Percentage of Tap Room Sales

[nateo]

Later on I try to guess how many pints I can sell in a month, and multiply it by $4.25. That gives me what I think is gross income (?). Then I subtract out the fixed expenses for a month (actual wages, salaries, rent, utility cost, insurance, software costs, vehicle repair budget, budgeted discounts and refunds, so on and so forth.) That gives me what I think is called operating income. Then I subtract out taxes and investor or loan payback. That gives me net income.

Gross income would be all of your revenues, before subtracting costs. In a variable-costing income statement, it's just called "contribution margin" which is conceptually similar to gross margin or gross profit in an absorption-based income statement. The rest sounds fine.

I guess I didn't think about going the other route with this to do a break even analysis. With my numbers I could easily take the fixed overhead I have and divide by $4.25/pint to get the number of pints I need to sell (like you said). At least I think that's what I understood.

Yeah, sometimes it's easier to work backwards as a reality check.

I think I mentioned previously that I'm kind of blundering through accounting and may not be using the correct terms for things.

The terminology isn't super important, but it makes it way easier to communicate with other people about what you're doing. I think it helps organize thoughts and approaches too.

You didn't mention it, so I just wanted to be sure you're not forgetting about depreciation expense. For a capital-intensive industry like brewing depreciation will be a relatively large expense.

There is kind of a lot of terrible accounting advice on the internet, but these resources are pretty good: http://www.accountingformanagement.org also http://www.accountingtools.com

[grilli]

You didn't mention it, so I just wanted to be sure you're not forgetting about depreciation expense. For a capital-intensive industry like brewing depreciation will be a relatively large expense.

There is kind of a lot of terrible accounting advice on the internet, but these resources are pretty good: http://www.accountingformanagement.org also http://www.accountingtools.com

I'll have to check out the sites. Thanks!

I didn't totally forget about depreciation. I haven't really fully researched that yet, but I have depreciation so far for brewery equipment, vehicles and taproom fixtures among some other things. I've been reading that you can also amortize startup costs too. It wasn't clear to me however if depreciation was an expense that I should concern myself with in this analysis. It's always seemed to me like more of a tax benefit than anything else. Like...ok I made money this year, and that money was more than my overhead and variable expenses, and I have more money in my checking account than last year. However when reporting taxes, I deduct my depreciation expense from the profits so I'm charged less taxes. EDIT: Forgot to include that I suppose it also decreases the business' equity which is a shitty thing if you're trying to get a loan.

I have a feeling that understanding is pretty flawed right now, but I'm working to that next. The good news is that I'm in no rush here. My "deadline" for these financials to go into a business plan is about 5 months away. Hopefully that's enough time for me to get smart.

[nateo]

It wasn't clear to me however if depreciation was an expense that I should concern myself with in this analysis. It's always seemed to me like more of a tax benefit than anything else. Like...ok I made money this year, and that money was more than my overhead and variable expenses, and I have more money in my checking account than last year.

Think about it this way: let's assume you have to spend $1m to build a factory that makes $10k in gross profit per year. Is that a good investment of the $1m?

Depreciation is a way to divvy up the real money you spent over the useful life of the equipment. It's not a cash expense each year, but it was definitely a cash expense at some point. You wouldn't ignore any other costs, so why ignore that one?

You might want to take a look at these as well, re: amortization:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Capitalization-Period-of-Direct-and-Indirect-Costs

http://www.irs.gov/publications/p535/ch01.html