Cash flow in a brewery's first year

Profit is not cash

A profit and loss statement tells you whether the business earns more than it spends over a period. Cash flow tells you whether there is money in the bank on the day rent is due. In year one the two can look very different.

You pay for malt, hops, CO2, packaging and often excise before the beer is sold. You pay a security deposit and advance rent before the doors open. You may pay suppliers upfront because you have no credit history with them yet. Meanwhile, if you sell kegs to other outlets, they may pay you weeks later. Every one of those gaps drains cash even when the business is profitable on paper.

Where the money gets stuck

• Beer in process. A batch of ale ties up ingredients, energy and labour for two to three weeks before it can be poured. A lager, conditioned cold for longer, ties it up for a month or more.
• Raw material stock. Imported malt and hops are often bought in bulk to save on freight. That is cash sitting in a storeroom.
• Duty and fees. Depending on your state, excise duty, label registration and licence renewal fees may be paid before or at the point beer is released, not when the customer pays. Ask your licensing adviser how the timing works where you are.
• Receivables. Money owed by distributors or other venues. Brewpubs selling mostly over their own bar have an advantage here.
• Deposits. Rent, power connection and keg deposits all lock up cash you may not see again for years.

Seasons hit cash harder than profit

Beer sales in much of India peak in the hot months and dip in the monsoon. Your rent, salaries and loan repayments do not dip with them. A brewery that opens in March can look strong through May and then find June to August tight. One that opens in July faces its weakest months first, while still paying for fit-out.

Plan your stock and your brew schedule around the season. Brewing heavily into the monsoon fills tanks with beer that sells slowly and ages while it waits.

Build a 13 week cash forecast

The single most useful tool for a first-year brewery is a rolling 13 week cash forecast. It fits in one spreadsheet:

1. Start with the cash in the bank today.
2. For each of the next 13 weeks, list the cash you expect to come in: bar and food takings, payments from outlets, any loan or investor money.
3. List the cash going out: salaries, rent, malt and hops, CO2, utilities, excise and taxes, loan repayments, maintenance.
4. Calculate the closing balance for each week.
5. Every week, replace the oldest week with actual figures and add a new week at the end.

The point is not precision. The point is to spot the week in which the balance goes negative while there is still time to act, whether by delaying a purchase, chasing a debt or talking to the bank.

Levers you can pull

• Brew to sales, not to tank capacity. Full tanks feel productive but they are cash on a shelf.
• Negotiate credit terms with suppliers once you have a few months of on-time payments behind you.
• Agree payment terms with outlets in writing and follow up on the day they fall due.
• Keep the core range small so you hold less stock of fewer ingredients.
• Hold back large spends, like a canning line or a second fermenter, until the cash forecast says you can afford them.

A realistic opening budget that includes working capital helps more than any lever. Our guide to microbrewery costs in India covers the setup side. Brewery funding options covers where the money can come from.

Read it every week

Pick one morning a week to update the forecast and compare it with the bank balance. Read it alongside your weekly numbers: litres sold, beer yield, food cost and covers. Cash problems almost always show up in those operating numbers first.

Most founders we teach can read a profit and loss statement. Far fewer have built a cash forecast for a brewery, with its long production cycle and its state-specific tax timing. That gap is exactly what the course spends time on.