Five business issues to consider before starting a brewery

With all the excitement surrounding opening a brewery, there are some realities an aspiring brewer must reconcile with to make this dream work. Brewing beer is fun and owning a brewery is more fun, but at the end of the day, it narrows down to owning a business. So here are five points — from the business point of view — to think over as you plan your future brewery.

1. Capital

Do you have the money it takes to open a brewery? I have seen undercapitalized businesses across many industries, and it doesn’t work. Under capitalization is the equivalent of roofers affixing shingles with bubble gum.

My litmus test is a “30 percent topper” to determine if adequate funds are present: Tack on an additional 30 percent of total brewery startup cost, including equipment, as a safe starting number. If build-out and equipment cost you $1 million, plan to have and additional $300,000 as working capital to get you through the starting months. While this may seem like a large amount of working capital, figure salaries and marketing alone will eat up most of that in little time.

Sources for capital are friends and family, banks, investors, crowd sourcing and most recently crowd investing. You must align yourself with the right legal and financial team to structure receiving money from anyone. One wrong move here could spell big trouble in the future.

2. Plan

If a culture is sharply defined, it will attract flocks, and what is the old saying? Birds of a feather, flock together. A confident culture will only result in a more loyal brewery following, resulting in higher sales.Do you have a plan? I am not talking about a traditional business plan. I am talking about a PLAN. Traditional business plans are for winemakers. You’re brewing beer, guy.

Fly up to 30,000 feet with me for a minute. When I say plan, I mean: brewery layout; one-, three- and five-year strategic plans; parking; expansion plans; marketing; staff; and benchmarks. Can you feel the energy you are about to bring? We can’t predict the future, but we can plan.

Planning in the beginning can be as simple as production goals, tasting room vs. wholesale revenue goals and taps per ZIP code goals in a tasting room or brewpub. While these may seem elementary, they will act as a foundation for more complex metrics in the future. As time goes on, planning should mature into a deep dive from information received during production, marketing and financial processes.

3. Distribution

What does distribution look like in your state? Is self-distribution an option? For the states that can self-distribute, are your logistics and liability coverage in order? Self distributing is a wonderful option to have in the beginning, but at some point, you will need to pass it off to the professionals. When that time comes, the nuances of a distributor contract may drive you insane.

Think about it: You are handing off the transport and promotion of your proud product to a complete stranger. I always suggest distributor selection should be a slow courting process where you have many opportunities to interact (and drink beer) with the people who will be taking care of your baby. Also, don’t be ashamed to get a beverage attorney involved to review the contract. I sure would.

4. Back office

Do you have the money it takes to open a brewery? … My litmus test is a “30 percent topper” to determine if adequate funds are present: Tack on an additional 30 percent of total brewery startup cost, including equipment, as a safe starting number.I am confident you know how to operate all those valves and tanks, but can you balance your checkbook? The accounting and compliance piece may be a little more than your spouse can handle. When you are ready, hire someone who knows the industry — they will get it! There is no better feeling than knowing your CPA or bookkeeper can speak your language to solve a problem.

Another reason the back office should be in order is … the TTB requires it. If you are selected for an on-site review, you will need to produce support for the info you submitted. In my experience, the TTB agents are super nice, however, they have a job to do, so comply with their request so they can move along.

Lastly, how will you know if your brewery is profitable? Most of the breweries I talk to have cash in the bank.  Cash in the bank can indicate profitability. However, it is not the authority. Correct record keeping is going to keep the back office organized and allow for confident growth. This is important for two reasons: 1) because proper record keeping will keep the TTB out of your hair and 2) you want to know if your operation is profitable.

5. Culture

Who will you serve? I understand anyone who bellies up to the bar and has money, but what does that person look like? Culture benefits more than just the patrons, it’s the unspoken writing on the wall every business owner strives for. It has a larger effect than most would think on the success of the brewery.

How? If a culture is sharply defined, it will attract flocks, and what is the old saying?Birds of a feather, flock together. A confident culture will only result in a more loyal brewery following, resulting in higher sales. While more sales are nice, the other benefits of having a well defined culture are: The group will look after the brewery as it is their own (second home); it will begin to attract complementing groups; and your followers will serve as the single most effective form of advertising.

A well-defined culture will also help with staffing. It will organically filter the people who do not belong. How do you know if you have a good culture? Start with the leader — you! Have you shown the team and patrons what you stand for, what you believe in? Give it a shot. It’s never too late to begin building culture.

Chris Farmand is the founder of Small Batch Standard, a CPA firm helping craft breweries across North America. Chris has more than 10 years of tax and accounting experience, with the last 3 years dedicated to the craft brewing industry. Small Batch Standard believes brewery owners should have reliable financials while focusing on what they do best, making beer. He can be reached at [email protected].