Budgeting is an essential component of financial planning if you want to set your business up for long-term success. When done properly, a budget serves as a roadmap that business owners can follow for responsible financial management and growth. This article will discuss the benefits of creating a business budget and outline some budgeting basics for breweries and distilleries.
Why You Need a Budget
In an industry subject to variables like fluctuating supply costs and evolving consumer trends, alcoholic beverage producers have even more reason to plan ahead financially.
For brewery and distillery owners, a budget helps to:
- Build a picture of your business’s financial standing.
- Provide insight into sales performance, spending, and profits.
- Prepare your business for future challenges and unexpected events.
- Guide important decisions related to resource allocation, improvements, investments, staffing, debt management, and other key areas.
- Signal when financial or operational adjustments are necessary.
Budgeting Basics
Though the process can vary from business to business, below are the basic steps that can be followed when developing a business budget:
- Estimate Revenue
To estimate expected revenue for your brewery or distillery for a given period of time, you’ll need to identify all reliable sources of income during that period. Sources of income may include taproom sales, wholesale distribution, event sales, food service, merchandise sales, tours, membership programs, and other revenue streams. You can use historical sales data as a basis for predicting future revenue.
- Estimate Costs
Next, you’ll want to identify all of the costs you expect to incur over that same time period, including fixed, variable, and one-time expenses. Fixed costs include preset expenses such as rent, mortgage payments, staff salaries, debt payments, software subscriptions, and insurance premiums. Variable costs are subject to change from month to month and include expenses such as raw materials, some utilities, supplies, and shipping costs. One-time expenses are non-recurring costs such as new equipment or vehicle purchases, repair costs, or purchases of real estate.
- Establish a Contingency Fund
It’s always a good idea to set aside funds within your budget for unpredictable circumstances, such as equipment failures, poor growing seasons, natural disasters, and other unforeseen events. This way, you’ll have some financial cushion to fall back on in the case of an emergency.
- Determine a Surplus or Deficit
After estimating your revenue and expenses, you can determine whether you will have a budget surplus or deficit. If your estimated income is greater than your estimated expenses, you will have a budget surplus. If your estimated expenses outweigh your estimated income, you will have a deficit. Once you have this information, you can choose how you will either (1) appropriate surplus funds or (2) adjust your revenue and/or expenses to close the budget gap.
- Review and Adjust the Budget Regularly
Once your budget is created, you should review and reassess it regularly, comparing your actual sales and spending figures against your budgeted amounts. This way, you can catch and address any issues or budget gaps early on. You should be prepared to update and adjust your budget as necessary if issues are identified.
Plan Ahead for Financial Success
Developing a business budget is an integral part of financial planning. For more guidance on how to set your business up for financial success, please don’t hesitate to reach out to RBT CPAs. Our experts provide highly individualized accounting, tax, audit, and advisory services to businesses and organizations in the Hudson Valley and beyond. Contact us today to learn how we can be Remarkably Better Together.