Author Topic: Brewery Financing for someone with no wealth/collateral  (Read 8329 times)

Offline dirk_mclargehuge

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #135 on: November 06, 2011, 05:39:47 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.
One of the problems with a small production run is that you either distribute shallow or deep. Do you distribute all your five gallon kegs to 15 bars where they will blow almost instantly, or do you sell to five bars so the kegs will last a bit longer. How often will you have to brew to keep up with demand?  If you only plan to brew once a week, how many times do you have to brew to satisfy your customers.  If more people want to buy your stuff, how much are you willing to sacrifice you time to brew several times a week?  If you can't satisfy my demand for your beer week in and week out, I'll find someone who can. 

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Offline phillamb168

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #136 on: November 09, 2011, 05:14:08 AM »
I love the MST3K reference, Dirk McLargeHuge.

This has been a GREAT thread.

I'm on the verge of having the money ready for my first round of self-financing, and already have two customers waiting on deliveries. I have a million unanswered questions swimming around in my head right now, about distribution, supply chain stuff, how much Alieve I should buy, etc... But it's becoming a reality.
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Offline johnnyb

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #137 on: January 04, 2012, 10:08:03 AM »
I've read with great interest all of the information in this thread, particularly from those with real life experience opening small scale breweries. I'm in the much-much-closer-to-a-pipe-dream-than-a-reality stage of considering opening a nano scale brewery, and the information in this thread has been a real eye opener for me.

While my home state appears to be very nano-friendly based on recent legislative changes, the economics of profitably operating a system in the 1 to 3.5 barrel range still appear to be grim. At first glance, it seems that one could operate on a nano scale under only a few select circumstances:

1) Operating at break-even or a loss in the hopes to establish name recognition/demand, and with the financial resources readily available to quickly expand to 7-barrels or larger

2) Life circumstance such that you can operate a break-even business and/or have some kind of advantage such as already owning a suitable property with minimal capital investment required and practically zero overhead


Unfortunately, my current personal situation doesn't place me within one of those circumstances. However, there is a small glimmer of hope in that the folks who lobbied for the new nano legislation are now lobbying to make further changes in the law which would allow for the on-premise serving and consumption of beer without the requirement to operate a full-service restaurant.


Here are the basics of the current nano laws as I understand them:

* $240 annual license fee
* $0.30/gallon state tax
* Self-distribution is allowed
* Maximum 2000 barrel annual production to qualify as nano
* Can sell growlers and cases on-premise for off-premise consumption
* Can sell/give away one 4-ounce serving per label for on-premise consumption (tasting room)


What I'm wondering is, if that last requirement is in fact changed to allow on-premise sale and consumption of beer without the 4oz limitation, how much does it change all of the assumptions within this forum (and elsewhere) regarding minimum system requirements for profitability? Is it worth the effort of further fleshing out a very detailed business plan with the hopes the law does get changed, or at a quick glance would this model still be doomed to likely failure?


My very rough model would be as follows:

* Start with something like a 2 to 3.5 barrel system primarily for on-site sale by the pint.
* Would not maintain cooperage with the exception of the fleet of kegs required to operate my own draft system.
* The only distribution would be self-distributed bombers of bottle-conditioned Belgian style ales (these sell for a premium in my area) which would occasionally be brewed on a 10-gallon system, which will otherwise be used for pilot batches for the main brewery. Would also sell growlers from the taps.
* Would need to lease and outfit a suitable building.
* Have no idea at the moment how many seats would be allowed in the serving room under the proposed regulations. I'm assuming this is a huge part of the equation.
* A have a friend who is a lawyer/cpa who would help draft the business plan, and another who is an engineer in bio who would help plan the system requirements, but would still need to hire some folks to plumb, wire, and buildout the facility.
* Finances are an issue. I could come up with maybe $60,000 cash, and believe I could get roughly the same amount in investments on an "equity only" basis from friends and family. (Meaning no dividends and their investment would grow only with the value of the business growing - at least for the first few years.)


Thanks for your time reading such a long post! Hopefully there is enough information to make a reasonably educated guess.

Offline a10t2

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #138 on: January 04, 2012, 10:59:23 AM »
What I'm wondering is, if that last requirement is in fact changed to allow on-premise sale and consumption of beer without the 4oz limitation, how much does it change all of the assumptions within this forum (and elsewhere) regarding minimum system requirements for profitability?

What kind of liquor license do you need? How much would it cost? What would your insurance premiums be? Bars tend to be high-volume, low-margin operations.
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Offline johnnyb

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #139 on: January 04, 2012, 11:33:24 AM »
What I'm wondering is, if that last requirement is in fact changed to allow on-premise sale and consumption of beer without the 4oz limitation, how much does it change all of the assumptions within this forum (and elsewhere) regarding minimum system requirements for profitability?

What kind of liquor license do you need? How much would it cost? What would your insurance premiums be? Bars tend to be high-volume, low-margin operations.

I believe if the law gets changed per how they are lobbying, you could sell on-site under the nano license for $240 annually.

I have no clue about insurance premiums, and would have to work that out if I decide to develop a detailed business plan. I guess someone operating a brewpub in my state could ballpark estimate that figure for me?

Edit: I just realized you probably meant do I need a local liquor license in addition to the nano license... Hmmm, not sure but probably. I suspect the cost probably varies by city. I'll ask the owner of the bar near me if he minds sharing what his local license cost annually.
« Last Edit: January 04, 2012, 11:49:31 AM by johnnyb »

Offline morticaixavier

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #140 on: January 04, 2012, 11:49:11 AM »
I think it's important to realize that given the current micro brewery/ brew pub paradigm it may not be possible to make a living with this as your only gig. Like farming on a small scale it has to be a labor of love cause you ain't getting rich. That being said I think you are headed in the right direction with the bottled belgian idea.

My hypothesis (still totally untested) is that there is enough flexibility in the craft beer pricing market to move towards a super premium pricing framework. Think small boutique wineries. you may be able to make a living selling only a small amount of product if your margin in very high. If people will pay x (where x is an arbitrarily high price point) for a premium product at least some of them will pay 2x or maybe even 3x if you can manufacture enough cache around your product. Read Sam C's book about starting DFH. He talks alot about the importance of 'educating' the consumer. i.e. convincing an important trend setter crowd that your product is superior to the competition and provides 'good value' (read 'good perceived value')

earlier in this thread (I think) someone mentioned the idea of price elasticity as a measure of how much a given industry pricing framework is based on market forces and how much on perceived value. The premium alcaholic beverage buyer is highly motivated by perceived value. that is why a bottle of absolute vodka can demand a premium price even though the base booze was very likely manufactured by the same huge distillery that makes the captain toms budget vodka. (I don't know this to be true of Absolute but I do know that lots of name brand booze labels are handled this way, only the filtering, ageing and blending occur at the labeling company)

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #141 on: January 04, 2012, 11:52:32 AM »
My personal feeling is I think you could make it work with a tasting room, off premise sales (growlers to go) and low volume local distribution on a 3 bbl scale. Maybe even a 2 bbl scale. Especially if you could sell growlers for sale at grocery stores/beer vendors. You may even be able to make a living at it, as long as you don't mind eating ramen.
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Offline mtnandy

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #142 on: January 04, 2012, 12:46:21 PM »
My personal feeling is I think you could make it work with a tasting room, off premise sales (growlers to go) and low volume local distribution on a 3 bbl scale. Maybe even a 2 bbl scale. Especially if you could sell growlers for sale at grocery stores/beer vendors. You may even be able to make a living at it, as long as you don't mind eating ramen.

Along these lines, is it even possible to make it work in a state where you can't sell and distribute from the same location? I am looking at a brew pub as a "pipe dream", but I could only serve my beer on-site, and people could only take it home in growlers due to our archaic laws. i am in Houston, and in this "town" of 6 million in the metro area, there are a grand total of 0 brewpubs, so the market is definitely there. I am guessing that any brew pub here would pretty much make all of its money on food, and lose some on the brewing? I have seen the beer culture explode here, so I am not sure how much longer these laws will be on the books...

Offline johnnyb

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #143 on: January 04, 2012, 12:49:41 PM »
My personal feeling is I think you could make it work with a tasting room, off premise sales (growlers to go) and low volume local distribution on a 3 bbl scale. Maybe even a 2 bbl scale. Especially if you could sell growlers for sale at grocery stores/beer vendors. You may even be able to make a living at it, as long as you don't mind eating ramen.


Hey I've survived off Ramen before! My wife and kid might not appreciate it though.

Seriously, I wouldn't be doing it to get rich - but I would need to pay the mortgage (luckily a small one!) and feed my family. I guess I'll keep me eyes on the legislation and start drafting the business plan and see if the numbers start to make any sense at all.

I'm also trying to get a part time unpaid apprenticeship at a local brewery that started on the nano scale and recently expanded to 7 bbl - but they haven't replied to my emails yet. Unless I get accepted into their apprenticeship program and gain that valuable experience on bigger systems, it would probably be a foolish endeavor for me anyway.

Offline a10t2

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #144 on: January 04, 2012, 01:03:14 PM »
My personal feeling is I think you could make it work with a tasting room, off premise sales (growlers to go) and low volume local distribution on a 3 bbl scale. Maybe even a 2 bbl scale. Especially if you could sell growlers for sale at grocery stores/beer vendors. You may even be able to make a living at it, as long as you don't mind eating ramen.

I just finished the outline of a businesss plan for a 1.5 bbl nano (in CO) and concluded that I could pay myself minimum wage as long as the capital costs didn't need to be amortized (i.e. I paid cash for the equipment, buildout, and initial licensing).

As has been mentioned (possibly even in this thread), much of the startup costs for a brewery are in construction, and much of that will be dictated by local health codes. If you have to put floor drains, or stainless steel work surfaces, into an existing facility, then you'll probably never break even on a nano-scale system.

Seriously, I wouldn't be doing it to get rich - but I would need to pay the mortgage (luckily a small one!) and feed my family.

Obviously I'm just guessing here, but I doubt you'd be able to do that.
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Offline johnnyb

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #145 on: January 04, 2012, 01:20:54 PM »
My personal feeling is I think you could make it work with a tasting room, off premise sales (growlers to go) and low volume local distribution on a 3 bbl scale. Maybe even a 2 bbl scale. Especially if you could sell growlers for sale at grocery stores/beer vendors. You may even be able to make a living at it, as long as you don't mind eating ramen.

Along these lines, is it even possible to make it work in a state where you can't sell and distribute from the same location? I am looking at a brew pub as a "pipe dream", but I could only serve my beer on-site, and people could only take it home in growlers due to our archaic laws. i am in Houston, and in this "town" of 6 million in the metro area, there are a grand total of 0 brewpubs, so the market is definitely there. I am guessing that any brew pub here would pretty much make all of its money on food, and lose some on the brewing? I have seen the beer culture explode here, so I am not sure how much longer these laws will be on the books...

The problem with a brewpub is you need a lot more money to get it started. And you need to understand the restaurant business, which is another whole enchilada all to itself.

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #146 on: January 04, 2012, 01:26:33 PM »
Brew pubs are great money making opportunities but they are also multi-million dollar projects. The beer is also usually secondary to the food and is just as often rendered a a novelty. There is also a TON of more regulations involved with restaurant. If you are on a strict budget a brewery with a tasting room and local distribution is the only way to go.

Also, the longer I am involved with this business the more I realize that it really ain't that much more expensive to build a 3 bbl brewery than it is to build a 10 or 15 bbl. I basically set myself a year behind by building the size brewery I did. Would do it different today if I could.
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Offline johnnyb

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #147 on: January 04, 2012, 01:38:35 PM »
Could you quantify that in percentages? Something like a 10bbl brewery would be roughly 1.50 times more costly to build than a 3 bbl brewery...

Also, what do you think would be the "sweet spot" between being big enough to gain some gains in efficiency, yet stay small enough to qualify as a nano brewery under New Hampshire law? (2000 bbl per year - over that you fall under different and more costly regulations.) 

Offline tschmidlin

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #148 on: January 04, 2012, 01:40:50 PM »
On a 10 bbl system you'd need to brew 200 times a year to hit 2000 bbls.  It would probably take a while before you needed to brew that often, at which point you should be able to afford the added costs.
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Offline morticaixavier

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Re: Brewery Financing for someone with no wealth/collateral
« Reply #149 on: January 04, 2012, 01:41:48 PM »
Brew pubs are great money making opportunities but they are also multi-million dollar projects. The beer is also usually secondary to the food and is just as often rendered a a novelty. There is also a TON of more regulations involved with restaurant. If you are on a strict budget a brewery with a tasting room and local distribution is the only way to go.

Also, the longer I am involved with this business the more I realize that it really ain't that much more expensive to build a 3 bbl brewery than it is to build a 10 or 15 bbl. I basically set myself a year behind by building the size brewery I did. Would do it different today if I could.

This! I think that nano brewing is great and I hope one day to do this. But it is not a way to even pay the mortgage and feed the family I don't think. If you want your brewery to actually be your one and only income stream you need to look to larger systems. But if you want to sell your beer and maybe put a little cash in the pocket it's a great idea.

Could you quantify that in percentages? Something like a 10bbl brewery would be roughly 1.50 times more costly to build than a 3 bbl brewery...

Also, what do you think would be the "sweet spot" between being big enough to gain some gains in efficiency, yet stay small enough to qualify as a nano brewery under New Hampshire law? (2000 bbl per year - over that you fall under different and more costly regulations.)  

2000 bblon a 10bbl system works out to 200 batches. That will keep you busy! even if you double batch that's still 100 days just brewing per year. may not seem like a lot but there will be other demands on your time.

In terms of additional costs involved with the larger size I would think that the space it self would not have to be too much bigger as you can gain alot of the additional fermenter/storage space by going vertical.