[Duane]

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.

[In The Sand]

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!

[majorvices]

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.

[nateo]

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.

[In The Sand]

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.

[In The Sand]

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.

[Jimmy K]

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.

[nateo]

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.

[yso191]

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.

[Pawtucket Patriot]

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!

[nateo]

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.

[In The Sand]

There are plenty of unemployed pro brewers who will work for peanuts.

...or beer! 

[majorvices]

Trey - I think the first business loan was in 2011. Second one was last year.

[tschmidlin]

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.

[SWGG]

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.