Starting and running your own brewery business is a big challenge to take on. Brewing is an industry where creating the perfect product can take time and where hands-on experience in the sector can be a huge advantage. And even once you’ve perfected your product, the road to profit can be a long and challenging one.
So, if you’ve succeeded in creating a range of beers that the critics are raving about and your customers love, how do you go about turning this success into profitability?
In a nutshell, it’s about understanding your costs and setting the right margins.
Get control of your costs and margin
Brewing that perfect pint doesn’t just take time: it also takes money. To take your lovingly brewed product from hops to pint glass involves a whole series of processes. And each of these processes adds a cost that you have to factor into your end price.
Do you know the cost and margin of each of your products? If you don’t, sit down now and do your homework: it may take some time (and research) to do, but it’s well worth it in the long term.
- How much do the raw materials cost?
- How much do you spend on rent, power and utilities to process these raw materials?
- How much do you spend on payroll costs and labour?
- How much do you spend on bottling, packaging and logistics?
- How much duty do you pay on the finished product?
- How much do you spend on marketing to promote each product?
All of these overheads and costs add up. So knowing the total cost of producing each of your beers will help you not only manage the efficiency of these costs, but also set a price for your products that includes a realistic margin.
And it’s the margin that will define your end profit – the lower your costs and the bigger your margin, the greater your end profits will be.
You also need to understand how sensitive your materials and resources are to change. If the cost of hops doubles in a year, what’s the net effect on your margins and profits? And if costs do soar, you need to know your production and logistics processes well enough to see where efficiencies and savings could be made.
Think about duty liability
The duty you pay to HMRC on your final brewed products is part of the inherent cost you need to work into your price margins. But duty isn’t a straightforward thing: the rate you’ll pay duty at will vary depending on the product and the alcoholic strength of the beverage.
For example, if you’re a beer producer, you could be paying three different levels of duty, depending on the strength of your beers:
|Alcohol type||Rate per hectolitre per cent of alcohol in the beer|
|Beer – General Beer Duty||£18.37|
|Beer – high strength:
Exceeding 7.5% abv – in addition to the General Beer Duty
|Beer – lower strength:
Exceeding 1.2% – not exceeding 2.8% abv
Similar variations in duty apply to ciders, wines and spirits, so considering the alcoholic strength of your products is an important part of managing your end margins.
There’s no business sense in producing an 8% ABV strong beer in small quantities if you can’t then make enough sales to offset that additional £5.48 duty. Any product development and R&D needs to bear the end cost in mind.
Manage your profits with Xero online accounting
Managing your costs, margins and profits is a whole lot easier when you’ve got a brilliant view of your business numbers.
And that’s where using Xero online accounting software, and working with an experienced Xero accountant, can help you understand your business in real time.
Xero is cloud-based accounting software that gives you a clear, real-time view of your key numbers. Unlike outmoded desktop accounting, Xero can give you completely up-to-date figures for sales, purchases and cash flow. And it’s this non-historic view of your figures that adds the true value.
With Xero as your financial hun, you’ll get:
- A clear dashboard showing your cash flow and outstanding invoices and bills.
- A live bank feed so you always know your bank balance.
- Online invoicing that feeds straight into your sales figures in Xero.
- Simplified bookkeeping with the Receipt Bank app so expenses and costs are quickly scanned in and your numbers are always completely current.
- Detailed reporting so you can see your monthly profit & loss figures, with comparisons against previous months and years.
When you work with a seasoned Xero accountant, like Square Mile, we have access to all your important Xero business information, giving us the raw material to guide you on sales strategy, cost efficiencies and long-term profitability for the business.
A better view of brewery performance with CrunchBoards
One area where Xero really excels is in its integrations with other third-party Xero Add-ons – cloud-based business solutions that plug into your central Xero hub to add new tools and functionality to your business system.
CrunchBoards is a business intelligence Add-on that brings a whole new level of reporting and performance management to your brewery. It integrates fully with Xero and pulls that data through into beautifully clear, visual representations of your key business information.
By running a ‘board’ that focuses on costs, margins and profits, you can drill down into your spending, your inherent costs, your sales figures and your monthly targets. Rather than looking at a dry spreadsheet full of numbers, CrunchBoards gives you charts, graphs and diagrams that show your brewery’s performance in a way that resonates clearly with you a business owner.
Talk to us about your brewery profitability
Are you’re making beer while the (winter) sun shines, but not seeing the profits you were hoping for? If so, come and talk to us about a review of your profitability.
Drop us a line to arrange a Xero and CrunchBoards demo. We’ll talk you through a cloud accounting approach to managing your profits and will help you pull together a long-term financial strategy that makes the absolute most of your brewery revenues.