Speaker 1: You probably do.
• 8:29
  Speaker 1: Are you aware of it?
• 8:31
  Speaker 1: You might be on a general level, but I think the exercise is very interesting to run.
• 8:35
  Speaker 1: And then you can ask some questions and say, all right, well, I've identified 20% or 10% of my accounts that make a huge difference in my business.
• 8:45
  Speaker 1: What can I do to grow sales within those retail accounts in, in those customers?
• 8:53
  Speaker 1: Uh, can I spend more time there?
• 8:55
  Speaker 1: Um, it's really just a brainstorming exercise, so it kind of shines a light on, Hey, here's an opportunity.
• 9:00
  Speaker 1: Take a look.
• 9:01
  Speaker 1: You can also do this with your products.
• 9:03
  Speaker 1: So whether it's your brands or do it by skew, uh, line them up, uh, top to bottom, uh, what brands are you selling?
• 9:11
  Speaker 1: So do that last 12 month.
• 9:12
  Speaker 1: Look, what are your top sellers?
• 9:15
  Speaker 1: What are your bottom sellers?
• 9:16
  Speaker 1: And you'll likely notice the same phenomenon where 20% of your products account for 80% of your sales revenue.
• 9:25
  Speaker 1: And there again, sometimes it might be 10% of your products contribute 90% of your sales volume.
• 9:31
  Speaker 1: So what do you do here?
• 9:32
  Speaker 1: One thing to think about how I've used this is to consider the impact, um, on cash flow relative to inventory.
• 9:42
  Speaker 1: So if we have a lot of products again, let's say we've got 20 different products, 10, 20 different brands that we're selling.
• 9:49
  Speaker 1: And let's just say the top three or four brands really account for 80 to 90% of our revenue, which is fairly common.
• 9:56
  Speaker 1: The bottom three or four, maybe contribute just a couple of percentage points.
• 10:00
  Speaker 1: How much money are we investing in inventory relative to those bottom products?
• 10:05
  Speaker 1: So if there's specific packaging that we're carrying, you know, how much inventory is sitting there, that we've invested dollars in cashflow that we might need to consider, do we want to continue with that particular brand or that particular package?
• 10:18
  Speaker 1: So that's one thing to think about is how many dollars are invested for not much sales return.
• 10:23
  Speaker 1: So you can go on and on with this.
• 10:25
  Speaker 1: The book is fantastic.
• 10:26
  Speaker 1: It's lots of examples.
• 10:29
  Speaker 1: Um, those are just two ways that you can use it, use it right away in your business.
• 10:34
  Speaker 1: Look at your customers, rank them top to bottom in terms of sales.
• 10:39
  Speaker 1: And see if you have this 80 20 phenomenon going on, look at your brands, your products rank them top to bottom and see what, whether it comes out as 80 20, and then do something with the information.
• 10:51
  Speaker 1: Cause I think that's really important.
• 10:53
  Speaker 1: It's, it's interesting to see this stuff, uh, but really we're not, we're not going for interesting.
• 10:59
  Speaker 1: We really want to find out how do we use this principle, this concept, uh, to improve results, financial results in our beer business.
• 11:10
  Speaker 1: So that's the 80 20 principle by Richard Kotch, the secret to success by achieving more with less.
• 11:17
  Speaker 1: And don't, we all want to do that.
• 11:20
  Speaker 1: The last book I'm going to share with you today is called financing the small business by Robert Sisson.
• 11:27
  Speaker 1: It's a complete guide to obtaining bank loans in all of their types of financing.
• 11:31
  Speaker 1: So I know might sound a little boring, uh, but financing and having a financing strategy is super important for your business.
• 11:39
  Speaker 1: You know, I've certainly seen it, uh, when we have a significant downturn, uh, such as the pandemic that we're in right now, having good access to capital is critical to stay in business.
• 11:52
  Speaker 1: And the flip is true as well.
• 11:54
  Speaker 1: If we get opportunities to expand, uh, acquire another brewery, perhaps, or get just simply expand our equipment so we can keep up with market demand and keep up with production.
• 12:07
  Speaker 1: A good financing strategy is super important.
• 12:10
  Speaker 1: So this book covers a lot of different topics, really how to approach banks, how to create loan proposals, how banks go about making loan decisions, uh, how to look at non-bank lending sources, venture capitalists, angel investors, and other alternatives such as this.
• 12:30
  Speaker 1: So what I see a lot is folks wait until they have a real need to get alone.
• 12:37
  Speaker 1: And then it's a bit of a fire drill to try to get the loan approval and get the loan funding.
• 12:42
  Speaker 1: And they look, they learn a lot in the process.
• 12:44
  Speaker 1: It could be quite painful.
• 12:46
  Speaker 1: So really doing some research in advance, you know, checking out this book and scanning some of those topics, planning in advance and really trying to be thoughtful about what your business strategy is, so that you can create that financing strategy.
• 13:03
  Speaker 1: So you're not scrambling at the last minute to try to go and you know, what, what bank do I go to?
• 13:09
  Speaker 1: And so forth, just like in any business, relationships are super important.
• 13:14
  Speaker 1: And I just really advocate for your getting to know your lender before you actually need to ask them for money.
• 13:22
  Speaker 1: And now we're in the beer business.
• 13:24
  Speaker 1: They love beer generally.
• 13:26
  Speaker 1: Uh, so invite them into the taproom and these days we'll be sitting outside.
• 13:31
  Speaker 1: Um, but it's a great way to start the relationship with really low stakes.
• 13:36
  Speaker 1: Maybe you don't need money right now.
• 13:38
  Speaker 1: You're thinking about it in the future.
• 13:40
  Speaker 1: Um, so starting that relationship process now is super important.
• 13:45
  Speaker 1: So the book is called financing.
• 13:47
  Speaker 1: The small business by Robert Sisson definitely recommend you pick it up.
• 13:52
  Speaker 1: Um, I think it's a pretty easy read.
• 13:53
  Speaker 1: I think the title is fairly dense.
• 13:55
  Speaker 1: You certainly don't have to go cover to cover, uh, but you could walk through, pick the chapters that make sense, you know, understanding banks, popular misconceptions about them, you know, really how they approve loans, I think is important.
• 14:09
  Speaker 1: Cause often times we'll, we'll meet with our loan officer, our banker, and they're not making the final decision.
• 14:16
  Speaker 1: They've got a boss and maybe there's a loan committee.
• 14:18
  Speaker 1: So understanding how that process works can be super helpful.
• 14:22
  Speaker 1: So you can build relationships with the right people.
• 14:25
  Speaker 1: And by and large, the bankers love to introduce you particularly with breweries.
• 14:30
  Speaker 1: They love to introduce you to other members of the bank.
• 14:35
  Speaker 1: Um, and again, the taproom is a great place to do that.
• 14:37
  Speaker 1: So the book covers the different types of loans that are out there.
• 14:41
  Speaker 1: Uh, the six CS of commercial lending, you may have heard of this term, the six CS.
• 14:46
  Speaker 1: So that's character cashflow, capital, collateral capacity and conditions.
• 14:53
  Speaker 1: It sounds a little old school and it kind of is, but these still are applicable and character, your character building that relationship, um, is the first C and it's, and it's certainly is the most important one.
• 15:07
  Speaker 1: So I would recommend checking out the book financing, the small business by Robert Sisson, uh, in addition or, uh, an alternative is the craft brewery, financial training crash course.
• 15:19
  Speaker 1: Um, I've got about an hour video and a bunch of different downloads where I talk about how to create a financing strategy for your brewery.
• 15:27
  Speaker 1: And we get into, uh, you know, looking at model, uh, loan templates that other breweries might use.
• 15:35
  Speaker 1: We talk a lot about, um, financial covenants, you know, what those are and how do you want to keep track of those?
• 15:42
  Speaker 1: So we talk a bit about, uh, debt service calculations, um, basically our, uh, debt to net worth.
• 15:52
  Speaker 1: So we're looking at different financial covenants, different financial promises that we make to the bank, how those calculations work and how we can keep on top of them.
• 16:02
  Speaker 1: So either or both of those, uh, for information for your brewery on financing, a small business financing your business, I think are pretty solid resources.
• 16:16
  Speaker 1: So that does it for today's episode, just to recap, our three books that we covered cash rules by bill McGinnis, definitely check that thing out.
• 16:26
  Speaker 1: Seven cashflow drivers, sales margins, and operating expenses, accounts receivable, inventory accounts, payable, and capital expenditures, really having a good plan to measure and monitor those.
• 16:40
  Speaker 1: And again, you can check out the online course at Kraft where we financial training, which is the ultimate guide to cashflow for craft breweries.
• 16:49
  Speaker 1: Next was the 80 20 principle, one of my favorite books of all time by Richard Koch.
• 16:54
  Speaker 1: And you can start with this by looking at your customers, looking at your products and seeing if the 80 20 principle applies in your business and here's a spoiler alert.
• 17:04
  Speaker 1: It does.
• 17:05
  Speaker 1: And then really, how can you use that information to drive financial results and then financing the small business, uh, really getting a financing strategy for your brewery for good times for bad times can make a really big difference.
• 17:22
  Speaker 1: So thank you for listening, check out the books and until next time, get out there and improve financial results in your craft brewery today.
• 17:30
  Speaker 1: Thank you for listening to the craft brewery, financial training podcast, where we combined beer and numbers so that you can improve financial results in your brewery for more resources, tools, guides, and online courses, visit craft brewery, financial training.com.
• 17:46
  Speaker 1: And don't forget to sign up for the world famous craft brewery, financial training newsletter until next time, get out there and improve financial results in your brewery today.
• 18:01
  Speaker 2: [inaudible].