Building a craft brewery basics: Some questions to ask yourself

beer brewery business finance writing brewer — Permits, local regulations and certification play a big part in the brewery business. Keep up to date with your local and federal laws around brewing and transporting beverage alcohol, along with food and beverage regs.

With a record number of breweries open in the country and no signs of slowing down, operating your own brewery is clearly not an uncommon part of the American Dream. And even though more than 4,400 breweries have opened in the U.S. since 1980 (data: Brewer’s Association), not everyone with a love of beer is up to the task of making it their life’s work. It’s a fun, rewarding business, but it takes just as much hard work, discipline and capital as starting any other consumable goods-producing company.

For the love of beer

Of course, all entrepreneurs need passion to keep them going, and in this case, a passion for making beer is a great start. If you’ve gotten to this point, you likely have some experience with homebrewing and the feeling of success and many, many failures in putting together a batch that your friends and family would actually drink when you weren’t around. Or maybe you discovered a favorite beer available in another part of the world, and you KNOW it would do well locally. Tap into your passions to find an entrepreneurial opportunity to explore.

A plan for pilsners, porters and more

Once you think you’ve spotted a need, it’s time to do your homework. Understanding the industry is a key to getting any business off the ground. Research the market by getting to know the competition that is geographically and financially close to your business idea to determine the viability of your concept.

A good business planning tool, like our LivePlan software, offers benchmarks by geography, company size and industry, so you can get a sense of the investment required to succeed in your market and what that success looks like. Keep in mind, agricultural factors like climate, pest population and length of daylight hours, can all affect the cost of your ingredients, so they should be part of the equation when you’re planning. As you’re just starting out, you’ll likely want to start with small batches, but set production benchmarks for a profitable barrel size to hit — 10,000 is normal.

Location, location, location

You’ll need to vet prospective locations before you can accurately gauge your fiscal needs. Brewery selection can be tricky because you may have all the same needs of a light manufacturer, restaurant AND retailer depending on your concept:

Are you just a brewery or joining the popular brewpub movement? Food service obviously brings along its own set of complications but may help reach a broader audience than beer drinkers alone.
The water supply is critical, especially how it enters and leaves the premises. Meet with your local Department of Agriculture or Department of Environmental Protection to ensure water quality and the discharging process.
Remodeling and infrastructure for the building — favor locations that were already set up for production and/or food and beverage by the previous occupant.
Permits, local regulations and certification play a big part in the brewery business. Keep up to date with your local and federal laws around brewing and transporting beverage alcohol, along with regular food and beverage regulations.
You’ll need to house a lot of equipment. Know the footprint you’ll need for the fermentation process, barrels, keg shelves, bottling, etc.

The People Ingredient: Is it a craft brewery’s biggest threat? Check out this article to find out!

Dollars, cents and suds

In the grand scheme of things, a tall, cold beer is cheap. But entering the business of beer is not. “Starting a brewery takes a lot of upfront capital. Depending on where in the country you plan on starting, estimate needing between $50,000 and $1 million to get your brewery business off the ground and fermenting,” said Nigel Francisco, CFO of Ninkasi Brewing Co. So assuming you’re not an independently wealthy beer enthusiast, it’s time to ask yourself some questions:

How will you raise funds? You could take on capital investors, apply for small business loans from the SBA or another lender, or even equity crowdfund if you live in a state that allows it.
How is your credit? If it is not great, you may need a business partner with good credit.
Do you need a business partner? Do you want a business partner, money aside?

Applying for a loan or pitching potential investors will require a business plan — which is a very necessary exercise anyway. To make a particularly compelling plan, I would recommend a three-year financial forecast. Putting together a full financial forecast will give you a cash flow forecast that can help you understand your need for capital and how much you need to start the business and then keep it growing. There are so many unknowns in your first year of business that can catch you by surprise, so map out as much as you know in detail, month-by-month, for the first year. You can map the second and third year annually.

Getting to the good stuff

You’re almost ready to brew. Your passion for beer has led to opening a brewery. Cheers! The concept is funded and planned, the recipes are tested and tasted and the location and equipment have been purchased, but what’s next? Brewing! Check out our next article on sustaining the brewery long term.