Author Topic: Starting a brewery  (Read 8273 times)

Offline nateo

  • Brewmaster General
  • *******
  • Posts: 2162
  • Aachen, DE
    • View Profile
Re: Starting a brewery
« Reply #15 on: February 25, 2013, 07:39:13 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).
In der Kürze liegt die Würze.

Offline Thirsty_Monk

  • Senior Brewmaster
  • ******
  • Posts: 1848
  • Eau Claire WI
    • View Profile
Re: Starting a brewery
« Reply #16 on: February 25, 2013, 07:55:16 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).
Or start up small, learn the business and reinvest your earnings.
Na Zdravie

On Tap At The TapRoom:
Bohemian Pilsner
Bohemian Dark Lager
Smoked Bock
MaiBock
American Brown Ale
Marzen
Root beer

Offline reverseapachemaster

  • Brewmaster
  • *****
  • Posts: 914
    • View Profile
    • Brain Sparging on Brewing
Re: Starting a brewery
« Reply #17 on: February 26, 2013, 03:26:36 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.
Heck yeah I blog about homebrewing: Brain Sparging on Brewing but I'm also a lawyer: The Kielich Law Firm

Offline reverseapachemaster

  • Brewmaster
  • *****
  • Posts: 914
    • View Profile
    • Brain Sparging on Brewing
Re: Starting a brewery
« Reply #18 on: February 26, 2013, 03:41:51 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.
Heck yeah I blog about homebrewing: Brain Sparging on Brewing but I'm also a lawyer: The Kielich Law Firm

Offline nateo

  • Brewmaster General
  • *******
  • Posts: 2162
  • Aachen, DE
    • View Profile
Re: Starting a brewery
« Reply #19 on: February 26, 2013, 04:07:51 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.
In der Kürze liegt die Würze.

Offline chadchaney97

  • Cellarman
  • **
  • Posts: 54
    • View Profile
Re: Starting a brewery
« Reply #20 on: February 26, 2013, 04:10:42 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.

Offline hopfenundmalz

  • Official Poobah of No Life.
  • *
  • Posts: 4547
  • Milford, MI
    • View Profile
Re: Starting a brewery
« Reply #21 on: February 26, 2013, 04:53:17 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.
Jeff Rankert
Ann Arbor Brewers Guild, AHA Member, BJCP Certified
Home-brewing, not just a hobby, it is a lifestyle!

Offline In The Sand

  • Brewer
  • ****
  • Posts: 397
    • View Profile
Starting a brewery
« Reply #22 on: February 26, 2013, 09:16:29 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?
Trey W.

Offline hopfenundmalz

  • Official Poobah of No Life.
  • *
  • Posts: 4547
  • Milford, MI
    • View Profile
Re: Starting a brewery
« Reply #23 on: February 26, 2013, 09:46:50 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?
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.
Jeff Rankert
Ann Arbor Brewers Guild, AHA Member, BJCP Certified
Home-brewing, not just a hobby, it is a lifestyle!

Offline reverseapachemaster

  • Brewmaster
  • *****
  • Posts: 914
    • View Profile
    • Brain Sparging on Brewing
Re: Starting a brewery
« Reply #24 on: February 26, 2013, 09:51:53 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?
Heck yeah I blog about homebrewing: Brain Sparging on Brewing but I'm also a lawyer: The Kielich Law Firm

Offline In The Sand

  • Brewer
  • ****
  • Posts: 397
    • View Profile
Re: Starting a brewery
« Reply #25 on: February 27, 2013, 06:16:47 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?

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
Trey W.

Offline nateo

  • Brewmaster General
  • *******
  • Posts: 2162
  • Aachen, DE
    • View Profile
Re: Starting a brewery
« Reply #26 on: February 27, 2013, 07:22:50 AM »
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.
In der Kürze liegt die Würze.

Offline narvin

  • Senior Brewmaster
  • ******
  • Posts: 1233
  • Baltimore
    • View Profile
Re: Starting a brewery
« Reply #27 on: February 27, 2013, 07:53:12 AM »
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.
Please do not reply if your an evil alien!
Thanks
Chris S.

Offline mtnrockhopper

  • I spend way too much time on the AHA forum
  • ********
  • Posts: 2894
  • Delaware
    • View Profile
Re: Starting a brewery
« Reply #28 on: February 27, 2013, 08:18:51 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?
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.
Jimmy K

Delmarva United Homebrewers - President by inverse coup when the old president ousted himself.
AHA Member since 2006
BJCP: B0958

Offline majorvices

  • Global Moderator
  • Official Poobah of No Life.
  • *****
  • Posts: 6308
  • Polka. If its too loud you're too young.
    • View Profile
    • Yellowhammer Brewing Company
Re: Starting a brewery
« Reply #29 on: February 27, 2013, 08:21:56 AM »
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.
Keith Y.
Self appointed "All Grain" section pruner