1 Craft Brewery Accounting SimplifiedRoadmap for Accounting and Administrative Success February 25, 2016 Part of the CBA Webinar Series

2 Mary Brettmann, CPA Beverage Business BuildersI always wanted to be a CFO Varied career track to get exposure to all aspects of finance Willing to step out of my comfort zone Mary’s Education and background Surly Brewing CFO Built the entire administration platform for the destination brewery Was the CFO, Director of IT, HR and Controller prior to the buildout. Best advice for the new CFO Let the process happen organically. Resist the temptation to make it your old company

3 Surly Destination BreweryThose are 600 BBL fermenters. There is a beer hall, a beer garden, an event center and a “finer dining restaurant”. Credit: Surly Brewing Company

4 Your Book of Record Serves Many MastersYour accounting system will simultaneously be the: Book basis – standard GAAP reporting Tax basis – depreciation will be different here Cost basis – what does it really cost to do something? Insurance basis – how and what are we insuring? Cash basis – good old cash forecasting Keep this in mind as you are designing a system. The real art here is to know when to use what number for what purpose. For example, most young breweries use tax depreciation as book depreciation. At this point, only the tax preparer is tracking fixed assets. A milestone of growth is to manage your own fixed assets. Understand the conflicts between these books and manage their differences.

5 Accounting and Administration DesignUser Needs Investor needs Bank needs Tax Law Cash Method Accrual Method UNICAP Accounting Principals Will you need professional assurance? Compilation, Review, Audit?

6 User Needs Readers of the financial statements have different needs.Owners What do I have? What did I make? Is there enough cash to do what I want to do? What do things cost? Do I make a profit? Investors What is the status of my investment? Will they honor their commitments? Is the company doing what it promised? Bankers Can it repay the loan and stay in business? Your book of record will need to solve for all these questions.

7 Tax Laws To Know Pass-Through Entity Accounting Method UNICAPWhose taxes are you affecting? Accounting Method Must use the accrual method if a qualified tax payer ( gross receipts of $1M) or a qualified small business taxpayer (gross receipts of less than $10M) UNICAP Requires manufacturers of over $10M to add direct and indirect costs to the value of inventory. Has the effect of raising taxes. Keep in mind that if you have a successful you could be at $1m in receipts with 1,111 bbls. If you have a strong taproom and a strong barrel-aging program, you would be at $10m in receipts with 16,000 (with an average price/bbl of $600)

8 Timeline of Accounting MilestonesSimply cash (auto-match the bank and credit card feed) Easy to setup, easy to maintain Gives basic financials Closest to actual cash. Periodic Accrual (correcting things at the date of financials) Perpetual Accrual (there are levels of accrual) Hold inventory Correct timing of accounts in the ledger Standard Costing Variance Analysis Benchmarking/KPIs (key-performance indicators) . The sooner that you can get to perpetual accrual, the more that the system will match the physical reality AND the more that you can use it to analyze activity at the company. The end of the game is to manage by exception. So you can get ahead of the game and report on differences.

9 What System to Use When? QBDT, QBES, EKOS OBEER QBO, EKOSQuickBooks Online (QBO) Very easy to use, no infrastructure Downside -Limited capabilities, very small inventory function QBO with EKOS Brewmaster Maintain cloud infrastructure Can track inventory Can track lots (coming soon) Can track multiple warehouses QBDT, QBES (QuickBooks Desktop, QuickBooks Enterprise) BIG bang for the dollar Does a really good job of inventory (and standard costing if you will let it) Will do lot tracking if you purchase advanced inventory (lot table is not attached to the inventory function) Working on customized reports using the advanced reporting tool Downside – you have to figure out hosting Downside – you must customize the system for your needs OBEER (Orchestrate) SAP Business One with a custom add-ons Customized specifically for the brewing industry (so there is a bunch of cool tools) Everyone has the same database (pace of innovation is very fast), you can work with the same tool that firestone walker is using. How cool is that? Downside – complexity, amount of time needed to keep things in balance increases Downside – cost

10 The Physical World Must Match The VirtualIt is the only way for the system to evolve from an accounting system to the operational book of record. You can not manage what you don’t measure Start small but stay consistent. Start with inventory quantities, then add the raw material and finished good lots.

11 #8 – Variance Matters Companies are managed by expectationBudget is a whole series of expectations Forecasts are updated budgets Setting a standard (expectation) is the first step Labor standards Overhead standards Loss standards Deviance from a standard is a cause for investigation You can manage more if you are looking for variances see process above You will get more granular with time Slide from my CBC talk. Creation of variance is what will help you manage the operations of the company.

12 How to Get Started Balance between available resources and company needs Everyone in the brewery is in the same boat. Steer the ship towards the end game Resolve to take one new step each quarter, each year Make sure that you understand the end game Grow large enough to need an audit? Is acquisition the end game? How many markets will you enter? What is the timing? Does your system track variance in all the key areas? Understand that change is a constant

13 Visit Our Booth at CBC Booth 4100 on the corner just outside Entrance D. Participating Vendors include: OrchestratedBEER, Intuit, Highjump Brewer’s Edge, Fintech, Craft Beer Attorney Coalition and more Meet vendor reps, talk with existing brewery client experts, schedule a live demo

14 10 Things That I Wish I Knew*You are a stranger in a strange land. Your job is much greater than accounting and finance. Administration grows with the company. Your job is to not fit in. You are the catalyst for change. The physical world must match the virtual world. Process matters. Variance matters. Banks are your friends and your worst enemy. The industry is changing before our eyes. *Before Becoming a Craft Brewery CFO 2016 Craft Brewers Conference Friday May 6, :55-2:55 in Ballroom A

15 Questions/Frustrations?War stories? Please remember to review the sample chart of accounts. It will be coming via and will be also available via download on my website.

16 Thank You! Mary Brettmann [email protected] 714-878-8216Please send me your thoughts and comments. We are all in this together to build a strong admin book of knowledge.