By Tracy Jong, Craft Beverage Attorney
Ryan is in his second year at Slapshot Brewing. Since the first day he opened, he has barely had time to rest. His beers were popular with friends and family, but he could not have predicted that in his first two years, he could sell beer faster than he could make it. The healthy profits had accelerated his business plan by two years and enabled him to purchase new equipment and double his production capacity.
One Friday afternoon, a TTB auditor came to the brewery for a surprise review of his records. He took the auditor to the brewery office and pulled out a stack of papers, apologizing that he was behind in entering the data into his Excel spreadsheet. After a few stressful hours, the auditor completed his review and explained to Ryan that he would be receiving a report that he found deficiencies in the records and that he should make recordkeeping a priority going forward. Under federal law, brewers must complete and maintain daily records and reports that capture information about brewery operations. These daily records are very important because they are the source documents on which the Excise Tax and Brewers Report (BROP) are based. The auditor explained that his situation was not uncommon, that brewers commonly fail to:
- Accurately report the amount of beer returned to the brewery;
- Properly maintain records regarding destruction of beer;
- Appropriately record lab sample removals; and
- Appropriately report, record, or maintain supporting documents regarding losses or shortages.
The auditor pointed out that there was an incentive for Ryan to keep good records because failing to do so will subject the brewery to payment of higher taxes than necessary. If the brewery cannot document and account for non-tax paid product, it will be assessed tax on the “missing” product. The best way to reduce the risk of paying unnecessary taxes is good, detailed and timely records.
The auditor could not tell him if there would be a fine (that was a decision made by the legal department), but if there was, it would be several thousand dollars. The auditor assured him he would not lose his license if he addressed the problem immediately and prevented future noncompliance issues. The thought of a big fine scared Ryan, but not as much as the thought of losing his brewing license. He had more than a half million dollars invested in the brewery. It was time to get some professional help.
Ryan set up a meeting with his craft alcoholic beverage attorney to devise a plan of attack. They discussed manual record keeping, but decided that a brewery management software was the way to go – it organized all of the required records and produced the necessary filings right from the entered data. This would save him several hours in report preparation time but also save him accounting fees in the long run. He could create his own system in an Excel spreadsheet, but the software would enable him to implement it without any time investment in researching the requirements and creating the spreadsheet formulas. The time saved enabled him to focus on brewing, strategic planning and sales rather than tedious record keeping and report compilations.
The software enabled him to keep records for all of the required data by date of the operation or transaction:
- Each kind of material received and used in the production of beer and cereal beverage;
- The amount of beer and cereal beverage produced;
- Beer and cereal beverage transferred for, and returned from, bottling and racking, or bottled, racked, or removed from the brewery;
- Beer removed for consumption or sale — For each removal, the record shows the date of removal, the person to whom the brewer shipped or delivered the beer, and the quantities of beer removed calculated in kegs and in bottles;
- Beer removed without payment of tax — For each removal, the record shows the date of removal, the person to whom the brewer shipped or delivered the beer, and the quantities of beer removed in kegs, bottles, tanks, tank cars, tank trucks, tank ships, barges, or deep tanks of vessels;
- Packaged beer used for laboratory samples at the brewery;
- Beer consumed at the brewery;
- Beer returned to the brewery from which it was originally removed or from another brewery that the brewer owns;
- Beer reconditioned, used as material, or destroyed;
- Beer received from other breweries or received from pilot brewing plants;
- Beer and cereal beverage lost due to breakage, theft, casualty, or other unusual cause;
- Brewing materials sold or transferred to pilot brewing plants (including the name and address of the person to whom it was shipped or delivered), and brewing materials used in the manufacture of wort, wort concentrate, malt syrup, and malt extract for sale or removal;
- Record of tests of measuring devices; and
- Beer purchased from other brewers in the purchasing brewer’s barrels and kegs and such beer sold to other brewers.
- Daily summaries of the following transactions:
- Beer and cereal beverage bottled;
- Beer and cereal beverage racked;
- Beer removed for consumption or sale;
- Beer returned to the brewery;
- Beer returned to the brewery after removal from another brewery owned by the brewer; and
- Brewing materials, beer and cereal beverage in process, and finished beer and cereal beverage on hand.
The software allowed her to scan and electronically save invoices of material accepted into inventory and sales of beer. The software turned out to be a great investment. It included a POS (Point of Sale) feature for his tasting room sales. This allowed Ryan to organize the entire brewing process and sales records from “cradle to grave.” With the push of a button, he could now run reports and analytics on his data to aid in management and strategic planning.