Today’s beer industry is undeniably shifting in favor of the emerging craft brew movement that has brought thousands of options to taps across the nation. With ever-growing market presence and seemingly limitless business potential, it’s no wonder small-scale brewers are jumping at the opportunity to start their own brewery and get their beer to the market.

Why would someone want to open a brewery?
As of 2015 there are more than 4,000 breweries in the U.S., that’s up from 3,500 in 2014. While the industry increased less than 1 percent last year, craft beer sales rose nearly 20 percent. Craft beer has caused big breweries like Budweiser and Miller to decline by more than 25 percent in the last six years.

Craft beer’s growing presence in the $100 billion industry is resulting in a significant amount of acquisitions of craft breweries by some of these larger breweries, with huge associated valuations.

What are the main reasons why new breweries fail?
Failure usually stems from undercapitalization and lack of understanding of the operational aspects of the business. Having a successful brewery is more than the quality of beer you are selling.

It’s having the right financial understanding to keep it afloat. This includes implementing smart branding strategies, planning for distribution, expansion, and impeccable inventory and costs tracking. Failure to understand these elements has been a major downfall of many breweries.

How can a brewery set themselves up for success?
A good, realistic business plan is critical. In order to make a profit you must know how much money goes into your beer and how much you get out. Careful cost tracking will help you identify exactly what you need to sell in order to be profitable, which will in turn tell you which product is successful and if you need to raise prices, up production or reevaluate your vendor budget.

You must understand the key financial ratios, such as breakeven point, matching production runs with projected sales, and the costs and margins of different products. Additionally, a good inventory tracker may be a hefty investment, but it’s a crucial expense if you plan on growing and keeping your label alive. Before starting, factor in extended time for licensing and permits since that could affect your market schedule.

What is the best advice you could offer someone opening a brewery?
Understanding the financial ratios of your business and looking at information in real time is a must.

There are three statements that are essential: your income statement, your balance sheet and your cash flow statement. Looking at only one of these will lead you to false assumptions or even a skewed idea of how well, or poorly, your business is doing.

Your income statement showcases your profit margin and ultimately shows efficiency over time. Because it shows income, owners often mistake this as the only piece of the puzzle they need to assess their success. However, you need all three statements to gain a complete picture. The balance sheet is a snapshot of your business at a single moment in time and is important when looking at ratio calculators and key performance indicators.

Lastly and arguably most importantly, your cash flow statement shows how money flows in and out of the company, not only operationally, but also through investments and financing.

Monthly evaluation of these documents will help keep your brewery accountable for your financial goals while maintaining a healthy and accurate financial perspective while making critical decisions throughout the year.

The current economic climate for manufacturers provides significant challenges. Increasing foreign competition, price pressure from weakened demand, tight capital markets, and increasing costs of raw materials have combined to create a particularly competitive landscape. Forward thinking manufacturers are turning these challenges into opportunities—and using these challenges as a springboard to operational improvement and increased profitability. Here are some best practices for how to mitigate costs and other innovative ideas.

Banks and financial institutions are slowly loosening their credit requirements. Venture capitalists and private equity groups are beginning to invest again. Congress has established programs that encourage lending to small businesses, such as the Small Business Lending Fund (SBLF), and State Small Business Credit Initiative (SSBCI). Having your financial records in order could make or break your opportunity to secure funding.

Attracting and retaining employees is a very important matter to focus on for business and creating a culture that values the whole employee is a good first step. While pay is important, it is not the most important motivator for most employees. Today’s generation of employees want it all – good pay, advancement, and most of all the opportunity to do new and exciting work and have fun doing it. Passionate business leader who treats their employees like family, and gives back to the community, will find their employees follow in their footsteps.

Reward innovation at all staff levels and recognize employees for their dedication and achievement. Develop a total rewards strategy that includes compensation, benefits, performance and recognition, and career development opportunities. This will attract the best and brightest, which in turn will help to drive your firm’s brand in the market.

Contact us to learn more about how we can help provide insights to your manufacturing business.

While today’s competition in the food and beverage industry remains fierce, there are steps your manufacturing company can take to foster success. It starts by addressing many of the industry’s challenges, such as managing cash flow, assessing some of the hottest trends in the industry, focusing on your business offerings, and utilizing networking and social media to help your company increase sales.

As growth opportunities emerge, so will restrictions on cash flow, as creditors often demand payment before you see cash from your customers. Have a plan to manage this gap—talk to your lenders and investors in advance of expected needs. Other opportunities to free up cash include hedging raw material costs and taking advantage of tax incentives.

It sounds simple, but this is often overlooked. Manufacture your products to the highest standards of quality and taste. Begin this objective with a few products to build credibility before expanding your offerings, and strengthen market share by focusing on a competitive advantage.

Ethnic foods, gluten-free products, certified organic, and natural foods are all rising in popularity as they enter the mainstream. It’s a trend ripe for profits, especially if you capitalize on products that are unique in the category.

Remember the old Hollywood adage, “it’s not what you know, but who you know”? The same principle applies here. To get your product on shelves and expand sales, you must connect with customers and prospects, and meet key contacts. Expand your network and share best practices by attending relevant meetings and conferences, joining local food and manufacturing groups, and leveraging the power of social networking sites like LinkedIn and Facebook.

Recognize your limitations (often time and experience) and build relation- ships with trusted advisors. Critical qualities include a passion for technical excellence, a genuine interest in your company’s success, and a deep understanding of your industry. Advisors should possess the ability to grow your business ecosystem by offer- ing key introductions to people such as regional manufacturers, grocery chains, and venture capitalists.

To learn more, contact Sensiba’s Food and Beverage Industry team.