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The story of the Jolly Brewing Ltd 

Beer brewery.jpg

I think it is always nice to start with a little story, so let's tell the story of the Jolly Brew Ltd. 

THE START OF A JOURNEY

There was once a good friend of mine who had a splendid idea! During a trip to Germany, he found that the Germans drink rather bland beer. So to shake things up, he had the idea of founding his brewery with the mission to brew the most delicious IPA the Germans have ever tasted.

He approached his friends and family for money to start his business. In a rather generous move, they contributed £10,000, no questions asked, and he got a further £40,000 from the bank. 

With this start-up capital and his personal savings of £20,000, he went on a shopping tour. He agreed on a reasonable rent for an old warehouse costing no more than £1000 per month. He then sourced the finest hops and grains to cover him for the first three months of brewing. This cost him £16.000 but with a warehouse this big, he had no problem storing it. 

Last but not least, he got himself the brewing kit, which he sourced second-hand for only £18,000. Sorted! He was in business, eager to brew the first batch of Jolly IPA. 

LET'S GET BREWING

Before brewing his revolutionary IPA, he had to work on his online marketing. Not really being his particular strength, he hired a German IT/marketing agency that agreed to push all his promotions and ads in Germany. The luxury of this unique knowledge came at a monthly cost of £2,000.

The only thing left was an order! Bosh got it from a local "Gasthaus" in the Bavarian forest, which had a beer garden the size of a football pitch. They settled at 10,000 bottles for $1.5 each, with guaranteed supply within the next three months.

With this deal in his pocket, he started to brew and did nothing else than brewing for the next 2.5 months. After the last bottle was shipped, he sat down and did some admin work. It was itching in his fingers to see how his business had fared, plus he needed to see where things were. He desperately needed to check where his inventory levels stood as he reordered some stock worth £3,000 to be sure not to run out of essential brewing ingredients. 

He was pleasantly surprised to see that he had £9,000 worth of supplies (hops, grains, brewing agents, etc...) left. 

He then sorted through all the invoices he had received over the last three months. For shipping the brew to the German customer, he was charged £1200 for shipping. He also had to hire someone to help him bottle all the beer, for which salary costs of £800 were incurred.

So let's summarize:

Costs and money spent at the start

  • £50,000 as start-up capital from friends and family

  • £20,000 in personal savings 

  • £36,000 as a loan from the bank

  • £16,000 spent on inventory at the start

  • £18,000 spent on brewing equipment

Costs incurred during the first three months of brewing

  • Online marketing for £2,000 per quarter (invoiced at the end of each quarter)

  • £1,000 per month for renting the warehouse

  • £2,000 for insurance (prepaid for 6 months)

  • £1,200 was spent on shipping the brew to Germany

  • £4,800 for additional help bottling the beer

Final things to do at the end of the period

  • Invoicing the customer in Germany, flushing in £25,000 in sales

  • Doing a stock-take, concluding with £9,000 worth of supplies still left

  • The used brewing kit will likely last another five years

  • The bank loan is repayable over three years and incurs an annual effective interest of 10%

  • The loan provided by friends and family does incur an annual interest of 5%

  • The used brewing kit will likely last another five years

  • Credit terms agreed with suppliers 60 days

  • Credit terms agreed with customer 30 days

  • Having a beer for all the blood, sweat, and tears of the last three months (not an accounting entry but totally worth it)

You may think these are many things to digest, but financial statements are there to make it easier to absorb. Each of the statements, the income statement, the balance sheet, and the cash flow statement, try to make sense of these bullet points in its own way.  

In the following sections of my webpage, I am attempting to dig deeper and explain the purpose of each of the 3 statements. 

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