The AccountingWEB tech lab looks at how a craft brewer gained better insight and visibility through the use of a dedicated forecasting tool.
Fourpure Brewing Co: After more than doubling in size year-on-year for its three years, the Bermondsey-based brewhouse has grown to be one of the larger independent craft brewers in London, supplying the likes of M&S and Tesco.
As is typical with high-growth businesses there is no such thing as a flat trading history, so KPIs are key to understanding trends and trajectories as the company aims for new targets.
Jim Shirley: CIMA member and self-confessed spreadsheet nerd. He’s been with the company six months, having previously worked at larger engineering and IT companies.
Key company KPIs
- Bank balance - can the business afford to invest, pay its bills – yes or no?
- Simple debtor days, % and £s paying to terms - Fourpure’s customer profile doesn’t stand still, so no one simple metric is reliable to follow. The firm must understand the mix and its effects as the customer base evolves.
- Revenue growth – major impact on future planning for facilities and equipment.
- Gross margin (GM) – attempting to increase constantly through beer batch yield, capital investment and process.
- EBITDA % - Fourpure is investing for future growth. While current earnings levels are attractive, the key is understanding how this percentage leverages up on its revenue growth rate.
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- Production Yield – purely from a beer quality perspective the better (and more consistent) the beer quality has become over time, the better the gross margin percentage through less waste, lower utility costs and optimal ingredient use.
- Revenue per head – the business is operating at sub scale and with an investment focus this is a key target to ensure we’re on track with our investment of resources, says Shirley.
- Keg ratio – Fkeg (steel) to disposable. The higher % of Fkeg, the more GM and cash generation.
- Payback – brewing has lots of opportunities to invest in margin and operational improvements; cash is obviously a massive constraint in any growth curve situation, so payback on CAPEX investment is key.
Craft beer is a booming industry, but with new entrants arriving on an almost daily basis it’s becoming increasingly competitive. The business needs to scale up but remain agile and lean to cope with seasonal buying fluctuations and commodity and currency variations.
Fourpure’s level of growth made it urgent to move away from cash accounting and large numbers of disconnected spreadsheets. Many decisions were being made on gut instinct because it simply wasn’t possible to see the whole picture.
The business may be small but has a lot of moving parts and revenue streams, so having a full grasp is critical. The company wanted to know with certainty it was doing the right things with its investments (CAPEX and OPEX) – were they paying back or seeing the returns in the timeframes expected?
Shirley began building a ‘mega spreadsheet’ to present a clearer picture of the whole business, but was worried that only he would be able to run this properly when the goal was to increase visibility.
In spite of his love for Excel, Shirley decided to investigate the Xero add-on universe and stumbled across forecasting tool CrunchBoards via Breadwinner (which integrates CRM product Salesforce with accounting software).
Shirley wanted to get Xero data back into Salesforce to dashboard company financials and link them to sales forecasting. The appeal of CrunchBoards was its ability to scale easily and give everyone on the team access to information when they wanted it on whatever device they had.
The transition was planned thoroughly, after thinking through what the company wanted both financially and non-financially. Shirley mapped out what he needed for management meetings using departmental balanced scorecards and worked back from there.
When it came to getting the tool up and running there was none of the expected kickback from staff – just excitement at the level of visibility they’d never had before. As a contingency Shirley ran a simpler spreadsheet side-by-side until he and the rest of the team were comfortable with CrunchBoards.
According to Shirley, the new solution freed up a huge amount of time. He has gone from spending 60%-80% of his time preparing and balancing numbers to around 10% just reviewing and working on them.
It has made the finance function more efficient and released it form the perpetual month-end, preparing forecast on forecast and balancing back broken spreadsheets. CrunchBoards also cuts meeting preparation time as the dashboard work is already done.
Shirely is using the extra time he gained to aid the business on value-add things and drive the operational aspects and new projects.
Thanks to the new system Fourpure will incorporate a lot more non-financial data in the trial balance to drive KPI metrics and operational visibility of what’s happening in the business.
One aim is to train the entire management team in scenario planning, allowing them to make their own informed decisions and bringing the firm together in ways that weren’t possible before. The ultimate goal is to use the system to scale up and compete with bigger breweries.
We hear a lot about the ‘strategic FD’ whose domain is no longer the corner office but bringing finance to the whole organisation. This has been greeted with scepticism in some quarters by those who believe it is a mindset or personnel issue, but part of the problem is systematic. Having to wade through reams of data each month just doesn’t allow time for the stressed-out finance manager to stop and think about how to engage non-finance stakeholders.
When appropriately chosen, set up correctly and fed accurate data, tools like CrunchBoards give managers the option to bring the finance function to the shop floor. Better financial and non-financial forecasting allows companies like Fourpure to expand without year-on-year without taking on a single new member of staff.
Have you changed a process or tool recently that has had a similar transformative effect on your business? Let us know in the comments or drop me a message via the site – we’d love to hear from you.