Individuals who have the entrepreneurial spirit to get a startup off the ground will tell you there are many enticements: the promise of being your own boss, breaking away from the 9-5 grind, watching your idea take root and grow. To keep the momentum going, and transition your brewing operation from a hobby to a profitable business, there are some fundamental concepts you need to be mindful of. Here are three important areas of focus for putting together a successful operation.
General Accounting and Business Considerations
- Choice of legal entity. There are many ways to set up your business, from being a sole proprietor, a Corporation, Limited Liability Company, an S Corporation and more. Each type of entity carries its own pros and cons from both a legal and tax standpoint.
- Technology considerations. Regardless of if you operate “in the cloud” or not, ALL business owners need to take into account cybersecurity measures for their operations. You also need to consider the most cost effective choice of systems and programs for your particular situation, how those systems integrate and automate with each other, and how the systems will grow with your business.
- Payroll and labor considerations. In addition to having the basics such as timekeeping mechanisms and a payroll processing system in place, there are multiple employment tax credits to be aware of including the federal Work Opportunity Tax Credit and the federal Tip Credit.
- Key Performance Indicators (KPIs). Business owners need to become familiar with identifying, developing and calculating KPIs to keep operations on track. Examples include profit margins, inventory turnover and cost per batch.
A Thriving Small Business
- Standard and timely monthly financial reports. Each month, an owner should take a read on how the business is running. Knowing how to compile and analyze a monthly balance sheet, income statement, budget, and financial forecasts will help keep you from stumbling as you transition and grow.
- Getting familiar with income taxes. Understanding your tax picture doesn’t sound like the most glamourous or fun part of your job, but being well-versed on the basics about capital assets, dollar thresholds, depreciation, and your long-term tax situation can help you make the most of the capital you have at your disposal.
You are Considered a Manufacturer
- Income tax benefits. As a manufacturer, there are deductions and tax credits available to you including the Domestic Production Activities Deduction (DPAD) and tax credits for research and development.
- Sales & Use Tax. Most everyone is familiar with the concept of a sales tax. It is paid at the time of purchase and is collected and remitted by the vendor. Use tax is designed to allow tax-free inventory purchases. The consumer must self-assess and remit to the state at the time the product is used. In Iowa, breweries are now considered exempt producers which means there are tax advantages that need to be captured.
The above only scratches the surface of accounting considerations for a growing brewery – as you can see, there is A LOT more to being a successful brewer than simply making a great beer. To learn more about how the BerganKDV team can help simplify the complex accounting and tax world so that you can focus on what you’re great at, please contact Gary Wilgenbusch (gary.wilgenbusch@bergankdv.com) or Chris Gallo (chris.gallo@bergankdv.com).
