Author Topic: Brewery Financing for someone with no wealth/collateral  (Read 9650 times)

Offline Tim McManus

  • Assistant Brewer
  • ***
  • Posts: 236
    • View Profile
    • Haskell Brewing Company
Re: Brewery Financing for someone with no wealth/collateral
« Reply #60 on: August 17, 2011, 02:28:40 PM »
first person who shows me on paper how to make a living on a 1-2 bbl system get's a free beer.  ;) Once you run the numbers it becomes pretty clear. I can understand someone starting at 1-2 bbl (though, having gone through that I wouldn't recommend it necessarily) - can't ever understand staying at that level. The one exception I have been overlooking is a pub or tasting room. I'm considering production facility only.

If I live in a shed in the woods I can probably make a living on a 1-2 BBL system.  It'll be the Grizzly Adams version of living, but, hey, it's living.

Where do I redeem my beer coupon?  :)
Tim McManus
Haskell, NJ

Offline Tim McManus

  • Assistant Brewer
  • ***
  • Posts: 236
    • View Profile
    • Haskell Brewing Company
Re: Brewery Financing for someone with no wealth/collateral
« Reply #61 on: August 17, 2011, 02:35:05 PM »
first person who shows me on paper how to make a living on a 1-2 bbl system get's a free beer.  ;) Once you run the numbers it becomes pretty clear. I can understand someone starting at 1-2 bbl (though, having gone through that I wouldn't recommend it necessarily) - can't ever understand staying at that level. The one exception I have been overlooking is a pub or tasting room. I'm considering production facility only.

I've run the numbers 10,000 times about 10,000 ways and cannot find a way to do less than 3.5 bbl without slight difficulty or the possibility that unforeseen occurrence could shut down the brewery.  The numbers for 7 bbl look acceptable to me for the tasting room style with the possibility of some off-site production.  That said it’s my personal goal to support anyone who tries a small business and produces a good product.  cheers, j

Numbers are relative and vary greatly from state to state and situation to situation.  For example, where I am you'd need about $1.5M in capital to run a successful brewery, and it won't break even for 24 months.  For some that's reasonable, for other's it's astronomically absurd.  To further complicate things, you can throw in some investors who want a 22% return because of the high risk involved in starting a brewery.  It's more than the 12% you'd pay for a bank loan, but it might be more accessible.

Starting any business is a unique endeavor and no two are alike for every conceivable notion.  For this reason I try to steer clear of trying to come up with a standard for success that applies across all business ideas.
Tim McManus
Haskell, NJ

jaybeerman

  • Guest
Re: Brewery Financing for someone with no wealth/collateral
« Reply #62 on: August 17, 2011, 02:52:54 PM »
Numbers are relative and vary greatly from state to state and situation to situation.  For example, where I am you'd need about $1.5M in capital to run a successful brewery, and it won't break even for 24 months.  For some that's reasonable, for other's it's astronomically absurd.  To further complicate things, you can throw in some investors who want a 22% return because of the high risk involved in starting a brewery.  It's more than the 12% you'd pay for a bank loan, but it might be more accessible.

Starting any business is a unique endeavor and no two are alike for every conceivable notion.  For this reason I try to steer clear of trying to come up with a standard for success that applies across all business ideas.

Very true;  I immediately ignore anyone who mentions the 1.5M number and I ignore what soundbrewing has to say as well, as they are in the business of selling large (expensive) brewing systems (although I have a HUGE amount of  respect for them and their business). 

There are still costs that can't be avoided and therefore some minimums.  Like I said, it's my personal goal to support anyone who chooses to start small and manages to produce a good product.

Offline Tim McManus

  • Assistant Brewer
  • ***
  • Posts: 236
    • View Profile
    • Haskell Brewing Company
Re: Brewery Financing for someone with no wealth/collateral
« Reply #63 on: August 17, 2011, 03:28:05 PM »
What's your version of small?

I cannot ignore the numbers regardless of what they are.  Every business is different.  The capital costs for starting a 10BBL brewery can be anywhere between $200K-$500K in brewing equipment alone.  Another $50K for building modifications, and at least $150K in annual advertising (hey, they gotta' know about you to buy your stuff).  $30K-$50K for a heavy-duty van or box truck to transport the product, consumables such as water, electricity, and gas.  Rent, which around here is anywhere from $12/sqft to $25/sqft.  You'll need about 4,000 sqft for a 10BBL system.  Salaries, taxes, insurance, the list goes on.  It adds up quickly.

Additionally, you'll need a wad of cash for operating capital.  If you run out of cash your business will come to a grinding halt.

Everything has to be considered and nothing can be ignored.  If your business plan becomes expensive, then you can start scaling back until you find a number you're more comfortable with.  However, if you get too lean, you will collapse under your own weight.  Poor planning or operating under assumptions are significant reasons why businesses fail within the first year.
Tim McManus
Haskell, NJ

Offline nateo

  • Brewmaster General
  • *******
  • Posts: 2210
  • Denver, CO
    • View Profile
Re: Brewery Financing for someone with no wealth/collateral
« Reply #64 on: August 17, 2011, 03:35:27 PM »
Major - I'm sure you're right about production facilities. It would be really silly for the OP to start a production brewery. I never even thought one might start up that way for that reason, and I don't think he was specific about what kind of distribution model he wanted to use.

I was picturing some hole-in-the-wall tap room type thing. Drydock Brewing in Denver started out that way. I don't remember exactly how big it was, but their current system is 7bbl and they just recently started distributing, and 7bbl is a lot bigger than their old system. Sue's Coffee House in St. Clair, MI has like a 1bbl extract-only system. Obviously they sell coffee and tea too, but they have a tiny brewery and I'm sure they have fun making their beer, and they're still in business so they must be making 'some' money.

I also agree with Tim and Jay that every business is different, and it's not really useful to say "every brewery must be X units large." There are lots of different kinds of breweries with different costs and opportunities. Also, everyone's version of "making a living" isn't the same, just as everyone's cost of living isn't the same. My whole house cost $5k. Many people's houses cost 100x that. And that's just one factor in determining what "making a living" is.
« Last Edit: August 17, 2011, 03:38:58 PM by nateo »
In der Kürze liegt die Würze.

Online morticaixavier

  • I must live here
  • **********
  • Posts: 7517
  • Underhill VT
    • View Profile
    • The Best Artist in the WORLD!!!!!
Re: Brewery Financing for someone with no wealth/collateral
« Reply #65 on: August 17, 2011, 03:47:41 PM »
What's your version of small?

I cannot ignore the numbers regardless of what they are.  Every business is different.  The capital costs for starting a 10BBL brewery can be anywhere between $200K-$500K in brewing equipment alone.  Another $50K for building modifications, and at least $150K in annual advertising (hey, they gotta' know about you to buy your stuff).  $30K-$50K for a heavy-duty van or box truck to transport the product, consumables such as water, electricity, and gas.  Rent, which around here is anywhere from $12/sqft to $25/sqft.  You'll need about 4,000 sqft for a 10BBL system.  Salaries, taxes, insurance, the list goes on.  It adds up quickly.

Additionally, you'll need a wad of cash for operating capital.  If you run out of cash your business will come to a grinding halt.

Everything has to be considered and nothing can be ignored.  If your business plan becomes expensive, then you can start scaling back until you find a number you're more comfortable with.  However, if you get too lean, you will collapse under your own weight.  Poor planning or operating under assumptions are significant reasons why businesses fail within the first year.

If you look at alot of the sucessful small breweries and how they got going you can knock out about 150k of the above expenses by not trying to advertise in teh traditional ways. you are never going to spend enough on advertising to compare with your more established competitors. Both brooklyn brewery and DFH never advertised until much later in their growth as a business. That's not to say they didn't get their names out there but they did it with free samples and appearances at, or helping to organize, events. Not so say it's easy but there are breweries out there starting up on ALOT less than 1.5 million. No one is getting rich but...
"Creativity is the residue of wasted time"
-A Einstein

"errors are [...] the portals of discovery"
- J Joyce

Offline nateo

  • Brewmaster General
  • *******
  • Posts: 2210
  • Denver, CO
    • View Profile
Re: Brewery Financing for someone with no wealth/collateral
« Reply #66 on: August 17, 2011, 04:06:37 PM »
I cannot ignore the numbers regardless of what they are.  Every business is different.  The capital costs for starting a 10BBL brewery can be anywhere between $200K-$500K in brewing equipment alone.  Another $50K for building modifications, and at least $150K in annual advertising (hey, they gotta' know about you to buy your stuff).  $30K-$50K for a heavy-duty van or box truck to transport the product, consumables such as water, electricity, and gas.  Rent, which around here is anywhere from $12/sqft to $25/sqft.  You'll need about 4,000 sqft for a 10BBL system.  Salaries, taxes, insurance, the list goes on.  It adds up quickly.

Tim, where do you live? $50k-100k (I'm assuming per year) is a lot of rent. The rest of your numbers seem really high.

These are super back-of-the-envelope calculations, but here goes:
You can buy 40 acres here in Missouri with a giant barn on it plus a house and other buildings for $40k-ish. Labor is super cheap here too. You could hire some Mennonites to renovate the barn for probably $5k. You could use plastic inductor tanks like Hess Brewing. You can get a 110gal tank for $200, x3 you'd have 10bbl's worth of fermentors for $600+freight, so maybe $1k total. Add 3 more for bright tanks, that's $2k. Buy a bunch of kegs ($5k) make your own cleaning system or buy a used one ($1k), condition in the kegs. You'll need stuff like chillers and pumps, so maybe $5k for those?. Stout tanks makes a 145gal kettle for $2200, and a 120gal mash tun for $2k. So you could either brew 3 batches a day, or you could buy 3 kettles and tuns.

We're at $71k now, and you still need some hot liquor tanks, so maybe another $6k for those, so $77k. Let's say add an extra $23k for things I'm forgetting, and you're at $100k for a brewery, and a house to live in. The upside is you won't need to make much money to make a living, since your house is paid for. The downside is you now live in Missouri.

I was really amazed at how friggin cheap everything is here. It's like a third-world country. But, the flip-side is it allows me to be a partner in a business that grosses 2/3rds of what we paid for it each year, and we net about half of that. That means in 3 years it'll be paid off completely, and we'll sell it and move somewhere nicer.

In der Kürze liegt die Würze.

Offline majorvices

  • Global Moderator
  • I must live here
  • *****
  • Posts: 8093
  • Polka. If its too loud you're too young.
    • View Profile
    • Yellowhammer Brewing Company
Re: Brewery Financing for someone with no wealth/collateral
« Reply #67 on: August 17, 2011, 04:09:27 PM »
first person who shows me on paper how to make a living on a 1-2 bbl system get's a free beer.  ;) Once you run the numbers it becomes pretty clear. I can understand someone starting at 1-2 bbl (though, having gone through that I wouldn't recommend it necessarily) - can't ever understand staying at that level. The one exception I have been overlooking is a pub or tasting room. I'm considering production facility only.

If I live in a shed in the woods I can probably make a living on a 1-2 BBL system.  It'll be the Grizzly Adams version of living, but, hey, it's living.

Where do I redeem my beer coupon?  :)

No offense, but that didn't quite meet my criteria.
Cowboy. Pirate. Brewer.

Offline Tim McManus

  • Assistant Brewer
  • ***
  • Posts: 236
    • View Profile
    • Haskell Brewing Company
Re: Brewery Financing for someone with no wealth/collateral
« Reply #68 on: August 17, 2011, 04:21:32 PM »
Marketing is important and most businesses spend a significant portion of their money on it.  Yes, there are non-traditional ways to market, and it can be very effective.  However, you have to ask your self some basic questions:

Who is my customer?
Where will they find my product?
How do I tell them about my product?

Defining your customer is critically important.  For example, your customer could be men, age 35-55, college education, married, kids, home owner, median family income $100K.  Knowing this you can start to position your brand in the marketplace.  Does your labeling and brand image appeal to this group?  Is it something they can relate with and want to be seen with?  You need to position your product in the marketplace for your customer.  Where will they buy it?  Taverns?  Retail?  Knowing this you can start to create an effective marketing plan to target these people, your customers.

Marketing isn't just ads.  There should be a good amount of analysis that goes into it prior to the ads.  It's also your bling.  Everyone loves pint glasses, coasters, T-shirts, etc.  If you decided to market your beer in a tavern, you can do a co-promotion with one tavern for instance and give out coasters and pint glasses to folks who buy your beer at the bar (this varies from state to state, so take the example with a grain of salt).  A few cases of glasses will cost you a few hundred dollars.  Giving them away to folks is an excellent way of getting your brand into the marketplace and the recipient will more than likely show off his pint glass to friends, further spreading the word.

Beer festivals also cost money.  Gotta' get a keg there, pay for the space (in some cases), and give out some bling to folks.  It's great giving out body tattoos and watching all the folks walk by displaying your logo.  Again, marketing costs.

And again, no two businesses are the same so you may find better and more cost effective marketing channels to reach your customers, depending on who that is.  However, you gotta' know who your customer is first.
Tim McManus
Haskell, NJ

Offline Tim McManus

  • Assistant Brewer
  • ***
  • Posts: 236
    • View Profile
    • Haskell Brewing Company
Re: Brewery Financing for someone with no wealth/collateral
« Reply #69 on: August 17, 2011, 04:31:36 PM »
Tim, where do you live? $50k-100k (I'm assuming per year) is a lot of rent. The rest of your numbers seem really high.

I live in NJ where the cost of living is absurd.  The rent prices I threw out were actual rental costs in this area.  One brewery in our state is paying $12.50/sqft for 8,000 sqft of space, and that's very inexpensive.  Really brings home my point about how variable costs are depending on the business and the location.

I like your barn-raising idea but the devil's in the details.  You'll be generating a significant amount of waste water and will need to do something with that.  You'll probably want to condition the water and you'll be consuming a tremendous amount of electricity (heating, boiling, glycol chiller, bottling line, lights, etc.).  It all begins to add up quickly.

I once visited a commercial bakery that forgot to include utilities in their business plan.  They ran out of cash in four months and needed to be bailed out by additional investors to stay in business.
Tim McManus
Haskell, NJ

Offline nateo

  • Brewmaster General
  • *******
  • Posts: 2210
  • Denver, CO
    • View Profile
Re: Brewery Financing for someone with no wealth/collateral
« Reply #70 on: August 17, 2011, 05:47:31 PM »
Tim - Good point about utilities. They're the biggest "cost of doing business" expense we have. We run a RV campground and tackle store. We include utilities on most of our rentals, and we pay about $3-4k a month for electricity on 150 units, depending on the time of year. We have well water, but one of our wells went out and we had to spend $15k to drill another one. We're also not on city sewer, so if I were to make a brewery on our property, I don't know what I'd do with all the waste water.

There are so many things that can go wrong with a business. Our first year we had to replace the entire septic system, which was $100k, but we had made the previous owner put money in escrow for us on the contingency that the septic went out in the first year, so we didn't actually have to pay for it, but it could've been very expensive, and we didn't have any cash on hand at all at that point. That's where having a very well-researched business plan is crucial. I briefly considered putting a brewery in our barn, but after crunching some numbers I realized my heart wasn't in it, and I wouldn't have the time to run three businesses anyway.

We spent about 5 years working on our business plan, looking at campgrounds to buy, saving up to buy them, learning about business, etc. But after 5 years of work we found a great deal on a great business, and we had the knowledge to recognize the deal when we found it. After that, getting financing was surprisingly easy, even with the economy in the toilet. Every local bank we went to offered to finance us, so we were able to shop around and get a good deal on the loan.
In der Kürze liegt die Würze.

Online morticaixavier

  • I must live here
  • **********
  • Posts: 7517
  • Underhill VT
    • View Profile
    • The Best Artist in the WORLD!!!!!
Re: Brewery Financing for someone with no wealth/collateral
« Reply #71 on: August 17, 2011, 11:10:29 PM »
Marketing is important and most businesses spend a significant portion of their money on it.  Yes, there are non-traditional ways to market, and it can be very effective.  However, you have to ask your self some basic questions:

Who is my customer?
Where will they find my product?
How do I tell them about my product?

Defining your customer is critically important.  For example, your customer could be men, age 35-55, college education, married, kids, home owner, median family income $100K.  Knowing this you can start to position your brand in the marketplace.  Does your labeling and brand image appeal to this group?  Is it something they can relate with and want to be seen with?  You need to position your product in the marketplace for your customer.  Where will they buy it?  Taverns?  Retail?  Knowing this you can start to create an effective marketing plan to target these people, your customers.

Marketing isn't just ads.  There should be a good amount of analysis that goes into it prior to the ads.  It's also your bling.  Everyone loves pint glasses, coasters, T-shirts, etc.  If you decided to market your beer in a tavern, you can do a co-promotion with one tavern for instance and give out coasters and pint glasses to folks who buy your beer at the bar (this varies from state to state, so take the example with a grain of salt).  A few cases of glasses will cost you a few hundred dollars.  Giving them away to folks is an excellent way of getting your brand into the marketplace and the recipient will more than likely show off his pint glass to friends, further spreading the word.

Beer festivals also cost money.  Gotta' get a keg there, pay for the space (in some cases), and give out some bling to folks.  It's great giving out body tattoos and watching all the folks walk by displaying your logo.  Again, marketing costs.

And again, no two businesses are the same so you may find better and more cost effective marketing channels to reach your customers, depending on who that is.  However, you gotta' know who your customer is first.

Tim I agree. with all you are saying above and I would have to think twice before starting a brewery in NJ (given that I would be thinking 10 or 20 times before moving to NJ sort of clears that up a bit anyway). My point was mainly that your marketing costs can be significant or small depending on how you approach the process.
"Creativity is the residue of wasted time"
-A Einstein

"errors are [...] the portals of discovery"
- J Joyce

Offline majorvices

  • Global Moderator
  • I must live here
  • *****
  • Posts: 8093
  • Polka. If its too loud you're too young.
    • View Profile
    • Yellowhammer Brewing Company
Re: Brewery Financing for someone with no wealth/collateral
« Reply #72 on: August 18, 2011, 03:47:42 AM »
I believe in pretty much everything Tim M. is saying (except the brewing in a shed part). How you market yourself, and especially how you brand yourself, has much to do with how well you can succeed. Look at Magic Hat - mediocre beers (at best) excellent branding. They have no trouble selling beers. Having been in graphic design and marketing for 20+ years marketing has always been a bit second nature to me in my professional career - but I did find one resource that really helped me hone in our direction as a company. While I didn't read the book, I did take the personality test based on the interview on the blog I will post below.

http://www.personalbrandingblog.com/personal-branding-interview-2-sally-hogshead/

and the test

http://sallyhogshead.com/f-score-personality-test/
Cowboy. Pirate. Brewer.

Offline bluesman

  • Global Moderator
  • I must live here
  • *****
  • Posts: 8810
  • Delaware
    • View Profile
Re: Brewery Financing for someone with no wealth/collateral
« Reply #73 on: August 18, 2011, 03:56:41 AM »
Making quality beer is very important but selling (sales/marketing) quality beer is more important to the success of any brewery just as Keith pointed out with MagicHat's success. One can produce the best beer on the planet, but if none knows it's available, the business will fail.
Ron Price

Offline phillamb168

  • Brewmaster General
  • *******
  • Posts: 2341
  • Lardy, France
    • View Profile
    • My Job
Re: Brewery Financing for someone with no wealth/collateral
« Reply #74 on: August 18, 2011, 05:02:00 AM »
I believe in pretty much everything Tim M. is saying (except the brewing in a shed part). How you market yourself, and especially how you brand yourself, has much to do with how well you can succeed. Look at Magic Hat - mediocre beers (at best) excellent branding. They have no trouble selling beers. Having been in graphic design and marketing for 20+ years marketing has always been a bit second nature to me in my professional career - but I did find one resource that really helped me hone in our direction as a company. While I didn't read the book, I did take the personality test based on the interview on the blog I will post below.

http://www.personalbrandingblog.com/personal-branding-interview-2-sally-hogshead/

and the test

http://sallyhogshead.com/f-score-personality-test/

Interesting test! Thanks for linking.
I'm on twitter: phillamb168
----
morticaixavier for governing committee!