Aging Barrel Inventory and Work in Process in a Distillery Sale
Walk through the warehouse of an established distillery and you may see rows of barrels holding spirits that will not be sold for some time. That aging stock can represent a substantial share of what a buyer is paying for, yet it is harder to verify than cash in the bank or bottles on a shelf. Understanding how buyers review aging spirits inventory and other work in process is central to pricing and financing a distillery acquisition.
This article is general information for buyers and sellers of existing, operating craft distilleries. It does not provide aging periods, values or accounting rules. Inventory accounting, tax status and excise matters should be reviewed with qualified accountants, and regulatory questions with qualified counsel. Nothing here is tax, accounting or legal advice.
What Counts as Inventory at a Distillery
- Raw materials: grain, botanicals, yeast and other inputs
- Work in process: fermenting mash, spirits awaiting redistillation and spirits aging in barrels or tanks
- Finished goods: bottled and labeled product ready for sale
- Packaging and supplies: bottles, closures, labels and empty barrels
Why Aging Spirits Are Different
Spirits in barrels are not yet finished products. Their future value depends on how they mature, whether they meet the distillery’s standards and whether there will be demand when they are ready. Some barrels may be earmarked for specific products, sold to private barrel customers or committed under agreements. Buyers will want to understand each of these situations.
How Buyers Review Barrel Records
- Barrel-level records showing spirit type, fill date, entry characteristics and location
- Reconciliation between records, required reports and a physical count
- Sampling of selected barrels by someone qualified to judge quality
- Evidence of leaks, losses or barrels that may not meet standards
- Any barrels owned by customers or pledged to others
Tax Status and Accounting
Spirits may be held under bond, with excise tax due when they leave bond, or tax may already have been paid. How this affects the deal, and how the seller has assigned costs to inventory on its financial statements, should be reviewed with accountants. Accounting choices can make reported profit look higher or lower than cash flow.
How Inventory Is Priced in a Deal
Some transactions price the operating business and the inventory separately, with an inventory count and adjustment at closing. Others include a set level of inventory in the price. Parties may disagree on how to value spirits that will not be sold for some time, and some resolve that through holdbacks or seller financing tied to inventory. Our articles on craft distillery valuation and craft distillery seller financing explain these approaches.
Sourced Spirits in the Warehouse
Barrels may contain spirits the distillery made itself or spirits bought from other producers. Product origin can affect labeling and marketing. See our article on sourced spirits and supply contracts.
Cash Flow After Closing
Aging inventory consumes cash before it produces revenue. A buyer should plan for the working capital needed to keep production, bottling and sales moving after closing. Our page on craft distillery working capital and lines of credit explains how we approach those needs.
How Lenders View Inventory
Lenders generally rely on documented cash flow rather than the hoped-for future value of aging stock. They may give limited weight to aging spirits as collateral and will want clear records and an inventory plan. See our article on craft distillery loan requirements.
US Professional Funding helps buyers finance the acquisition of existing, operating craft distilleries, including planning around inventory and working capital. Learn more about our craft distillery acquisition financing.
