Demand projections look promising for craft brewery owners. The industry is expected to grow by nearly 14 percent in both 2017 and 2018. Even so, building a successful craft brewery business requires that you give your customers and distributors all the craft beer they can handle — without draining your cash flow in the process.
Here are some tips craft brewery owners can use to manage their cash flow and increase their long-term rate of success.
1. Establish consistent cash flow monitoring processes
Cash flow management requires that you consistently monitor the amount of money you have on hand, the amount of fixed and variable expenses you’ll face and know how much income you’ll receive and when. Yet, your craft brewery’s demand can be impacted by forces such as weather, local events and even traffic — it’s important to build a safety net (or several) that you can rely on if you do fall short on cash.
For some craft brewers, that may mean slowly building a savings fund adequate to cover at least six months worth of operating expenses, while at the same time establishing relationships with partners that offer affordable funding solutions like merchant cash advances. When you proactively plan for cash flow issues before they happen, you have peace of mind that you can access cost-effective financial resources should your cash flow fall into the danger zone.
2. Expedite your accounts receivables
You get to set the tone for your brand, your craft brew and your business policies. Establish written processes for how and when you issue invoices and collect payment — including the forms of payment you accept, when payment is due, penalties for late payment or discontinuation of service if an account becomes past due and possible early payment discounts or incentives.
Issue invoices at least weekly using accounting software that allows you to track whether an electronic invoice was received and opened via email. Establish notifications to automatically alert the client (and yourself) when an invoice is in danger of being past due.
3. Take advantage of payment terms
If you have suppliers willing to offer extended terms such as net 30 or net 60, take them up on it! It costs you nothing to issue payment on the due date (unless there’s an early payment discount) and helps you better manage your cash on hand.
4. Use your space
If your business includes a tap room, outdoor space or a brewing room, leverage it to boost cash flow. Consider using your craft brewery’s space to host yoga or fitness classes, bands, comedy groups and other types of live entertainment to reach a broader audience and earn additional cash from the space you own or lease but don’t always use. Partner with a local restaurant to host private beer parties in your space, to generate additional cash in the form of upfront deposits or “cash bar” events.
5. Accept various forms of payment
If you take your craft beer brand on the road to pour at local events and festivals, make sure you’re equipped to process plastic: Nearly 70 percent of consumers ages 18 to 34 and nearly 60 percent of those ages 35 to 44 say they will do business only with companies that accept credit cards. Many payment processors automatically transfer funds to merchant bank accounts in less than three business days once the transaction is approved, less processing fees. Though each sale may be nominal, the sum total can provide a steady stream of income and ensure that the time and money you spend attending events and marketing your brand pays off.
Operating a craft brewery may be your dream job, but without a plan to manage your cash flow, the struggle to build a financially stable brewery can feel like a nightmare. Use these best practices to gain more control of cash flow uncertainty, and build a brewery that will thrive for years to come.
For more information, check out this slideshow: 5 Best Practices to Help Manage Your Small Business Cash Flow.
Tim Roach is a co-founder of Lendr, a provider of merchant cash advances for small to midsize businesses. Roach holds a B.S. in Finance from Linfield College and served in the United States Navy at Seal Team One. Before joining Lendr, Roach founded Oak Street Trading, a proprietary trading firm, in 2002.