If you are just joining us….welcome.Over the past 2 weeks I have been on a tear about the importance of Minding the Gap in your brewery’s finances.
First up was Revenue and then came Cost of Goods Sold…
And today we are talking about the hard part…General and Administrative Expenses.
No one is talking about expenses.
- Expenses are hard.
- Expenses are messy. When trying to calculate outside sales labor, do we include benefits and taxes as a part of the compensation or not? I know that a sales reps compensation should ideally be 10% of their revenue contribution, but what’s included in that range?
- There is no single source of truth when it comes to expenses. (until now)
Whenever I probe a brewery about expenses, the confidence in the conversation just dies.
Don’t worry, you are not alone, and I can help you figure this part out.
Revenue (sales) – Cost of Goods Sold = Gross Profit
We covered these concepts over the past 2 weeks.
Gross profit is what we use to pay our general and administrative expenses. So there must be positive Gross Profit in your brewery in order to pay for things such as Payroll, Rent, Utilities, Advertising, etc.
Taproom gives us lots of Gross Profit.
Distribution gives us little Gross Profit.
Still with me?
During this period of headwinds, it is critical to understand how expenses in your brewery affect profit.
Controlling expenses is the main driver behind generating profit.
Best analogy I can come up with…you can workout 7 days a week and eat like shit. As a result, you will look like shit. Diet is the most important part of staying in shape and looking fit.
Expenses are the diet, the gym is revenue.
Love when I can tie it together like that, as I am trying to lose 15lbs over the holidays.
Enough about me.
2023 is going to be the year where every business needs to focus on the bottom line. Ideally, we want the bottom line to be positive.
Since we can control expenses, let’s take a look at two areas which have the biggest impact:
- Occupancy (Rent and Utilities)
Labor is a doozy. Most breweries have 4 labor categories: Admin, Production, Taproom and Outside Sales. If you have a kitchen, then you have a 5th category which is “kitchen.”
Are you tracking your labor this way?
You should be.
Reason? We need to track how these categories are trending over the year. From there we can begin to look at how they relate to revenue.
Occupancy is rent and utilities. Not rent, utilities, pest control, waste management, etc. Just rent and utilities. The benchmark for occupancy is 9% – 11% of total revenue.
Wow this range looks familiar.
You are correct-ish.
The 9% – 11% is the standard benchmark for restaurant and retail rent only.
Then why do you throw in utilities, Chris?
Because the margins for a brewery are higher than a restaurant and retail. The beer you make and sell at your brewery is straight chedda.
Final word on this.
A benchmark that we have been testing and are finally proud to announce is…
As a rough rule of thumb: Your General and Administrative Expenses, excluding Labor, Occupancy and Advertising should be 20% or less when compared to total revenue.
The gap folks.
We need to Mind the Gap. We need to understand the Gap.
Only then will we begin to see the profit increase.
Let me know if you need help with any of this.