Second, stale or unused beer may be returned by distributors, in which case it’s also charged to expense through the cost of goods sold. A larger brewery might even accrue for expected amounts of stale beer, which brings up one of the best account names ever, and I am not making this up – accrued stale beer. Excise taxes are due on all alcohol removed for consumption from bonded areas on the 14th day after the close of the tax period, unless that day lands on a weekend or holiday. This rate is different depending on how many barrels you produce each year. One thing to note about excise tax is that if you are contract brewing in-house for another brewery, that alcohol needs to be taxed from your space as well.
Popular methods include Activity Based Costing, Variable Costing, FIFO and LIFO. The method that most closely relates to the brewing process is Activity Based Costing (ABC). ABC examines the activities in the brewing process to establish rates. I spent eight months last brewery accounting year diving deep into the options surrounding COGS and how to make it work for smaller breweries. The results will be released in a two-part series on Craft Brewing Business. This first post will define and explain the components and challenges in calculating COGS.
Cost of Goods Sold
A brewery usually owns its own kegs, so compressing the cycle time for its kegs means that it has to invest in fewer kegs, which improves its cash flow. In some states, breweries are required by law to sell through distributors, who take a massive cut from the retail price. Meanwhile, taproom sales can be quite high, and if direct distribution to retailers is allowed, then the brewery has a price point for them that’s somewhere between those two extremes. So, it makes a lot of sense to structure the financial statements to show profitability by distribution channel. It’s quite possible that a big increase in sales might have a minimal impact on profits, because the sales were through the least profitable distribution channel.
Everything we do is in the service of helping craft breweries, distilleries, and cideries grow profits. Chris Farmand is the founder of Small Batch Standard, a CPA firm helping craft breweries across North America. Farmand has more than 10 years of tax and accounting experience, with the last five years dedicated to the craft brewing industry. Small Batch Standard believes brewery owners should have reliable financials while focusing on what they do best, making beer.
Fixed Asset Accounting
That’s especially true in today’s craft brewery market where profits are stagnating while competition continues to increase. Businesses that are able to maintain effective brewery inventory control get a crucial leg up on their competition. Learn the tools to better understand and manage your upcoming craft brewery’s money needs. You’ll gain a basic understanding of the importance of finance and accounting in craft beer and learn the top financial mistakes breweries make (and how to avoid them). You’ll then be given an overview of the basics of the brewery balance sheet, income statement, and cash flow statements to understand how they all tie together for your future brewery business. Brewery cost accounting will be touched on including beer recipe costing and overhead allocation.
As a result, you can raise customer satisfaction, ultimately enabling you to run a more successful brewery business. Combine your inventory cost accounting and management to get a better idea of your cost of goods sold (COGS). That enables you to understand where to improve your supply chain to lower your COGS and improve profitability. Getting all of these pieces right can take time, and it will certainly take effort. But once you do, the benefits of enhancing your inventory control are immense.
