Common mistakes in brewery project reports

1. Capacity read from the brewhouse brochure

The brewhouse is rarely the limit. Fermenters, packaging or cold storage often are. A hypothetical brewhouse could make 5,000 hl a year, but six fermenters cycling every 16 days limit output to about 2,400 hl. A report that sells 4,000 hl is impossible on its own plant. Check: compute the output of every stage and use the lowest. See capacity planning in a project report.

2. No working capital

Stock, receivables and the cost of ingredients bought ahead are cash. Leaving them out flatters the return. In a neutral-unit illustration, a project costing 100 with an NPV of about 31 at 12 percent loses about 4 when 10 units of working capital are put in at the start and recovered in year five. NPV falls to about 27. The effect is bigger in a distillery, where stock sits for years. Check: show working capital as its own line.

3. Full sales from month one

Breweries do not sell at capacity on opening. Distribution builds, licences arrive and customers try the beer. The fixed costs start on day one. Check: show a monthly ramp for year one and the cash it needs. Link it to evidence in financial assumptions in a project report.

4. Shelf price used as revenue

The brewery does not receive the shelf price. Tax, retailer and distributor margins come off first. A hypothetical bottle at 100 on the shelf may return 45 to the brewery. Using 100 more than doubles the revenue line. In India, taxes and margins differ by state. Check: show the price walk from shelf to ex-brewery.

5. No contingency, no escalation

Plant costs overrun and prices rise. A cost table with no contingency suggests either naivety or hidden padding. Another version of the same error is applying inflation to costs but not to prices, or the reverse. Check: add a contingency line and state your treatment of inflation. If the plant costs 10 percent more, NPV in the example falls from about 31 to about 21.

6. Numbers that disagree and a single case

Project cost does not equal means of finance. Capacity differs between sections. Depreciation in the profit and loss does not match the asset schedule. These are the first things a credit officer catches. They destroy trust. Check: build tables from one model and read the report against it.

A report with one scenario invites the question: what if it is wrong? Check: run a downside and show the debt cover and NPV. In the example, a 20 percent fall in cash flows leaves NPV of about 5, which passes but only just. See sensitivity analysis for a drinks project.

7. Depreciation, tax and construction interest

Depreciation reduces taxable profit but is not a cash cost. A model that subtracts it from cash flow understates cash. One that ignores it overstates tax. Check: start cash flow from profit before depreciation, deduct tax computed with depreciation and compare with a simple recalculation by hand.

If you borrow before the plant earns, interest accrues during the build. It is a real project cost. In a neutral-unit case, a loan of 60 at 10 percent drawn for a year of building costs about 6 before the first sale. Leave it out and the funding falls short. Check: put interest during construction into the project cost and the means of finance.

A related slip is to forget pre-operative costs such as salaries, trial batches and licence work before the first sale. They belong in the project cost too. A list of every cost between the first payment and the first sale is the simplest check.

8. Licences treated as a formality

Alcohol is regulated. In India it is a state subject, so licences, excise and some label rules differ from state to state and change. Treating approval as a step that will happen on schedule is a risk. Check: list each approval, its status and your plan if it is late. Confirm the process with the regulator or a licensing adviser.

A fresh reader catches most of these. Reading your own report cold is hard, because you know what each line was meant to say. That is the case for an independent review.

Common questions

What is the most common mistake?

Optimistic volume with no ramp-up and no working capital. Both flatter the returns and are easy to test.

How do I check my own report?

Trace three or four key numbers from the summary back to the model and from the model to a source. Then change one input and see whether the outputs respond.

Do these mistakes apply to distilleries and wineries?

Yes. Some matter more. Stock held for ageing makes working capital errors larger.

Can a template prevent them?

A template helps with structure. It does not check your capacity chain, your price walk or your numbers.