Breweries: Do You Know Your Cash Flow?

Top off your cash flow statement and you might be amazed at the benefits that pour out into your business.

What is a cash flow statement?

Your cash flow statement tells readers of your financial statements how you accumulated and spent cash during the year. The cash flow statement is broken into three parts: operating activities, investing activities, and financing activities.

• Investing activities: money spent or earned on improving your brewery. Includes buying brewery equipment, such as tanks, a canning line, and filters, which are shown on your balance sheet and depreciated over time on the income statement. Investing activities also include cash you received if you sold equipment.
• Financing activities: money received or paid back related to ownership (equity) transactions or debt. Includes money received through a loan from a bank or investors. Paying down those debts would be recorded here as well. If you invested money in the brewery, your contribution—or distribution if you pulled out money not considered salary—also would show up here.
• Operating activities: the heart of your brewery. Includes all your normal day-to-day operations, as well as non-cash items included in net income, like depreciation and gains or losses on the book value of disposed equipment. Cash received from sales to distributors or in your bar, inventory purchases, kegs or cases sold to customers but not yet paid for, increases in credit card debt or accounts payable—all impact your operations and will indicate increases or decreases in cash during the year.

Why is your cash flow statement important?

The investing and financing activities on your cash flow statement show the peripheral transactions that occurred during the year and the cash impact of those activities. On the other hand, the operating section of your cash flow statement will give you a good idea of how your business performed during the year. Were your cash flows supported by operations (positive impact), or used to support operations (decreases in cash) causing you to use financing or investing activities to maintain cash flow? Your answer will help you determine if you’ll be able to generate sufficient cash to continue to maintain operations. It can also help you decide if your operations alone can provide the money to expand or whether you’ll need to explore other avenues.

A purchase of hops, which is inventory, can be turned into sales, or cash, much quicker than a purchase of a fixed asset, such as a new canning line. But you could use your cash flow statement to explain how investing in a canning line supported current and near-future operations.

Your cash flow statement will paint a picture of your business performance. Did you spend the year investing and upgrading your brewing process? If so, your cash flow statement will reveal the expense, but you could point out that the new equipment resulted in an increase in operating activities, which allowed you to buy more materials, produce more barrels, and ultimately increase your revenues.

Using your cash flow statement is an easy first step toward modeling cash flow forecasting. With historical data from your cash flow statement, your brewery can now budget and allocate resources to determine when to make certain purchases, or know when and if you can sustain difficult financial periods like those that have accompanied the COVID-19 pandemic.

How can you apply your understanding of your cash flow statement?

• To budget and project future cash flows: Whether it’s identifying the need for more staff or making a new equipment purchase, you can determine if you have or will have the available cash.
• To better understand other areas of your balance sheet: Are increases in your inventory appropriate? Is your accounts receivable current? Are you paying your accounts payable in a timely manner? These are areas to focus on to help improve your cash flow.
• To bridge the gaps between your balance sheet and income statement: Looking at net income is useful, but does it help you determine whether adding a new employee or managed service is something you can afford? Does your income statement indicate you have the cash from operations to pay for more employees or add new services? The cash flow statement helps you answer these questions and make those decisions.

As someone I know often says: “People don’t know what they don’t know.” If you don’t know how much cash your operations are bringing in versus your investing and financing activities, you will have a harder time forecasting and making sound financial decisions. Feel free to reach out to me at 724-934-5300, or by email at tgagen@hbkcpa.com to discuss your cash flow over a couple of pints. Cheers!