For the Oregon Beer Growler
Breweries run on cash flow. Purchasing raw materials, new equipment and making payroll are top of mind, but one often-neglected item can put a serious crimp in your ability to cover operations and make brewing life more difficult: insurance audits. Below, I outline how to best avoid big audits and keep your cash flow going.
First, your liability policy premium is based on your brewery’s revenue and your workers compensation policy premium is based on your brewery’s payroll. At year end, these insurance policies are audited by the carrier to ensure they received enough premium to cover your exposure. If you overstated revenue and payroll at the beginning of the policy, you get a refund. If revenue and payroll were understated, you owe the carrier more money.
In the current craft beer environment where revenue and payroll are growing as fast as can be, there are never refunds. Craft beer is booming. As more people are needed for production and both brewing and tasting room hours expand, revenue and payroll increase. This means audits where you owe the carrier more money — sometimes big money.
How do you get ahead of this? Have quarterly, or at the least bi-annual updates, with your insurance broker. Re-estimate what your revenue and payroll will be for the policy year so you aren’t hit with an audit that can run into the thousands or even tens of thousands of dollars. This is especially important since this audit will occur when you are making down payments (typically 20 percent of the total premium) on your renewal policies. If you’re making down payments on the renewal policies and paying off big audits on your previous policies, you could be pinching pennies to pay for the more important bills that keep production at full speed.
Moral of the story: Update your insurance broker regularly when you know your revenue is increasing or your production time is expanding. It’s better to pay the additional premium owed during the policy year on a payment plan than in one big lump sum at the end of the policy year.
As a classically trained chef and insurance expert in the craft beverage industry, Jason has honed his palate for flavors as well as his skills in risk assessment. And he prides himself on his expertise in delivering the quality of service and knowledge, carefully crafted and tested over time, which his clients expect and deserve. Find out more about him here.