Homebrewers Association | AHA Forum

General Category => Going Pro => Topic started by: Duane on February 25, 2013, 02:36:18 AM

Title: Starting a brewery
Post by: Duane on February 25, 2013, 02:36:18 AM
Hi everyone,

I have been home brewing for over 15 years and have been competing with great success for the last 4. I love it. I want to go pro but I am running into a capital fund issue. How does one raise the capital in such a tough lending market that we are in? By the way I have no money to put into the business at the end.
Title: Starting a brewery
Post by: In The Sand on February 25, 2013, 11:39:15 AM
Hi everyone,

I have been home brewing for over 15 years and have been competing with great success for the last 4. I love it. I want to go pro but I am running into a capital fund issue. How does one raise the capital in such a tough lending market that we are in? By the way I have no money to put into the business at the end.

Join the club. Lack of capital is the reason many breweries never get off the ground. I am in a similar situation. My advice would be to save as much of your own money as possible and work on a solid business plan. You can probably raise some if your funds through family and friends without a business plan, but if you plan on asking anybody else you need one. Plus it'll help you stay on track and manage your money. Hope it works out for you!
Title: Starting a brewery
Post by: majorvices on February 25, 2013, 01:31:07 PM
I started my brewery with 3 other partners and myself. We each put in equal amount of money and started very small. Brewed for a year to build a brand and a concept then approached a bank for a loan. Grew for a year and approached the bank for another loan. We started as a single bbl brewhouse and now have a 15 bbl brewhouse with 30 bbl tanks.

It's not easy. I worked 40+ hours/week for over a year for free, still make far less than I did working in the business world and still have a long way to go to grow my business. But it has been a lot of fun and a great challenge and I love it.

15 years brewing is the experience I had under my belt when I went commercial. I think that is one of the most important things you can have to open a brewery. You really need to know how to make good beer and you need to iron out a handful of recipes.

Only other thing I will warn you of is everyone and their brother is opening a brewery now and the market is getting tight. You will be a year or two out from getting a hop contract unless you stumble on some good fortune. And this industry is in unsustained growth right now, especially in certain parts of the country.
Title: Re: Starting a brewery
Post by: nateo on February 25, 2013, 01:42:03 PM
I know of at least one current pro brewer who got a combo of investors and bank funding for 100% of the startup cost. He had a fantastic business plan, and he knew exactly how to run a brewery.

Our bank called us last week to ask us to borrow $150k to make capital improvements, and offered to refinance our whole business loan amount to 3.5% if we did. So I don't think you can really blame the lending market for being tough.

Bottom line: Banks and investors are good judges of risk. If they don't want to loan you money, you must look like a huge risk.

If you want to send me a copy of your business plan, I'd be happy to give notes on it.
Title: Re: Starting a brewery
Post by: In The Sand on February 25, 2013, 01:43:17 PM
I started my brewery with 3 other partners and myself. We each put in equal amount of money and started very small. Brewed for a year to build a brand and a concept then approached a bank for a loan. Grew for a year and approached the bank for another loan. We started as a single bbl brewhouse and now have a 15 bbl brewhouse with 30 bbl tanks.

It's not easy. I worked 40+ hours/week for over a year for free, still make far less than I did working in the business world and still have a long way to go to grow my business. But it has been a lot of fun and a great challenge and I love it.

15 years brewing is the experience I had under my belt when I went commercial. I think that is one of the most important things you can have to open a brewery. You really need to know how to make good beer and you need to iron out a handful of recipes.

Only other thing I will warn you of is everyone and their brother is opening a brewery now and the market is getting tight. You will be a year or two out from getting a hop contract unless you stumble on some good fortune. And this industry is in unsustained growth right now, especially in certain parts of the country.

Keith, what year was it when you got your first bank loan?

+1 on the hop contracts.  I've been looking at availability of hops, and the next couple of years are already gone as far as the more popular hops go.
Title: Re: Starting a brewery
Post by: In The Sand on February 25, 2013, 01:45:19 PM
I know of at least one current pro brewer who got a combo of investors and bank funding for 100% of the startup cost. He had a fantastic business plan, and he knew exactly how to run a brewery.

Our bank called us last week to ask us to borrow $150k to make capital improvements, and offered to refinance our whole business loan amount to 3.5% if we did. So I don't think you can really blame the lending market for being tough.

Bottom line: Banks and investors are good judges of risk. If they don't want to loan you money, you must look like a huge risk.

If you want to send me a copy of your business plan, I'd be happy to give notes on it.

Nate, what business plan software would your recommend?  I've been looking at Business Plan Pro.  Probably a good $150 or so investment IMO.
Title: Re: Starting a brewery
Post by: Jimmy K on February 25, 2013, 01:51:19 PM
You can probably raise some if your funds through family and friends without a business plan...
But you probably can't pay them back without one.
Title: Re: Starting a brewery
Post by: nateo on February 25, 2013, 01:58:54 PM
Nate, what business plan software would your recommend?  I've been looking at Business Plan Pro.  Probably a good $150 or so investment IMO.

I don't have a clue on software. I've only ever used Word and Excel.

The biggest problem I've seen: People have no idea how accounting works. People don't know what COGS means, they don't know how to calculate it, they don't know how to build an income statement or a statement of cash flows.

For instance: every investor (I'm talking pro investors, not your grandma) and every banker knows how to calculate COGS. If you walk in and show a banker a paper where you say COGS = direct material + direct labor, they will know instantly you don't know anything about accounting, and assume you also don't know how to run a business.
Title: Re: Starting a brewery
Post by: yso191 on February 25, 2013, 04:07:03 PM
I know of at least one current pro brewer who got a combo of investors and bank funding for 100% of the startup cost. He had a fantastic business plan, and he knew exactly how to run a brewery.

Our bank called us last week to ask us to borrow $150k to make capital improvements, and offered to refinance our whole business loan amount to 3.5% if we did. So I don't think you can really blame the lending market for being tough.

Bottom line: Banks and investors are good judges of risk. If they don't want to loan you money, you must look like a huge risk.

If you want to send me a copy of your business plan, I'd be happy to give notes on it.

I just heard essentially the same thing in beer class last week.  We had guest speakers from a new 30 bbl brewery here in Yakima.  So new they have not yet sold a drop - but they are getting close.   Anyway, they said, because the craft beer industry sales are growing by ~10%/year, coupled with the fact that few other segments in the economy are, that it is fairly easy to get venture capital.

I wish them a lot of success.  They are three young adults that are about as nice, friendly and helpful as I have encountered.  Plus they make great beer.  http://www.facebook.com/#!/balebreaker?fref=ts
They'll be distributing in Washington and Northern Idaho soon.
Title: Re: Starting a brewery
Post by: Pawtucket Patriot on February 25, 2013, 04:14:03 PM
I am about 90% finished drafting our business plan for a packaging brewery in Minneapolis, MN.  You should go to SBA.gov and check out their business plan templates.  They are extremely helpful.  No need for software, IMO -- the web has a ton of free resources that provide more than ample guidance.  Drafting a solid business plan is a huge undertaking, but I can't imagine not drafting one.  Once you do it, you will have an entirely new perspective on your proposed business.

Also, you should join the Brewers Association as a brewery-in-planning.  We could not have drafted our financials or marketing plan without the BA's statistics and industry averages.  But you'll also have to do a crap ton of research on your own to see whether the numbers in your local market square with the BA's data.  For us, the numbers were pretty similar with a few exceptions.

FYI, we are raising capital through a variety of ways: SBA 504 loan for equipment, crowdfunding via Kickstarter (this is really more of a PR effort), and a mix of privately invested debt and equity. 

Re: competition in the marketplace -- yes, it's true that there are a ton of new entrants to the craft brewing segment.  But, if you draft a solid business plan, capitalize your brewery sufficiently, bring something unique to the market, AND BREW GREAT BEER, you'll have a fighting chance of succeeding.  To a certain extent, I think you need to put on blinders when it comes to the competition.  If this is something you are ready to pour your heart and soul (and a hell of a lot of time/energy/money) into, then go for it!

Cheers and good luck!
Title: Re: Starting a brewery
Post by: nateo on February 25, 2013, 04:41:26 PM
Also, to dovetail with what I was saying about needing to know how accounting works: debt is cheaper than equity. Interest on debt is a period expense that reduces your net income, lowering your tax liability. Equity is taxed on its full value.

I've also heard of people getting a bunch of investors to buy-in with equity, then the person who started the brewers gets kicked out of the company and their investors hire someone else to run it.

So if you want investors, you need to be realistic about what you bring to the table. If you were an investor, would you hire yourself to run a brewery? There are plenty of unemployed pro brewers who will work for peanuts.
Title: Re: Starting a brewery
Post by: In The Sand on February 25, 2013, 04:46:38 PM
There are plenty of unemployed pro brewers who will work for peanuts.

...or beer!  ;D
Title: Re: Starting a brewery
Post by: majorvices on February 25, 2013, 07:45:31 PM
Trey - I think the first business loan was in 2011. Second one was last year.
Title: Re: Starting a brewery
Post by: tschmidlin on February 26, 2013, 12:04:08 AM
I wish them a lot of success.  They are three young adults that are about as nice, friendly and helpful as I have encountered.  Plus they make great beer.  http://www.facebook.com/#!/balebreaker?fref=ts
They'll be distributing in Washington and Northern Idaho soon.
I was lucky enough to meet them and see their test setup during hop school last fall.  It helps that they will have no problem getting any hops they like - two of them come from an old Yakima hop family with a gigantic farm.  And it also helps that the third is a pro brewer with a proven track record.

And you're right, they are super nice people. :)
Title: Re: Starting a brewery
Post by: SWGG on February 26, 2013, 01:13:00 AM
debt is cheaper than equity. Interest on debt is a period expense that reduces your net income, lowering your tax liability. Equity is taxed on its full value.
I guess that would depend on how you look at it.  In my experience, debt can be expensive.  It's just less expensive lately.  I would rather have 100% equity and no debt service.  Sure, you don't get to expense any interest, but the other 85% (after corporate taxes) you keep.  You still have to spend the money to call it an expense.  That said, borrowing money is an essential part of starting a business.  And with rates like they are these days, it's not too expensive to borrow.  Just watch your ratios and be careful.
Title: Re: Starting a brewery
Post by: nateo on February 26, 2013, 02:39:13 AM
I would rather have 100% equity and no debt service. 

Yeah, I'd rather pay cash for a brewery and own 100% of it too. But if you need startup funds, you need to either sell equity or borrow money. Selling equity reduces all of the income you'll ever make from the business, while debt is fully amortized (loans) or it has a definite maturity (bonds).
Title: Re: Starting a brewery
Post by: Thirsty_Monk on February 26, 2013, 02:55:16 AM
I would rather have 100% equity and no debt service. 

Yeah, I'd rather pay cash for a brewery and own 100% of it too. But if you need startup funds, you need to either sell equity or borrow money. Selling equity reduces all of the income you'll ever make from the business, while debt is fully amortized (loans) or it has a definite maturity (bonds).
Or start up small, learn the business and reinvest your earnings.
Title: Re: Starting a brewery
Post by: reverseapachemaster on February 26, 2013, 10:26:36 PM
I would rather have 100% equity and no debt service. 

Yeah, I'd rather pay cash for a brewery and own 100% of it too. But if you need startup funds, you need to either sell equity or borrow money. Selling equity reduces all of the income you'll ever make from the business, while debt is fully amortized (loans) or it has a definite maturity (bonds).

Agreed. For those looking at giving away equity or assuming debt, leveraging is generally the cheaper option over the long term because it goes away. Sure, there's ways to write mandatory buyback provisions on equity but no serious investor is going to want to take equity on those terms because that means you want them to finance the risky period early on but then get cut out of the profits down the road.
Title: Re: Starting a brewery
Post by: reverseapachemaster on February 26, 2013, 10:41:51 PM
As said above, the lending market isn't that bad. It's not 2006 loose but it's not 2009 tight either. Banks are sitting on a lot of cash waiting to be lent out. People are not investing as they were so a lot of cash is going into savings accounts, which is money banks want to lend and generate profit on. However with the newer restrictions on banks and rough local economies they are being more selective about lending than before. When I was in Denver last summer I saw billboards for banks wanting to finance breweries. That's probably a local phenomena.

It's very difficult to start a business with no capital of your own. You're basically asking lenders/investors to take on all the risk while you can just bankrupt out your company and walk away with no liability. That's especially true if you don't have a solid business plan (as Nateo discussed above) and you lack experience with business management and/or brewery management. Investors/Lenders are going to want to see qualifications and a clear vision. You're trying to get into a business which is a combination of an industrial factory (brew house), a public bar (tap room) and sell a product into a highly regulated market. (I don't know what kind of qualifications you have.) For your own sake I think it's a bad idea to start a business you lack financial liability in. I think you need some personal money in the business to fear having to ditch the business. It also helps with lenders and investors to show you're liable for the business, too.

If you can't get financing through traditional lending or investor routes, you're going to have to go after alternative financing routes which can be really bad news. If you don't understand the risks involved you can end up getting sued and held personally liable on the financing deals, have to close up shop, get cut out of the profits, or worst of all, cut out of the business entirely. If it's something you are considering you should consult with a start up consulting firm or law firm that specializes in business formation.
Title: Re: Starting a brewery
Post by: nateo on February 26, 2013, 11:07:51 PM
That's especially true if you don't have a solid business plan (as Nateo discussed above) and you lack experience with business management and/or brewery management. Investors/Lenders are going to want to see qualifications and a clear vision. You're trying to get into a business which is a combination of an industrial factory (brew house), a public bar (tap room) and sell a product into a highly regulated market. (I don't know what kind of qualifications you have.)

(I also don't know what kind of qualifications Duane has, so I'm saying this just generally, not directly about Duane, so don't get offended)

Touching on something RAM said: Years ago I read in Savage Love (advice column) a letter from a sad kid who desperately wanted a girlfriend. He was like 15. The advice Dan Savage gave him was "Don't focus on getting laid today, focus on getting your future-self laid." He told the kid to hit the gym, hit the books, get out there, get life experiences, develop interests, etc. so when he's actually in a position to date a girl, he's attractive, both physically and mentally. He'd be prepared, so the girl part would just take care of itself.

It's about laying the groundwork. I hear from a lot of people who want to start a brewery who have no manufacturing or business background. I don't hear much from people who know how to start and run a business, because they don't tend to ask questions on homebrew forums. They just know what to do, and do it.

So if you want to start and run a brewery, start developing the skills you need now, and focus on starting one once you have the foundation you need. Learn how accounting works. Learn how marketing works. Learn how pro's brew. Learn how to run a business. School works for me, but if you can't take classes, there's very little you can't learn on the Internet.
Title: Re: Starting a brewery
Post by: chadchaney97 on February 26, 2013, 11:10:42 PM
     I agree with the money being out there for the right situation.  I approached a banker (owner) friend about what it would take to finance the opening of a brewery here in rural Iowa and the things he pointed out as most important were: a solid professional business plan with a clear vision and clear estimates of cost vs profit, and some personal (whether it be personal or seem personal like from a family loan, etc.) capital to secure the loan.  After talking to the SBA in my area, there are a ton of services available from them for free, they did almost all of our market research for no cost, will review and help tweak the business plan and visit banks with us.   
     I started putting together all the ideas I have been recording for the last several years into a business plan and it is mind numbing.  Every time I think I have all the costs figured out i think of another needed item or cost.  I am at an advantage, I have a $75,000 angel investment to help me along, but the price to open a 7bbl brewpub (cans for small distro, tapas for food) is amazing.  More amazing than that is trying to come up with projected numbers fro your first year open! 
     I am going to business school as I put this together, so I have a lot of resources, but it is still an extremely daunting task.  Any experienced folks who want to help would be LOVED, lol. 
    I think I have an untapped (no pun intended) market here, all the craft folks have to drive an hour to 2 hrs. to a larger city to hit a brewpub or get decent craft.  I was a beer club organizer for 2 years here and I am confident I can sustain and grow right off the bat, but getting open seems to be the hardest part, right now.
Title: Re: Starting a brewery
Post by: hopfenundmalz on February 26, 2013, 11:53:17 PM
When people taste my beer and say you should open a brewery, I laugh. I know how to make beer. I do not know the first thing about running a brewery for profit.
Title: Starting a brewery
Post by: In The Sand on February 27, 2013, 04:16:29 AM
When people taste my beer and say you should open a brewery, I laugh. I know how to make beer. I do not know the first thing about running a brewery for profit.

So is that to say if you had an angel investor and all the startup capital you needed, you wouldn't love to brew for a living?
Title: Re: Starting a brewery
Post by: hopfenundmalz on February 27, 2013, 04:46:50 AM
When people taste my beer and say you should open a brewery, I laugh. I know how to make beer. I do not know the first thing about running a brewery for profit.

So is that to say if you had an angel investor and all the startup capital you needed, you wouldn't love to brew for a living?
If I could be in front of a screen clicking icons, sure. Have seen that done.

If it is all manual, no thanks. I have done that twice on an archaic system. You realize at some point that you can do it one day, but not every day. Brewing is a young man's game. I am an old fart.

If I had a brewery, I know there is paperwork, inventory, cellar work, loading dock work, ordering, etc. Then there are the sales, marketing, website, e-mails from customers, acounting, beer fests, etc.

Brewing would be fun, but only a fraction of the job. The owners often are behind a desk, a youngster is brewing.
Title: Re: Starting a brewery
Post by: reverseapachemaster on February 27, 2013, 04:51:53 AM
When people taste my beer and say you should open a brewery, I laugh. I know how to make beer. I do not know the first thing about running a brewery for profit.

So is that to say if you had an angel investor and all the startup capital you needed, you wouldn't love to brew for a living?

I wouldn't. In my head I would just walk around saying it's time to brew X beer, thinking up new recipes, brewing whatever I wanted and talking to people about how great the beer is. That's not anywhere near reality. It's a lot of cleaning, it's a lot of brewing the same thing over and over, it's people b****ing because you make too much "bland" beer in your normal line up and b****ing you don't make enough of the "good stuff" and fighting to get shelf space. The bigger you get the more you manage and the less you brew. It's manual labor work in an increasingly competitive market that generally is not that profitable. I've already investing a huge amount of time, work and capital into my current profession. No interest in moving into another field.

Everything I like about homebrewing is generally not present in commercial brewing. I like that I can brew when I want or not brew if I don't feel like it. I can brew whatever I want and I don't have to worry about whether I can sell it off. I don't have to appease other people. I can experiment as much as I like without restriction. Sure, it's getting easier to operate a profitable brewery on a small core line up and make everything else experimental beers because the demand is there but how many breweries like that come and go in a couple years? How many can scale that model up?
Title: Re: Starting a brewery
Post by: In The Sand on February 27, 2013, 01:16:47 PM
When people taste my beer and say you should open a brewery, I laugh. I know how to make beer. I do not know the first thing about running a brewery for profit.

So is that to say if you had an angel investor and all the startup capital you needed, you wouldn't love to brew for a living?

I wouldn't. In my head I would just walk around saying it's time to brew X beer, thinking up new recipes, brewing whatever I wanted and talking to people about how great the beer is. That's not anywhere near reality. It's a lot of cleaning, it's a lot of brewing the same thing over and over, it's people b****ing because you make too much "bland" beer in your normal line up and b****ing you don't make enough of the "good stuff" and fighting to get shelf space. The bigger you get the more you manage and the less you brew. It's manual labor work in an increasingly competitive market that generally is not that profitable. I've already investing a huge amount of time, work and capital into my current profession. No interest in moving into another field.

Everything I like about homebrewing is generally not present in commercial brewing. I like that I can brew when I want or not brew if I don't feel like it. I can brew whatever I want and I don't have to worry about whether I can sell it off. I don't have to appease other people. I can experiment as much as I like without restriction. Sure, it's getting easier to operate a profitable brewery on a small core line up and make everything else experimental beers because the demand is there but how many breweries like that come and go in a couple years? How many can scale that model up?

Sure it's a lot of cleaning and putting up with people's crap, but that's probably why a lot of people don't do it.  If you don't think you'd enjoy cleaning, brewing the same beer repeatedly, and taking criticism, then stick with homebrewing.  Also, IMO if you're getting complaints about the beer being bland, you may want to rethink brewing as a profession.

I enjoy brewing, and really don't care if I brew the same thing over and over again.  I like what I brew and I'm not a huge experimenter, so there's no problems here drinking the same thing often.  YMMV
Title: Re: Starting a brewery
Post by: nateo on February 27, 2013, 02:22:50 PM
Also, IMO if you're getting complaints about the beer being bland, you may want to rethink brewing as a profession.

Someone should tell that to New Belgium re:Fat Tire. I'm not really sure why people think you need to brew only "good" beer to be successful. Most successful breweries make decent, consistent beer, but do it profitably. That's really all it takes. You're kidding yourself if you think New Belgium could've gotten as big as they are with the Lips of Faith series alone.
Title: Re: Starting a brewery
Post by: narvin on February 27, 2013, 02:53:12 PM
Also, IMO if you're getting complaints about the beer being bland, you may want to rethink brewing as a profession.

Someone should tell that to New Belgium re:Fat Tire. I'm not really sure why people think you need to brew only "good" beer to be successful. Most successful breweries make decent, consistent beer, but do it profitably. That's really all it takes. You're kidding yourself if you think New Belgium could've gotten as big as they are with the Lips of Faith series alone.

And that's another reason not to open a brewery. I want to make good beer, not run an assembly line and mess around with focus groups.

The ideal situation would be to have a local brewpub, stay small enough to brew whatever the frick I want, and survive off of people's love of good beer and cool places to hangout.  It's been done but the term "labor of love" seems fitting.
Title: Re: Starting a brewery
Post by: Jimmy K on February 27, 2013, 03:18:51 PM
When people taste my beer and say you should open a brewery, I laugh. I know how to make beer. I do not know the first thing about running a brewery for profit.

So is that to say if you had an angel investor and all the startup capital you needed, you wouldn't love to brew for a living?
The more I know about how much the alcohol industry is regulated - the less I want to be involved professionally. I think it would be great to have a job at a brewery, but I don't want to start a small brewery.
Title: Re: Starting a brewery
Post by: majorvices on February 27, 2013, 03:21:56 PM
I own a brewery and I frickin love it. It's probably the coolest thing I have ever done. If this one fails, I'll damn well open another one. I think I was born to do this.  :D

But it is really hard work. At the small size that I have opened at it is all manual. We don't even have an auger so we are dumping grain in by hand. We don't have rakes but we do have a motorized paddle which works great, but nothing is hard piped or permanently plumbed so everything has to be done by hand and it is a hard days work for sure. Physically I am in very good shape for a 43 year old. Aside from drinking a bit more than I probably should I have stayed in good physical shape else I would probably not be able to do this.

Also, unless you have big bucks expect to work for free (I know I have said this over and over again, but it is true). I don't see many breweries start where the brewer keeps his day job, not profitable ones anyway.

IN my case, I'm not a great business man so it helped hugely for me to surround myself with talented people who wanted to invest. It is a 4 way equal share partnership and I am the only one getting paid at this point aside from two part time employees. Lot's of providence went into this place opening and becoming (on the verge at least) successful.

Anyway, that's my insight from the inside. I would, in some ways, like to dissuade about 90% of the people who talk about opening a brewery from actually doing it because I think most people really have no idea what it is like working in a brewery. It's blue collar work for sure. It's dirty, hot, sticky ... OTOH it does smell really good on brewdays. But it isn't really a whole hell of a lot like homebrewing, after all. Aside from designing recipes. But, be sure, it's really brewing the same recipes over and over and over again. You really have to like to do that.
Title: Re: Starting a brewery
Post by: majorvices on February 27, 2013, 04:15:44 PM
debt is cheaper than equity. Interest on debt is a period expense that reduces your net income, lowering your tax liability. Equity is taxed on its full value.
I guess that would depend on how you look at it.  In my experience, debt can be expensive.  It's just less expensive lately.  I would rather have 100% equity and no debt service.  Sure, you don't get to expense any interest, but the other 85% (after corporate taxes) you keep.  You still have to spend the money to call it an expense.  That said, borrowing money is an essential part of starting a business.  And with rates like they are these days, it's not too expensive to borrow.  Just watch your ratios and be careful.

Yeah, as long as you have at least $250 grand ready to put into a brewery you are good. Otherwise, better look for investors or bank loans. IME loans are cheaper than investors.
Title: Re: Starting a brewery
Post by: nateo on February 27, 2013, 04:49:15 PM
IME loans are cheaper than investors.

You're completely right. That's like, Finance 101.

The other thing you have to know is that a dollar today is worth more than a dollar tomorrow. That's why you have to pay interest on your loans, and why investors want to make a return on their investment. I've never seen a brewery business plan that accounts for the time-value of money. (I've never seen a business plan from a brewery that went onto run successfully, so I know my sample is skewed)
Title: Re: Starting a brewery
Post by: a10t2 on February 27, 2013, 04:50:50 PM
I would, in some ways, like to dissuade about 90% of the people who talk about opening a brewery from actually doing it ...

I, on the other hand, would like those people to get funded, buy equipment, and *then* fail. ;)
Title: Re: Starting a brewery
Post by: nateo on February 27, 2013, 04:58:45 PM
I, on the other hand, would like those people to get funded, buy equipment, and *then* fail. ;)

Yeah, I suspect there's going to be a lot of dirt cheap 3-7bbl brewhouses for sale in about 3-4 years, when the current crop of under-capitalized breweries goes under.
Title: Re: Starting a brewery
Post by: In The Sand on February 27, 2013, 05:06:07 PM
Quote from: nateo
The other thing you have to know is that a dollar today is worth more than a dollar tomorrow.

My partners and I were discussing exactly this a couple of days ago.
Title: Re: Starting a brewery
Post by: majorvices on February 27, 2013, 05:34:13 PM
I would, in some ways, like to dissuade about 90% of the people who talk about opening a brewery from actually doing it ...

I, on the other hand, would like those people to get funded, buy equipment, and *then* fail. ;)

Bwahahahahaha!
Title: Re: Starting a brewery
Post by: redbeerman on February 27, 2013, 06:10:53 PM
I, on the other hand, would like those people to get funded, buy equipment, and *then* fail. ;)

Yeah, I suspect there's going to be a lot of dirt cheap 3-7bbl brewhouses for sale in about 3-4 years, when the current crop of under-capitalized breweries goes under.

Yep.  I think I may have visited some of these breweries last summer. ;)
Title: Re: Starting a brewery
Post by: kylekohlmorgen on February 27, 2013, 06:53:07 PM
I, on the other hand, would like those people to get funded, buy equipment, and *then* fail. ;)

Yeah, I suspect there's going to be a lot of dirt cheap 3-7bbl brewhouses for sale in about 3-4 years, when the current crop of under-capitalized breweries goes under.

On the other other hand - Imagine what the average, hands-on experience-lacking, do-it-yourselfer has managed to rig up in all the pinches he/she got into...

Most used processing/packaging equipment that I've come across has been my. worst. nightmare.

On the bright side, I learned a whole lot of "what not to do".
Title: Re: Starting a brewery
Post by: denny on February 27, 2013, 10:16:36 PM
If I could be in front of a screen clicking icons, sure. Have seen that done.

If it is all manual, no thanks. I have done that twice on an archaic system. You realize at some point that you can do it one day, but not every day. Brewing is a young man's game. I am an old fart.

If I had a brewery, I know there is paperwork, inventory, cellar work, loading dock work, ordering, etc. Then there are the sales, marketing, website, e-mails from customers, acounting, beer fests, etc.

Brewing would be fun, but only a fraction of the job. The owners often are behind a desk, a youngster is brewing.

Preach it, Brother Jeff!  You've summed up my feelings exactly.
Title: Starting a brewery
Post by: majorvices on February 28, 2013, 01:16:50 AM
If I could be in front of a screen clicking icons, sure. Have seen that done.

If it is all manual, no thanks. I have done that twice on an archaic system. You realize at some point that you can do it one day, but not every day. Brewing is a young man's game. I am an old fart.

If I had a brewery, I know there is paperwork, inventory, cellar work, loading dock work, ordering, etc. Then there are the sales, marketing, website, e-mails from customers, acounting, beer fests, etc.

Brewing would be fun, but only a fraction of the job. The owners often are behind a desk, a youngster is brewing.

Preach it, Brother Jeff!  You've summed up my feelings exactly.

What we have here is a couple of old granny's, apparently. :p
Title: Re: Starting a brewery
Post by: hopfenundmalz on February 28, 2013, 01:51:39 AM
If I could be in front of a screen clicking icons, sure. Have seen that done.

If it is all manual, no thanks. I have done that twice on an archaic system. You realize at some point that you can do it one day, but not every day. Brewing is a young man's game. I am an old fart.

If I had a brewery, I know there is paperwork, inventory, cellar work, loading dock work, ordering, etc. Then there are the sales, marketing, website, e-mails from customers, acounting, beer fests, etc.

Brewing would be fun, but only a fraction of the job. The owners often are behind a desk, a youngster is brewing.

Preach it, Brother Jeff!  You've summed up my feelings exactly.

What we have here is a couple of old granny's, apparently. :p

Keith, a guy I worked with a long time ago said that he thought the difference in aging from 50 to 60 was about the same as the difference from 30 to 50. Check back in 17 years from now an let us know what you think! I am in pretty good shape for an old guy, but not as in good as shape as 15 years back. Just saying.

Title: Re: Starting a brewery
Post by: boulderbrewer on February 28, 2013, 04:31:57 AM
Connect to the brewers, they are the ones who know where the equipment can be found at less than a premium. Think outside the box also. As Major said your brewing experience will help you more than you know and a strong back will help. I may have some complete 10 bbl plastic fermentors available within a year. Stay tunned
Title: Starting a brewery
Post by: majorvices on February 28, 2013, 12:16:26 PM
If I could be in front of a screen clicking icons, sure. Have seen that done.

If it is all manual, no thanks. I have done that twice on an archaic system. You realize at some point that you can do it one day, but not every day. Brewing is a young man's game. I am an old fart.

If I had a brewery, I know there is paperwork, inventory, cellar work, loading dock work, ordering, etc. Then there are the sales, marketing, website, e-mails from customers, acounting, beer fests, etc.

Brewing would be fun, but only a fraction of the job. The owners often are behind a desk, a youngster is brewing.

Preach it, Brother Jeff!  You've summed up my feelings exactly.

What we have here is a couple of old granny's, apparently. :p

Keith, a guy I worked with a long time ago said that he thought the difference in aging from 50 to 60 was about the same as the difference from 30 to 50. Check back in 17 years from now an let us know what you think! I am in pretty good shape for an old guy, but not as in good as shape as 15 years back. Just saying.

I'm just messin' with you guys. Seriously hope to be both more automated and cracking the whip on the minions by then. But thanks for the reality downer anyway....
Title: Re: Starting a brewery
Post by: travjohn92 on March 03, 2013, 02:05:26 AM
Someone in an earlier post mentioned kick starter.  This seems to work.  I have a friend who used kick starter to help fund their brewery and it was successful.  They were looking for $30k in 33 days.  It just finished today and they ended up with $34k.  They had different pledge levels and offered various gifts depending on the amount pledged.  The only bad part is if you don't reach the amount you set as your goal, you don't receive any of it and no ones credit card is charged who pledged.
Title: Starting a brewery
Post by: majorvices on March 03, 2013, 01:13:56 PM
Just to keep everything in perspective, once you really start rolling an operating brewery, $34 thousand becomes a mundane amount of money (not saying the above mention post is opening with that or anything, just putting everything in perspective). We pay about that much a month just in bills. I know every homebrewer who ever cooked a batch thinks at some point in time about opening a brewery but few think about the capital really needed to open one, let alone operate one in reality. It's a business first and foremost and the profit margins are very slim and the cost to get off the ground on any reasonable amount of volume output are high. If I was to start over again and not be silly like I was whenI started I wouldn't dream of starting with less that $400,000. We are officially pumping out 30 bbl batches (back to back on a 15 bbl brew house) and we are still so tiny it is almost cute.... I just moved my 7 bbl fermentors out of the wet area last week (by myself, without a pallet jack or forklift, lol) and they are so silly and cute I thought about putting them in my pocket and taking them home and letting my kids take them to school for show and tell.

We opened on a total of 80K and nearly all of that went into the facility, we didn't spend hardly anything on brewing equipment. SO I'm not saying you can't go bare bones but expect to look and feel silly when you really start any type of output. At 1-3 bbl output you are barely producing enough beer to pay the lease on your building let alone pay yourself and you will never put money away to buy more equipment. The best you can hope for is build a reputation and get investors or prove the concept that you can stay aflot long enough to get a significant loan.

So if you are going to dream, dream really big and get some damn real money and don't think of starting of with anything smaller than a 10 bbl brew house if you really want to make it for real. $34K is a good start, but it ain't nothin', really.
Title: Starting a brewery
Post by: In The Sand on March 03, 2013, 01:53:46 PM
Sam Calagione started on a 10-gallon system. Just sayin ;-) obviously not ideal
Title: Re: Starting a brewery
Post by: nateo on March 03, 2013, 02:08:00 PM
Sam Calagione started on a 10-gallon system. Just sayin ;-) obviously not ideal

He's also incredibly good at marketing and self-promotion. Yeah, life is easier if you have a lot of talent. If you don't, you'll need help.
Title: Starting a brewery
Post by: In The Sand on March 03, 2013, 02:27:41 PM
Sam Calagione started on a 10-gallon system. Just sayin ;-) obviously not ideal

He's also incredibly good at marketing and self-promotion. Yeah, life is easier if you have a lot of talent. If you don't, you'll need help.

Of course he had to work his butt off to operate on that small of scale and prove the concept.
Title: Starting a brewery
Post by: Pawtucket Patriot on March 03, 2013, 02:34:36 PM
IIRC, Dogfish Head was also the first brewpub in Delaware, so while it was a risky venture, there was some serious market novelty with Sam's idea. I think it may have been far more difficult to get off the ground with such a small system under today's market conditions.
Title: Re: Starting a brewery
Post by: nateo on March 03, 2013, 02:47:11 PM
IIRC, Dogfish Head was also the first brewpub in Delaware, so while it was a risky venture, there was some serious market novelty with Sam's idea. I think it may have been far more difficult to get off the ground with such a small system under today's market conditions.

Yeah, that was like, 20 years ago. A lot has changed since then. If people still want to start with a 10-gallon system, go nuts, but don't say no one warned you.
Title: Re: Starting a brewery
Post by: Jimmy K on March 03, 2013, 04:01:33 PM
Sam Calagione started on a 10-gallon system. Just sayin ;-) obviously not ideal
in 1995.  He has a lot of marketing talent and he was extremely lucky with his timing. Craft beer was a rocket on the launchpad then - now the rocket is flying at warp 5 and you have to catch it to get onboard. There is a lot of competition.
Title: Re: Starting a brewery
Post by: nateo on March 03, 2013, 05:35:00 PM
I remember some scrappy Pilgrims who founded a whole new country with a 5-gallon kettle and a lot of pluck. You can do it too!
Title: Starting a brewery
Post by: In The Sand on March 03, 2013, 06:35:00 PM
I remember some scrappy Pilgrims who founded a whole new country with a 5-gallon kettle and a lot of pluck. You can do it too!

Hahahaha! All you need is motivation!!
Title: Re: Starting a brewery
Post by: tschmidlin on March 03, 2013, 08:06:45 PM
You can still start with 10 gallon batches if the circumstances are right, and if you're lucky you might be successful.  Mic, you use a 10 gallon system, right?  Another local place started with 15 gallons less than 6 months ago, and upgraded to 1 bbl shortly thereafter.  But the common feature of both of these breweries is they are on property where the owners live, so there is no additional rent to pay for the brewery.  That makes a really big difference.

Every pro brewer I've talked to says they would not start with less than a 10 bbl system, and get the biggest they can afford.  I know one in planning that was a 5 bbl system with 10 bbl fermenters, but then he's opening a restaurant.

Then again there are three new nanos opening in Ballard.

Running a 2 bbl system, we've had our problems - the current problem is a lack of kegs.  I've got 5 bbls of beer ready for packaging, and only 2.5 bbls of kegs to put it in.  We have 18 kegs, as of Friday 6 are tapped, 5 are empty, and 7 are backups.  We have people interested in buying our rootbeer and putting it on tap at their restaurants, but no kegs to put it in.  We have a guy who wants to put our coffee porter on tap in all 6 of his restaurants, but no kegs to give him and even if we did I doubt we could keep him supplied when we only make 2.5 bbls at a shot.  With our existing equipment we max out at 15 bbls per month and that is if I am doing it full time.  That is a tiny, tiny amount of beer.  Since I can't quit my other job (health insurance) my time becomes the next limiting factor after kegs, so realistically we can do 7.5 bbls per month.  Even doing 15 bbls per month, figure out what you can sell each keg for (we can't discuss that here), then subtract all of the costs - ingredients, fuel, CO2, electricity, rent, etc, how much is left?  How much of that do you need to reinvest to grow the business?  How much is left after that?

We are lucky that we have 3 retail outlets (2 serving right now), since we make a lot more per ounce selling it by the pint than as kegs.  But it's still not enough, especially when you consider that ice cream sales are pretty low during the winter.  We need a bigger system.
Title: Re: Starting a brewery
Post by: mpietropaoli on March 04, 2013, 04:44:51 AM
Really, really really really happy I came upon this thread.  I have read through each and every post a few times.  Sorry in advance for the long post, but this has been plaguing my mind for a long time.  Maybe I should have made this a separate post. 

<inhale>

Re: me - I am in a strange place with beer.  I have brewed just shy of 50 5-gallon batches.  I have become decent at it.  Haven't won a comp yet, haven't even placed other than hedonistic comps.  But I make good beer.  I know how to control cold-side and fermentation.  I know how to pitch the right amounts of yeast.  I like to think I can tweak a recipe.  I make good beer and I spend ALL my free time reading about, talking about, thinking about, and (oh yeah) writing about beer on forums like this.  I just took my BJCP tasting exam, I have brewed 10 batches so far in 2013.  I have had an appointment cancel multiple times and have brewed a batch with the 'found' time.  I've actually left work on a slow day to brew.  I have a few friends (free spirited types) who tell me I should quit being such a pragmatist and 'work in beer'.  I spend the majority of my spare energy (the most VALUABLE of commodities in my mind) on it. 

I have an undergrad degree in finance, training from a top 5 commercial bank, a masters degree in real estate finance, 10 years experience in banking, a year and a half of law school (one of the biggest, if not the biggest scam out there), and a good, steady job that pays well above the median salary and allows me and my wife some nice luxuries.  I know I can do just about anything, its just a question of where I want to deploy my energy and if I have the balls to do it.  I have seen plenty of startups fail, have liquidated plenty of them, and I know selling beer is a hell of a lot different than brewing beer for and enjoying it with one's family and friends.  Yet it still haunts me that I should be spending my life doing something surrounding this.  I have an opportunity to move back into a business development role at my employer and get my company to pay for my wife and I to move back to our home town.  It would/will be a great life for us.  Yet beer still haunts me.  I can write a business plan, build a cash flow, a DCF, figure out an IRR, glad-hand/chin-wag with investors, and could go to a release party and get everyone just as psyched about beer as I am.   

Yes, there would be A/P and A/R.  Yes, there still would be licensing.  Yes, there would be keg leases, disputes with landlords, a $#!tload of grain to clean up, payrolls almost missed, sleepless nights worrying about the loan I took against my 401(k), shelf space, a $#load of competition, shelf space, capacity issues, spoilage, breakage, oh yeah, shelf space, etc etc etc.  But its beer.  And its awesome.  And we all know it. 
 
When I throw out the 'yeah, you know I really love it BECAUSE its recreation and NOT work' to my friends (one of whom is in the wine industry), the response is "that sounds like someone who has never really done what they loved for a living".  I suppose there is something to the notion that as soon as your 'love' becomes 'the way you put food on the table', it changes.  Maybe not for the better.  But I don't know that for sure.  And I won't know until I try to make it my life.  Maybe I'll never know. 

Re:  Financing Options (this is actually where I might add some value and not just vent my frustrations - People have said it well on this thread prior to my chime in.  As Steve Hindy from Brooklyn said (paraphrase), "don't let lack of money stop you from pursuing your dream.   There is money out there, but you need to be able to tell your story.  You can find the money.  But you need to be willing to work.  Work harder than you have ever imagined, but you will have to give some things up". 

Debt is cheaper on paper than equity.  However debt has its dangers too.  In my job, I live this everyday.  I manage 'distressed' commercial relationships for a super-regional bank (its been a 'growth industry' since 2008).  Before that, I was a small business lender.   Standard 'shelf' Laser-pro bank documents (note, guarantees, security agreements) essentially allow the bank (ie someone like me now) to come in and nuke your business if we want to and/or are the least bit uncomfortable.  Its not because banks are heartless, banks (like breweries) just operate on razor-thin margins and are in the business of managing risk, as opposed to selling suds.  Now, typically,  MY BANK does not operate that way (though every bank is different and could give far different top-down directives based on their need to maintain capital levels and NOT charge-off/write off bad loans).  1. it gives us a bad reputation in the community, 2. It usually makes sense to work with a business before you liquidate it.  That being said, banks don't have enough people in my role these days.  I am managing way more relationships than I should.  Which MEANS that it is more efficient for me to just EXIT a relationship (ie have a UCC Article IX creditor sale of my collateral, which could be fermenters, kegs, brite tanks, mash tuns, etc. and sue the principals for whatever is left) than let them limp along on forbearance agreement after modification agreement after loan extension.  Banks essentially need to be 'right' on 99.5% of their loans to make money.  Banks (despite their ad campaigns) are NOT your business partner.  They are banks and they need to protect their depositors' dollars. 

Re: All the people on here who are DOING WHAT THEY LOVE  Thanks!  You guys are what give the rest of us spineless working stiffs hope.  Don't get me wrong, I like what I do and love the people I work with.  But I have to believe that if I actually summoned the stones to sacrifice a bit of lifestyle to do what I really love, it would be a different life I would lead.  I am not sure if I could live with the 'entrepreneur's night-sweats', but part of me would sure love to find out. 

Re: The BUSINESS of beer  My wife's 2nd cousin is a sensory analyst/QC guy/Doemens-academy-certified brewer who now works for a top 5 craft in QC.  I had an hour conversation with him a few months ago about how it might not be the worst idea to 'keep brewing right where it is' in my life.  Beer is 'heavy and cheap' as he said.  Its competitive as hell.  Maybe I'm better off hanging out and ENJOYING beer at a beer release party instead of pushing it to vendors. 

I understand that every fly fisherman can't become a guide on the big blackfoot, and everybody who loves to get drunk and play golf with his buddies can't become David Feherty.  But I've had a lot of hobbies, and none of them have infected me like this one. 

re: the OP:  Do it :-)

Sorry for the rant and thanks for reading if you haven't fallen asleep.

<exhale>
Title: Re: Starting a brewery
Post by: Jeff M on March 04, 2013, 05:08:00 AM
^
A spirited and passionate Sum up of how many of us feel. I applaud your ability to put it to text.
Title: Starting a brewery
Post by: majorvices on March 04, 2013, 12:43:33 PM
IIRC, Dogfish Head was also the first brewpub in Delaware, so while it was a risky venture, there was some serious market novelty with Sam's idea. I think it may have been far more difficult to get off the ground with such a small system under today's market conditions.

Exactly. And, as Tom said, if you have your brewery on your property or some arrangement like that then circumstances are going to be different. But IIRC Mic was about 2 months into the 10 gallon system thing and was looking at going 1 bbl. And there in lies the problem. Every thinks they can start out selling their homebrew but then suddenly you are faced with the reality of how tiny that amount of beer really is. As long as you are doing it just for the love of it and don't plan on making money then you can make all the 10 gallon batches commercially you want. I am far more greedy with my time and beer. If I brew a 10 gallon batch I want to be sure that most of it goes primarily in my belly. :) But also, unless you have a specific agreement with an establishment don't expect pubs/restaurants to keep your beer on tap if you can not supply demand. Bars/Restaurants don't like having down taps, it's a waste of money. You may find that 10 gallons a week is not enough to afford one tap at one pub.

FWIW I'm not trying to squash anyone's dreams. Just giving some reality and perspective from hard learned experience.
Title: Re: Starting a brewery
Post by: hopfenundmalz on March 04, 2013, 01:20:45 PM
Sam Calagione started on a 10-gallon system. Just sayin ;-) obviously not ideal
Larry Bell started in 1985 with a 15 gallon soup pot. Sam had a Sabco Brew Magic.

There is the story (maybe from an interview) from Larry Bell that after years of brewing he went to a lawyer to start the procedure of bankrupcy. The lawyer said it would cost $1500 dollars to do it. Larry said if he had $1500 he wouldn't be there, and left the office. May not be true but I like the story.

Founders was at the point the creditors were about the foreclose. They went out and bought a set of bolt cutters just in case the doors were padlocked (that would have been more trouble I think). They still have those as a reminder of where they were.

It is a little harder than"

1. Open Brewery
2. .......?
3. Profit!



Title: Re: Starting a brewery
Post by: nateo on March 04, 2013, 02:56:22 PM
Debt is cheaper on paper than equity.  However debt has its dangers too. . .  Banks (despite their ad campaigns) are NOT your business partner.  They are banks and they need to protect their depositors' dollars. 

Let's say you have very little money to invest, like many of the other posters here. You get investors to fund 90%+ of the brewery. You run the brewery. The brewery doesn't do well under your leadership. How long will your business partners keep you in charge of the brewery, before they force you out?

The craft brewing industry in the US is mature. Sam Calagione and Larry Bell were like Bill Gates and Steve Wozniak in the '70s. There was no personal computing industry, so they made one. In a nascent industry you can start in your garage. In a mature industry, the barriers to entry are much higher and the potential profits are much smaller.

If you really want to start a craft brewery on the cheap, I'd look at doing it in a dynamic economy with a lot of room to grow, but not much of a craft beer industry, like Brazil. I've seen a few guys on the German homebrew forums do that, because the liquor laws there are very friendly to start-ups, and $20k USD goes a long way.
Title: Starting a brewery
Post by: majorvices on March 04, 2013, 04:24:36 PM
Fwiw in certainly not implying starting tiny isn't doable because I'm testament that it is. All I'm saying is be prepared for a lot of work and no money. It wasn't until ver recently, like the last 6 months, that I felt like I was really running a brewery I could feel proud of, and not because of the beer quality but because of the amount of labor I was investing for such an insignificant amount of beer but if you Re willing to put in the labor - and you have solid recipes and make great beer - you can make it work.
Title: Re: Starting a brewery
Post by: tonyp on March 04, 2013, 09:22:53 PM
I've been in the Graphic Design/Marketing/Branding Industry for over 20 years and I can tell you that no matter how good your product is or how much business management experience you have, without an interesting story or theme you will never be as successful as the next guy with a great idea.

I'm absolutely positive that 90% of the people on this forum, given the chance, could make excellent beer on a professional system, but if you can't sell it, it makes no difference.

What most people forget is that breweries aren't in the beer making business, they are in the beer selling business and that requires more than just a good recipe or being a good business manager.

Dogfish is actually a great example of this. Not only did he start with a 10gal system but he started with a great idea. Their motto "Off-centered ales for off-centered people" is absolutely brilliant. In one sentence he describes the company philosophy and the market which they serve. When you hear the name Dogfish Head what's the first thing that comes to mind?  I instantly think "uncommon or over-the-top beers with uncommon ingredients". Mission accomplished.

I believe when you have the notion of starting a brewery just saying "I wanna start a brewery" isn't enough. Having a business plan isn't enough. Making a good product isn't enough. I believe that anyone starting a business, any business, needs to atleast answer the following questions before you pull the trigger:

Who are we? What's our "story"?
What do we stand for?
Why are we doing this?
Who are our customers?
Does our product fit our theme?

If you don't have a solid, well-thought out answer for these questions you are doing yourself a huge disservice before you even begin.

tl;dr
1) Make a great product.
2) Have a good business plan/management.
3) Have a solid marketing/branding concept.

Just my 2 cents...
Tonyp
Title: Starting a brewery
Post by: majorvices on March 04, 2013, 11:40:29 PM
Agree, you have to have strong marketing. don't know that I agree that "any brewer on this board could make great commercial beer... Just sayin'. ;)
Title: Re: Starting a brewery
Post by: a10t2 on March 04, 2013, 11:59:02 PM
The first thing I think of when I hear the name Dogfish Head IS "marketing".  ;)
Title: Re: Starting a brewery
Post by: tonyp on March 05, 2013, 12:37:40 AM
Agree, you have to have strong marketing. don't know that I agree that "any brewer on this board could make great commercial beer... Just sayin'. ;)

hehe that's why i said 90%!! :D
Title: Re: Starting a brewery
Post by: richardt on March 05, 2013, 03:56:11 AM
I loaned "brewing up a business" by Sam C. to a friend and never got it back. http://www.google.com/imgres?q=sam+calagione+brewing+up+a+business&hl=en&sa=X&rlz=1T4ADSA_enUS358US458&biw=1212&bih=648&tbm=isch&tbnid=ixRFYjxLDV7-YM:&imgrefurl=http://www.amazon.com/Sam-Calagione-Brewing-Business-Entrepreneurship/dp/B004M1K8UU&docid=H33yYThV0bAF-M&itg=1&imgurl=http://ecx.images-amazon.com/images/I/51AmvtaZuTL._SL500_SS500_.jpg&w=500&h=500&ei=lms1UYmqH4aw8ASy54GYCQ&zoom=1&ved=1t:3588,r:2,s:0,i:88&iact=rc&dur=419&sig=115239486528409948087&page=1&tbnh=201&tbnw=201&start=0&ndsp=20&tx=83&ty=102 (http://www.google.com/imgres?q=sam+calagione+brewing+up+a+business&hl=en&sa=X&rlz=1T4ADSA_enUS358US458&biw=1212&bih=648&tbm=isch&tbnid=ixRFYjxLDV7-YM:&imgrefurl=http://www.amazon.com/Sam-Calagione-Brewing-Business-Entrepreneurship/dp/B004M1K8UU&docid=H33yYThV0bAF-M&itg=1&imgurl=http://ecx.images-amazon.com/images/I/51AmvtaZuTL._SL500_SS500_.jpg&w=500&h=500&ei=lms1UYmqH4aw8ASy54GYCQ&zoom=1&ved=1t:3588,r:2,s:0,i:88&iact=rc&dur=419&sig=115239486528409948087&page=1&tbnh=201&tbnw=201&start=0&ndsp=20&tx=83&ty=102) But, I digress.
In that book, I recall him recounting the fact that his "board of directors", which included his father and other experienced businessmen, basically telling him that he wasn't making money as a brewer, and that the restaurant, which, along with his friend/chef, he used to fund his business during the early days, basically funded his brewery venture for quite a while.  The BOD called him on that.  Eventually, his Sam and his friend parted company.  A friendship was lost.  Business is brutal.
Title: Re: Starting a brewery
Post by: mpietropaoli on March 05, 2013, 12:23:59 PM
Bottling Success at The Brooklyn Brewery is another great account.  Alluded to it in my earlier 4 page post.  Combo of legendary marketing/branding, luck and hard work.
Title: Starting a brewery
Post by: majorvices on March 05, 2013, 01:51:19 PM
Agree, you have to have strong marketing. don't know that I agree that "any brewer on this board could make great commercial beer... Just sayin'. ;)

hehe that's why i said 90%!! :D

There's some damn good brewers on the forum, don't get me wrong, but I don't even believe 90% of commercial breweries out there are making "great commercial beer"....
Title: Re: Starting a brewery
Post by: nateo on March 05, 2013, 02:20:56 PM
There's some damn good brewers on the forum, don't get me wrong, but I don't even believe 90% of commercial breweries out there are making "great commercial beer"....

It's like how 90% of people who work at music stores aren't virtuosos.
Title: Starting a brewery
Post by: Pawtucket Patriot on March 05, 2013, 02:25:52 PM
There's some damn good brewers on the forum, don't get me wrong, but I don't even believe 90% of commercial breweries out there are making "great commercial beer"....

It's like how 90% of people who work at music stores aren't virtuosos.

You've obviously never set foot in Guitar Center on a Saturday afternoon!  #bigtimesarcasm #wankfest
Title: Re: Starting a brewery
Post by: nateo on March 05, 2013, 02:29:10 PM
You've obviously never set foot in Guitar Center on a Saturday afternoon!  #bigtimesarcasm #wankfest

Are you saying you don't like hearing 12 different people fumbling through "Stairway to Heaven" on out-of-tune electric guitars?
Title: Re: Starting a brewery
Post by: micsager on March 05, 2013, 03:38:39 PM
Hi everyone,

I have been home brewing for over 15 years and have been competing with great success for the last 4. I love it. I want to go pro but I am running into a capital fund issue. How does one raise the capital in such a tough lending market that we are in? By the way I have no money to put into the business at the end.

We opened our brewery with very little capital. Almost none.  But, of course it's jsut a hobby brewery.  But we are selling beer faster than we can brew it, and after just 6 months, will be tripling capacity soon. 

We did enjoy a confluance of good things though.  Already had a building.  We are not in an incorporated city, and had a fairly decent homebrew system.  (Blichmann Top Tier)

Sure, we may never really compete with the Hale's, Black Raven's, Fremont, or Georgetown, but we are having fun and making money.  (not enough to quit our day jobs though, LOL)   
Title: Re: Starting a brewery
Post by: mpietropaoli on March 27, 2013, 11:34:03 PM
Debt is cheaper on paper than equity.  However debt has its dangers too. . .  Banks (despite their ad campaigns) are NOT your business partner.  They are banks and they need to protect their depositors' dollars. 

Let's say you have very little money to invest, like many of the other posters here. You get investors to fund 90%+ of the brewery. You run the brewery. The brewery doesn't do well under your leadership. How long will your business partners keep you in charge of the brewery, before they force you out?

The craft brewing industry in the US is mature. Sam Calagione and Larry Bell were like Bill Gates and Steve Wozniak in the '70s. There was no personal computing industry, so they made one. In a nascent industry you can start in your garage. In a mature industry, the barriers to entry are much higher and the potential profits are much smaller.

If you really want to start a craft brewery on the cheap, I'd look at doing it in a dynamic economy with a lot of room to grow, but not much of a craft beer industry, like Brazil. I've seen a few guys on the German homebrew forums do that, because the liquor laws there are very friendly to start-ups, and $20k USD goes a long way.

I agree with your point about dilution.  If you have nothing other than passion to bring, you have to be the guy that is the spirit and heart of the business.  When the other partners want to know what you bring, it is converting that Miller Lite drinker at a local bar to try your beer.  And getting that drinker to like you.  And tell his friends about you. 

Re: Wozniak.  I agree.  However, Google was not the first search engine.  Altavista.  Webcrawler.  YAHOO.  Why did Google win?  Because they were more creative, innovative, and could execute better than the competition. 

BTW, just got back from Italy.  Craft beer is on fire over there.  Not sure about regs/raw mat pricing/lease rates, etc.  But if you opened a REALLY cool place in one of the college towns (Florence, maybe Siena), and executed well, you could absolutely kill it.
Title: Re: Starting a brewery
Post by: newrocset on April 06, 2013, 07:10:18 AM
I'm about to jump in to an offer to operate the brewing end of a brewpub, which I'm both apprehensive and excited to do.

This venue is going to seat 125.  It will be in a college town.   We will only be able to serve 3.2ABW beers due to our current statutes.

I am thinking we will need a 7 barrel system to keep 4-5 different beers on tap.  Is this sufficient?  Can I do it with less?  Approximately, how much space would I need for a system this size?

Also, the location is about an hour from my house, but I get 7 straight days off of work per month, plus a few days scattered throughout.  Does it seem realistic for me to manage the brewing operations given my work schedule?

Title: Re: Starting a brewery
Post by: tschmidlin on April 06, 2013, 08:34:29 AM
I'm about to jump in to an offer to operate the brewing end of a brewpub, which I'm both apprehensive and excited to do.

This venue is going to seat 125.  It will be in a college town.   We will only be able to serve 3.2ABW beers due to our current statutes.

I am thinking we will need a 7 barrel system to keep 4-5 different beers on tap.  Is this sufficient?  Can I do it with less?  Approximately, how much space would I need for a system this size?

Also, the location is about an hour from my house, but I get 7 straight days off of work per month, plus a few days scattered throughout.  Does it seem realistic for me to manage the brewing operations given my work schedule?
It's really hard to say.  Do you have any sales projections?  A 7 bbl system is "big enough" for huge sales, given enough fermenters and the desire to brew a lot, but sales drive those requirements.

Also, how will it be packaged?  Are you serving from kegs or brights?  If kegs, what is the throughput on the keg washer?  How fast can you transfer to kegs/brights?  Cleaning/filling kegs is a huge time suck.

With your work schedule it might be hard to manage, it all depends on what you mean by "manage the brewing operations".  Brewing a batch of beer is only a small part of that job.  Who will monitor fermentation?  Package the beer?  Clean everything?  Fix stuff when it breaks and you are at your other job?  Order stuff?  Fill out the proper forms?  Pay taxes and bills?

I don't know all of the details obviously, but I'm leaning towards "not realistic" unless you have dependable help.
Title: Re: Starting a brewery
Post by: a10t2 on April 06, 2013, 03:20:49 PM
Also, the location is about an hour from my house, but I get 7 straight days off of work per month, plus a few days scattered throughout.  Does it seem realistic for me to manage the brewing operations given my work schedule?

This isn't a judgment of your abilities at all, but if your partner(s) are considering running a 125-seat pub without a full-time brewer, I would question how well they know the industry. By "full-time" I mean 8-12 hours a day, 5-7 days a week. If you're doing any filtering and/or packaging, you'll probably need a second employee, at least part-time. So I guess the short answer is that while there may be enough raw hours available in your schedule, you can't bend the brewing to your schedule. Doing a one-month turnaround on 10°P beers means moving not much product through a lot of very expensive stainless. And the two-hour commute just sounds painful. What if you need to crash a fermenter? Will you drive two hours to push a button? Just an example.

This sounds like it could be a great opportunity, but I don't see any way to be successful without quitting your day job.
Title: Re: Starting a brewery
Post by: newrocset on April 06, 2013, 11:40:23 PM
Thanks for the responses.  This all came about at an event to promote my wife's business.  We sell small batch beer kits and a vendor told me he is looking for a brewer for a restaurant/brew pub that he wants to open this fall.  He has a business plan and investor and is currently looking for a space.  I will meet with him next week to explore further and give him an idea on how much floor space will be needed for a brewery in the restaurant.  Here are my thoughts:
1.  Beer will be served only at the brew pub.  It will not be packaged for distribution.  I would like to serve it directly from the bright tanks, but will probably need to keg for storage purposes.
2.  I will need an assistant or two.  Hopefully someone who knows brewing, but being in a college town, maybe I'll get an engineering or chemistry major that is hungry for a cool side job.
3.  I don't know commercial equipment, but I'm positive I will learn it pretty fast.  Hopefully we will secure a space and system so I can start learning it while I do the paperwork to make my brews legal.
4.  Sales projections are unknown as of today, but I'm guessing it will be pretty busy during football season...at least I hope so!
5.  I want to start with 4 low point ales on tap.  I'm guessing I can brew each one on the first of my 7 days off.  The question is how much do I want to brew?  If I can get away with a system smaller than 7 barrels, I will, I'm just worried about keeping up with the demand.  I also have scattered days off throughout the month where I can attend to operations.
6.  There is no way I will quit my day job unless the brew pub becomes incredibly lucrative...a 2 hour round trip commute won't kill me if it's a path to recognize my goals...I'm not getting any younger!
7.  My long term plan is to open another brew pub in my home city and a off-premises brewery between the 2 cities.  This will allow me to brew high point beer and distribute off-site.

This is basics of what I'm planning.  Any input is appreciated as there is a lot of knowledge and talent in this forum!
Title: Re: Starting a brewery
Post by: tschmidlin on April 07, 2013, 01:01:18 AM
1.  Kegging for storage is not a good plan if you can serve from brights.  Kegging a little for long term aging is fine.

2.  I think you are under estimating how much work there is and the amount of training and supervision people need.

3.  If the paperwork isn't done, you cannot legally make beer.

4.  It will be good to be busy, but that's a lot of beer you need to make.  With 125 seats, how many beers per seat per day do you think you'll sell?  1?  3?  10?  Do some math - for example let's make up some numbers . . . if you will be open for 8 hours a day, and seats turn over every 1 hour, and the average patron drinks 1 pint, that works out to 125*8*1*1, or 1000 pints per day.  That's roughly 4 bbls of beer per day, 30 days in a month means 120 bbls of beer per month.  On a 7 bbl system you need to brew 18 batches per month to have enough beer.  Each batch takes 2 weeks, so you need 9 fermenters to handle that amount.  7 bbl of beer is a huge amount from a homebrew perspective, from a professional perspective it is tiny.  Maybe my numbers are wrong, maybe you'll only sell half that - you still need 9 batches per month, and 5 fermenters.  The amount of beer you will sell to get away with 4 @ 7 bbl batches per month works out to ~231 pints per day.  That's less than 2 per seat, which makes me question why you would make beer there in the first place, you're not making enough money on beer to justify the space and expense.

5.  You think you can brew 4 batches in one day?  Or am I reading that wrong?  Just consider how much power it will take to heat enough water fast enough to do 4@ 7 bbl batches in one day.  Are you planning on brewing with extract?  Because milling takes time, mashing takes time, transfers take time, boiling, chilling, etc.  Problems also take time, and there are usually problems of one sort or another.  Equipment breaks or doesn't perform as expected, etc.  And if you are brewing 4 batches in one day you need 4 fermenters, which takes up space, and hopefully once they are done they won't sit empty until the following month.

6.  Until you start driving the 2 hours per day for 2 hours worth of work and start to hate it.  And if you are looking for incredibly lucrative work, a brewpub is not your best bet.

7.  It's good to have goals, I hope you achieve them.

I'm not trying to dissuade you, just trying to give you a realistic point of view so you can make a good decision.  I think Sean is right, a 7 bbl system for a 125 seat place is a full time+ job if the place is going to be successful selling beer.
Title: Re: Starting a brewery
Post by: klickitat jim on April 07, 2013, 02:02:55 AM
This is a great thread. It seems to me that working in a commercial brewery would be the first step. No out lay and a great way to see if you like it as a job.

"Freedom is temporary unless you are also Brave!" - Patriot

Title: Re: Starting a brewery
Post by: newrocset on April 07, 2013, 04:08:44 AM
What if I got a 7 barrel system, brewed one house beer, then supplemented with a craft beer menu?

Doing the math gives me 57 pints/day with one brew session per month.  I could get away with one fermenter and one bright tank, right?  We would not be making much money on the house brew, but it would create a draw, which is really what we are going after.  I think this would make us less dependent on the brewing side of the restaurant, cut our costs on ingredients and labor, and help us focus more on quality rather than quantity.  Sound like a decent business model?

Also, I discovered I would have a 90 minute commute rather than 1 hour...yikes! :o...however it would still be worth it if I got to practice on professional equipment and became a licensed brewer - as long as I only need to make the commute every few days, I'd be quite happy.
Title: Re: Starting a brewery
Post by: klickitat jim on April 07, 2013, 04:48:40 AM
Might be interesting from a customer point of view to release one a month, like first Fridays, there till its gone. Different style each month. Maybe to fit the season. It would make me want to arrange date night to go try the new one.

"Freedom is temporary unless you are also Brave!" - Patriot

Title: Re: Starting a brewery
Post by: tschmidlin on April 07, 2013, 06:43:23 AM
What if I got a 7 barrel system, brewed one house beer, then supplemented with a craft beer menu?

Doing the math gives me 57 pints/day with one brew session per month.  I could get away with one fermenter and one bright tank, right?  We would not be making much money on the house brew, but it would create a draw, which is really what we are going after.  I think this would make us less dependent on the brewing side of the restaurant, cut our costs on ingredients and labor, and help us focus more on quality rather than quantity.  Sound like a decent business model?

Also, I discovered I would have a 90 minute commute rather than 1 hour...yikes! :o...however it would still be worth it if I got to practice on professional equipment and became a licensed brewer - as long as I only need to make the commute every few days, I'd be quite happy.
Supplementing with other beer is good as long as you are legally allowed to do it under your license.  With one fermenter and one bright you could do two batches per month, a much better use of space.  Your fermenter needs to be a uni tank, otherwise you can't carbonate in it, and then you ave to wait for the beer to carb in the bright.

But keep in mind, you will make less money selling other people's beer than selling your own, even if you are making 7 bbl batches.  Unless you are getting the equipment dirt cheap somewhere, you won't make your money back on the brewing gear for a very very long time making/selling one batch per month, especially with all of the additional space required, licensing, taxes, etc, not just the fees but the time spent managing that stuff.

I don't think a brewery doing one beer a month is much of an additional draw compared to just serving good craft beer.  If you left out the brewery you could add a bunch of seating and sell more stuff, assuming the place fills.  It depends on what else is in the area, you know better than I do.

Re: becoming a licensed brewer . . . what is that?  You don't need a license to make beer, the brewery needs a license to sell it.

Personally I think it's a terrible idea, but then I really hate commuting.  If this place was 15 minutes from your house I'd say go for it.  But with 3 hours of driving to do anything?  No, not for me.
Title: Re: Starting a brewery
Post by: nateo on April 07, 2013, 12:58:19 PM
Personally I think it's a terrible idea

That's really all that needs to be said. I completely agree.

Edit: I guess I should say why I agree. If you want to thrive in life, you need more than a passing familiarity with your core subject. It takes mastery to be successful. Mastery means throwing yourself at something completely, not half-assing it. I've heard the rule-of-thumb is that it takes 10,000 hours of experience to achieve mastery. You can do the math on that to figure out how long it'd take to get there, if you only do it part-time.

Some people can do the bare minimum and scrape by, but if you go that route, you're really counting more on luck than anything else. I don't like to gamble, so that's not a route I'd take.

If, however, you just want to play with professional equipment: take the job, play with the sweet gear, don't invest any of your own money, and enjoy it for the 3-4, maybe 6, tops, months the brewery stays in business.
Title: Re: Starting a brewery
Post by: newrocset on April 08, 2013, 12:22:37 AM
I'm not doing this so I can fart around, and play with professional equipment, but I would like to learn how to use it.  I realize the seriousness of it, the risk, the hard work, the learning curve, and the dedication needed to make this work....It would be a helluva lot easier for me to sit back with a sweet homebrew system and play with that all day, but I know that I have the ability to do something more.

I posted on this forum because I am trying to conduct serious research on this and I value the feedback.  I have read each and every post on this forum in my effort to develop an understanding of what it takes to make a good thing happen for me and the craft brewing community in my state.  In fact brewpubs suck in Oklahoma, point blank.  They are limited to serving 3.2 beer so they constantly try to make a stylistically high point point beer into a low point beer and it never works.  I would like to change that by showcasing the wonderful low point beers that are available amongst the styles.  Hopefully the laws here will change, but right now we gotta work with what we got.

It would be great to able to ditch my job to be a professional brewer.  I can't afford to that now, but I can educate myself.  I apologize for my ignorance re: equipment and methods of a professional brewery, but again, that's why I'm here.

I really, really appreciate the feedback I am receiving and I take your comments seriously.  It's really helping clear up some issues I was foggy on and helping me see those avenues of research that I have failed to see before.  So if it's Okay with others, I will continue to post ideas and questions in an effort to receive some valuable constructive criticism  ;)
Title: Re: Starting a brewery
Post by: klickitat jim on April 08, 2013, 12:49:53 AM
Fine by me. Its good to see you still want to do it after being told you can't or shouldn't. All things worth doing are impossible or impractical.

"Freedom is temporary unless you are also Brave!" - Patriot

Title: Starting a brewery
Post by: denny on April 08, 2013, 12:57:36 AM
What if I got a 7 barrel system, brewed one house beer, then supplemented with a craft beer menu?

Doing the math gives me 57 pints/day with one brew session per month.  I could get away with one fermenter and one bright tank, right?  We would not be making much money on the house brew, but it would create a draw, which is really what we are going after.  I think this would make us less dependent on the brewing side of the restaurant, cut our costs on ingredients and labor, and help us focus more on quality rather than quantity.  Sound like a decent business model?

Also, I discovered I would have a 90 minute commute rather than 1 hour...yikes! :o...however it would still be worth it if I got to practice on professional equipment and became a licensed brewer - as long as I only need to make the commute every few days, I'd be quite happy.

I think you're fooling yourself is you think having one house beer will be a draw.
Title: Re: Starting a brewery
Post by: nateo on April 08, 2013, 01:46:40 AM
All things worth doing are impossible or impractical.

No, plenty of successful businesses have detailed, feasible plans. But plenty of failed businesses were impossible or impractical. It's not an exact correlation, but like I said, I wouldn't spend any of my own money on it.

I don't want to sounds like I'm exclusively being a downer. I'd be happy to provide detailed feedback when you get to the capital and operating budgeting stage. "Business" is a technical skill, just like brewing, and I'm always happy to share my skills with others.
Title: Starting a brewery
Post by: majorvices on April 08, 2013, 02:40:06 AM
All I'll add is, after opening a brewery in 2010 and doing this full (plus) time since, it's way more work than you think it will be. If you love brewing it's also totally worth it. But to make it work you really need to give up your day job and dedicate yourself 100%. Quite simply, anything else just won't work.
Title: Re: Starting a brewery
Post by: anthony on April 08, 2013, 02:47:08 AM
I would also think long and hard about dedicating 100+% of yourself to something like this without some form of ownership to not only give you incentive but to insulate yourself against strange choices management might make in a vacuum otherwise.

Also, you mention that this person has a business plan but no sales projections. I'm sorry but that isn't a business plan.
Title: Re: Starting a brewery
Post by: nateo on April 08, 2013, 03:09:17 AM
Also, you mention that this person has a business plan but no sales projections. I'm sorry but that isn't a business plan.

Agreed. You can't even begin to evaluate whether it's a good idea or not to start any project until you have a good idea of what your revenue will be.
Title: Re: Starting a brewery
Post by: Thirsty_Monk on April 08, 2013, 03:22:07 AM
I have been reading this for a few days and I will add my 2 cents to it.

Operating 7 BBL brewery is a full time job.
You need to brew more then one beer.
More beers you have more tanks you need.
You can fit brewing equipment, fermenters, cooler... into 1000 sq ft space. You also need to have additional space for supply like grain, hops, kegs...

Brewpubs are mostly where people go to eat. If you have 125 seats how much beer you will sell a week?
You need to have your sales analysis or at least to understand local market. If you are still not sure excise tax records are public. Check the close by brewpubs how much are they selling. I think in well run brewpub can sell 15 to 30 BBL a month.
Remember. Brewpubs make their money on food.

Now the hard questions you have to answer to yourself.
Who are you partnering with?
Do they have restaurant experience?
Are they willing to spend $0.5 mils on brewing equipment (may be more)?
Why just not to get someone else beer and forget the cost of initial investment and ongoing expense?

And again it is a full time job.

Good luck.
Title: Re: Starting a brewery
Post by: newrocset on April 08, 2013, 04:07:51 AM
In all honesty, this came about when a guy came up to me last week during an event at our State Capitol.  My wife and I own a company that makes soaps w/hops and malt, dog treats made of spent grains, and other bath and pet products.  We also launched a small batch brew kit line that we are currently working to promote.

Anyway, this guy who works for the dept. of ag. told me he was looking for a brewer for this restaurant he wants to open.  I told him I'm interested, and he told me he'd be willing to give me up to 50% ownership.  He said he has a business plan, but I don't how detailed it is.  I'd have to look at it.  He seems like a good guy with a lot of passion for good food.  I don't think he knows too much about beer, and has no clue what it takes run a brew pub.  So that's why he's looking for a brewer.  I really don't know where this is going to go at this point, but I do want to steer him (and myself) in the right direction.

As far as I'm concerned, this is an excercise in figuring out what it would take to open a successful brewpub operation.  The state of Oklahoma is just beginning to see an emerging craft beer scene, but the brewpub scene sucks.  There are only a few in the state and the ones that exist are crap.  Given that scenario, this is good time to open a brew pub - as long at is can serve quality 3.2 ABW beer (as per OK statute).  I realize the challenges ahead of me are great, but I would be pretty upset with myself if I didn't try.  What sucks is the attitude among brewers in this state that 3.2 beer is no good.  I'm positive I can prove them wrong.

The least I can do at this point, is to give him an estimate of what it would cost to run a brewpub, and figure out a way to get a full-time brewer on site.  It's really kinda fun...so far!
Title: Re: Starting a brewery
Post by: hopfenundmalz on April 08, 2013, 12:21:17 PM
I have been reading this for a few days and I will add my 2 cents to it.

Operating 7 BBL brewery is a full time job.
You need to brew more then one beer.
More beers you have more tanks you need.
You can fit brewing equipment, fermenters, cooler... into 1000 sq ft space. You also need to have additional space for supply like grain, hops, kegs...

Brewpubs are mostly where people go to eat. If you have 125 seats how much beer you will sell a week?
You need to have your sales analysis or at least to understand local market. If you are still not sure excise tax records are public. Check the close by brewpubs how much are they selling. I think in well run brewpub can sell 15 to 30 BBL a month.
Remember. Brewpubs make their money on food.

Now the hard questions you have to answer to yourself.
Who are you partnering with?
Do they have restaurant experience?
Are they willing to spend $0.5 mils on brewing equipment (may be more)?
Why just not to get someone else beer and forget the cost of initial investment and ongoing expense?

And again it is a full time job.

Good luck.
Agree with this. Need to say one local brewpub does >125 bbl a month on 7 barrel system. The brewer has 2 assistant brewers. They just went to a 14 barrel system. It is a big and successful place, that has plans to open a third bar area in the basement, which explains the bigger system. These guys work their butts off, and someone is there on Saturdays. Not a part time job.
Title: Re: Starting a brewery
Post by: reverseapachemaster on April 08, 2013, 01:55:16 PM
Anyway, this guy who works for the dept. of ag. told me he was looking for a brewer for this restaurant he wants to open.  I told him I'm interested, and he told me he'd be willing to give me up to 50% ownership.  He said he has a business plan, but I don't how detailed it is.  I'd have to look at it.  He seems like a good guy with a lot of passion for good food.  I don't think he knows too much about beer, and has no clue what it takes run a brew pub.  So that's why he's looking for a brewer.  I really don't know where this is going to go at this point, but I do want to steer him (and myself) in the right direction.

I wouldn't even have a serious thought about going into business with him until I saw the business plan and knew how the equity comes in your name. I would be concerned that not only does he not know anything about beer but that he knows nothing about running a restaurant and nothing about running a business in general. If he doesn't have a solid plan and a good idea about how he is going to put it all together he's no different than every homebrewer that goes to bed at night dreaming about running a brewery.
Title: Re: Starting a brewery
Post by: nateo on April 08, 2013, 03:00:46 PM
I would be concerned that not only does he not know anything about beer but that he knows nothing about running a restaurant and nothing about running a business in general.

That was my first thought.
Title: Re: Starting a brewery
Post by: tschmidlin on April 08, 2013, 05:43:57 PM
I'm wondering if 50% ownership comes with 50% responsibility for the debt he will accrue.
Title: Re: Starting a brewery
Post by: tonyp on April 08, 2013, 05:49:01 PM
There's a local brewpub here that has a 15bbl system and they contract out the brewing to a single guy who comes in on a saturday and brews 2-3 batches a week. He has one assistant that basically just cleans up and carries grain, etc.

They usually have 3 main beers and 2-3 seasonals on tap. I don't remember how many fermenters/brights they have but i could check the next time i go in.
Title: Re: Starting a brewery
Post by: nateo on April 08, 2013, 05:54:31 PM
I'm wondering if 50% ownership comes with 50% responsibility for the debt he will accrue.

Actually, depending on how the business is set up, you could be liable for 100% of the debt. In a traditional partnership or limited partnership, the partners or general partners, respectively, are jointly and severably responsible for the entire amount of debt. If your partner is a deadbeat, your business creditors will come after your assets, and it's up to you to sue your deadbeat partner to recover your losses. If he's enough of a deadbeat, a judge could rule him "judgment proof" meaning you'll never get anything back from him.

If your state allows you to form an LLP or LLLP, that'd be a much better way to go. Make sure you're aware of the applicable laws in your state regarding liability in those situations.
Title: Re: Starting a brewery
Post by: bluesman on April 08, 2013, 06:48:32 PM
I'm wondering if 50% ownership comes with 50% responsibility for the debt he will accrue.

Actually, depending on how the business is set up, you could be liable for 100% of the debt. In a traditional partnership or limited partnership, the partners or general partners, respectively, are jointly and severably responsible for the entire amount of debt. If your partner is a deadbeat, your business creditors will come after your assets, and it's up to you to sue your deadbeat partner to recover your losses. If he's enough of a deadbeat, a judge could rule him "judgment proof" meaning you'll never get anything back from him.

If your state allows you to form an LLP or LLLP, that'd be a much better way to go. Make sure you're aware of the applicable laws in your state regarding liability in those situations.

+1

Another very strong consideration that you should be mindful of is the compatibility between the business partners. Is this someone that you can work with daily, because you'll be "married" to him and the business as I believe you're aware?
Title: Re: Starting a brewery
Post by: a10t2 on April 08, 2013, 07:05:21 PM
I think in well run brewpub can sell 15 to 30 BBL a month.

If they have 125 seats, at 4 turns/day and 1 pint/turn, that's 60 bbl/month plus losses. So two brews and roughly 25-30 man-hours a week just for brewing, cleaning, and racking.
Title: Re: Starting a brewery
Post by: reverseapachemaster on April 08, 2013, 09:40:32 PM
I'm wondering if 50% ownership comes with 50% responsibility for the debt he will accrue.

Actually, depending on how the business is set up, you could be liable for 100% of the debt. In a traditional partnership or limited partnership, the partners or general partners, respectively, are jointly and severably responsible for the entire amount of debt. If your partner is a deadbeat, your business creditors will come after your assets, and it's up to you to sue your deadbeat partner to recover your losses. If he's enough of a deadbeat, a judge could rule him "judgment proof" meaning you'll never get anything back from him.

There's no actual ruling that one is judgment proof, the facts of life make somebody judgment proof. You could still get judgment against the partner but there's nothing to execute judgment against to sell or lien to satisfy judgment. If the partner has personal assets out there he will most likely declare bankruptcy to limit your ability to recover.

Quote
If your state allows you to form an LLP or LLLP, that'd be a much better way to go. Make sure you're aware of the applicable laws in your state regarding liability in those situations.

You can rarely ever have too many L's in your business entity.
Title: Re: Starting a brewery
Post by: Thirsty_Monk on April 08, 2013, 10:19:04 PM
I think in well run brewpub can sell 15 to 30 BBL a month.

If they have 125 seats, at 4 turns/day and 1 pint/turn, that's 60 bbl/month plus losses. So two brews and roughly 25-30 man-hours a week just for brewing, cleaning, and racking.
Just been VERY conservative. :)
Title: Re: Starting a brewery
Post by: nateo on April 08, 2013, 10:21:53 PM
There's no actual ruling that one is judgment proof, the facts of life make somebody judgment proof. You could still get judgment against the partner but there's nothing to execute judgment against to sell or lien to satisfy judgment. If the partner has personal assets out there he will most likely declare bankruptcy to limit your ability to recover.

Yeah, thanks for clearing that up. I'd trust RAM on that one. You're in law school, right?
Title: Re: Starting a brewery
Post by: newrocset on April 08, 2013, 11:19:18 PM
I would be concerned that not only does he not know anything about beer but that he knows nothing about running a restaurant and nothing about running a business in general.

That was my first thought.

Mine too!  There are certainly a lot of things that can go wrong with this....very wrong!  Actually, when he told me that he would allow me 50% ownership, that raised a red flag.  If it were my business, I would want to own 100% and simply hire the people to handle the areas I don't know (i.e. food prep, management, brewing, etc...), so I'm kinda curious as to why he would want me to own 50%.  Maybe he just wants to make sure I stay - again, kinda weird since he doesn't know me.  I'm sure I'll find out in due time...but I'm not making any commitments until I'm sure of it.
On the liability front, I have been under the impression that an LLC will offer at least some protection to your personal assets?  At any rate, I'm not going to borrow any money for this venture, so I'll be sure to think twice before taking any offers of ownership.
Title: Re: Starting a brewery
Post by: rjharper on April 09, 2013, 01:43:16 AM
You're right that brew pubs in OK have an uphill battle because they can only serve 3.2. You mentioned college town, so it's either Sooners or Cowboys! How well do you know your market?

I'm a STW import, and if that's where youre looking, I'd be cautious about bringing in a brewpub, simply because the market is not very deep. Its limited beyond students and they're perfectly happy with cheap domestic long necks. Add in a handle of established bars with good craft selections for good prices, and you'll struggle to shift a bunch of 3.2 at brew pub prices. Especially if I can get a double IPA for the same price or less next door. I just don't see brew pubs in OK being successful until laws change.
Title: Re: Starting a brewery
Post by: Jimmy K on April 09, 2013, 02:48:47 AM
The other side of the question, how often does a 7 barrel brewhouse need to be used to pay for itself. Brewing on it twice a month might be convenient for you, but that is really expensive equipment sitting idle for 28 days per month.

- Sent by my R2 unit

Title: Re: Starting a brewery
Post by: newrocset on April 09, 2013, 03:33:15 AM
You're right that brew pubs in OK have an uphill battle because they can only serve 3.2. You mentioned college town, so it's either Sooners or Cowboys! How well do you know your market?

I'm a STW import, and if that's where youre looking, I'd be cautious about bringing in a brewpub, simply because the market is not very deep. Its limited beyond students and they're perfectly happy with cheap domestic long necks. Add in a handle of established bars with good craft selections for good prices, and you'll struggle to shift a bunch of 3.2 at brew pub prices. Especially if I can get a double IPA for the same price or less next door. I just don't see brew pubs in OK being successful until laws change.
That's a really good point.  I thought about it briefly, then left it on the backburner.  It gives me reason to make the case to open this restaurant in Tulsa rather than Stillwater.  I think a 3.2 brew pub would do fine in Tulsa as long as the beers tasted good.  There really are a variety of low point styles to choose from that are still good.  I think the problem with brew pubs in OK is that they are all trying to make high point beers into 3.2 beers, which is just plain stupid and makes brew pubs looks bad.
Title: Re: Starting a brewery
Post by: newrocset on April 09, 2013, 03:38:40 AM
The other side of the question, how often does a 7 barrel brewhouse need to be used to pay for itself. Brewing on it twice a month might be convenient for you, but that is really expensive equipment sitting idle for 28 days per month.

- Sent by my R2 unit

And it is certainly something that I want to avoid.  The best choice in this scenario would be to hire a full time brewer that could make this happen.  It would be stupid for me to let equipment stand idle and lose money on account of my ego.
Title: Re: Starting a brewery
Post by: tschmidlin on April 09, 2013, 05:26:29 AM
Something else to keep in mind . . . for my "part time" brewing job, I worked Mon, Tue, Thu, Fri, and Sat last week.  That was a maintenance day, two beer brew days, a rootbeer brew day, and Sat I went briefly to check on everything.  It's only a 30 minute drive for me.
Title: Re: Starting a brewery
Post by: nateo on April 09, 2013, 12:23:26 PM
The other side of the question, how often does a 7 barrel brewhouse need to be used to pay for itself.

The payback period isn't really relevant for a project that large. It won't pay for itself very quickly, and just figuring out the payback period ignores the time value of money. The payback rule works best for making quick decisions about small amounts of money.

Computing the NPV of the projected cash flows is a much better way to make that decision. Picking an appropriate discount rate is tricky, but some companies just use their weighted-average cost of capital. Projecting future cash flows is even trickier, but the nice thing about the NPV approach is that the most uncertain cash flows (those in the far future) are worth the least in the calculation.

You should use the NPV approach because it's possible for projects to appear to "break even" on paper, but when you factor in the time-value of money, the project actually lost money.
Title: Re: Starting a brewery
Post by: reverseapachemaster on April 09, 2013, 04:03:02 PM
There's no actual ruling that one is judgment proof, the facts of life make somebody judgment proof. You could still get judgment against the partner but there's nothing to execute judgment against to sell or lien to satisfy judgment. If the partner has personal assets out there he will most likely declare bankruptcy to limit your ability to recover.

Yeah, thanks for clearing that up. I'd trust RAM on that one. You're in law school, right?

Graduated and halfway through the two month wait to see if I passed the bar. I don't know which is worse, the three day bar exam or the two month wait to find the results.
Title: Re: Starting a brewery
Post by: reverseapachemaster on April 09, 2013, 04:15:04 PM
I would be concerned that not only does he not know anything about beer but that he knows nothing about running a restaurant and nothing about running a business in general.

That was my first thought.

Mine too!  There are certainly a lot of things that can go wrong with this....very wrong!  Actually, when he told me that he would allow me 50% ownership, that raised a red flag.  If it were my business, I would want to own 100% and simply hire the people to handle the areas I don't know (i.e. food prep, management, brewing, etc...), so I'm kinda curious as to why he would want me to own 50%.  Maybe he just wants to make sure I stay - again, kinda weird since he doesn't know me.  I'm sure I'll find out in due time...but I'm not making any commitments until I'm sure of it.
On the liability front, I have been under the impression that an LLC will offer at least some protection to your personal assets?  At any rate, I'm not going to borrow any money for this venture, so I'll be sure to think twice before taking any offers of ownership.

Definitely strange to give up half ownership unless he plans on you contributing a substantial portion of start up costs. It's too much equity to give up to retain an employee, even if you were the greatest brewer on earth. I think it's even too much equity to give up to make you take on management of the brewing side of the business without pay if he's financing the start up (although that is probably not an advantageous position for you, anyway).

An LLC will limit your liability to the extent of your equity in the company for claims against the LLC on contracts and tort liability (personal injury) of other members of the LLC. It provides no liability for your own tort liability. It's easy to get yourself outside of the protections of the LLC in a start up. If you sign on to any contracts, such as contracts for brewing ingredients, as an individual or before the LLC is legally formed you will likely be personally liable on that contract. If he goes to get financing for the LLC many banks will want the members to personally guarantee the loans which eliminates the liability protections and puts your personal assets on the line for those debts.
Title: Re: Starting a brewery
Post by: Jimmy K on April 10, 2013, 03:05:33 AM

Definitely strange to give up half ownership unless he plans on you contributing a substantial portion of start up costs. It's too much equity to give up to retain an employee, even if you were the greatest brewer on earth. I think it's even too much equity to give up to make you take on management of the brewing side of the business without pay if he's financing the start up (although that is probably not an advantageous position for you, anyway).
I was surprized too. I've heard people fret over giving up 10% ownership. 50% is substantial, so either he's looking for a real business partner/investor or he doesn't know what he's doing. I don't mean to be picky, but it's not like he's using equity to buy extensive commercial brewing experience - since it doesn't sound like you have that. Just be careful.
Title: Re: Starting a brewery
Post by: newrocset on April 10, 2013, 01:02:26 PM
I think he just wants to be sure I stick with it when it gets tough.  He has an investor so the funds are there and I'm not planning on borrowing anything to make this happen.
Title: Re: Starting a brewery
Post by: nateo on April 10, 2013, 01:09:14 PM
I think he just wants to be sure I stick with it when it gets tough.  He has an investor so the funds are there and I'm not planning on borrowing anything to make this happen.

So you'd own 50%, and the investor and him split the other 50%? Really? Is the investor OK with him giving away half the equity?

It's entirely possible all of the people in this situation are acting in good faith, but it's also entirely possible no one in this situation knows what they're doing. It's also possible someone in this situation is scamming someone else, whether they know it or not.
Title: Re: Starting a brewery
Post by: klickitat jim on April 10, 2013, 01:19:28 PM
My first thought was that the guy already had a couple pints when he said it.

"Freedom is temporary unless you are also Brave!" - Patriot

Title: Re: Starting a brewery
Post by: newrocset on April 10, 2013, 04:57:01 PM
I think he just wants to be sure I stick with it when it gets tough.  He has an investor so the funds are there and I'm not planning on borrowing anything to make this happen.

So you'd own 50%, and the investor and him split the other 50%? Really? Is the investor OK with him giving away half the equity?

It's entirely possible all of the people in this situation are acting in good faith, but it's also entirely possible no one in this situation knows what they're doing. It's also possible someone in this situation is scamming someone else, whether they know it or not.

He initially said 25% if I wanted, then he mentioned 50...I think he just got excited that he may have found a good lead, that is all.  Nothing is in writing and it's all speculation at this point.  I have been talking to him briefly through email and he seems pretty solid.  I'm opting to do 25%, if anything at all.  I will be meeting with him next week and get things more sorted out then.
Title: Re: Starting a brewery
Post by: mpietropaoli on April 11, 2013, 02:41:38 AM
This sounds like it could be a great opportunity, but I don't see any way to be successful without quitting your day job.

or without getting one of those college kids who is an aspiring craft beer nerd to be your apprentice/on-site, on-call help/"hand of the brewer" if you want to get all Game of Thrones.