So, you’ve found your passion and started your own brewery. After reading Part 1 of our series, Building a Craft Brewery Basics, you’ve chosen your concept, found a location and are taking the first steps toward the creation of your new business.
Pursuing a passion project is always rewarding, but there are several important things you must do to ensure success in the long run. Brewing great beer is the first step, but the real work is in making sure your business is well positioned for sustainability over the long-term. That means balancing your knowledge of owning and operating a brewery with an understanding of how to run and grow a successful business via cash flow and profits.
Consider these three building blocks to help make that happen
1. Get advisers on tap
To achieve that perfect balance of beer and business, it’s important to put together a well-rounded group of advisers to guide you on your way. Brewmasters are important, but you’ll need to stack your team with experts in a wide range of areas. Start within the brewing community and work your way out. The good news is, the craft brewing community is like a family — many brewery owners, bar owners and distributors will be happy to share their learnings with you. Having a team of trusted companions who can double as mentors is invaluable as you grow and develop your business.
Looking beyond that inner circle, consider other relationships you should be building. Talk to officials at your local Chamber of Commerce who can help with small business needs. Find legal advisers who are in tune with liquor laws and the nuances of your specific type of business. Identify accountants who know the space and who can align your plans with industry benchmarks to help you map, track and forecast your progress. Having eyes and ears on the ground through each of these connections will not only help you establish your brewery but also help you determine how and when you can grow.
2. Plant the seeds for a successful harvest
With the right network in place, it’s time to turn inside your brewery to make sure your setup is designed for success. Your equipment, inventory control process and POS (point-of-sale) system are three areas to look at when considering long-term potential and return on investment.
Equipment is the first nut to crack, as a startup brewery’s biggest cost tends to be its brewing system, which can run about $130,000 to $175,000 for a new 7-barrel system. Similar to buying a car, consider whether you can invest in a new system outright, would prefer to lease or should look into purchasing one that has been previously owned. As with anything, there are pros and cons to each option:
- A new system might be subject to delays, especially if demand from other breweries is high. But you’ll be able to design it to your needs and specifications, and you’ll have support when issues arise (and they invariably will).
- Leasing may be the right option for you if you are planning for growth and will have a need for increased capacity. Just be sure you have insurance coverage and are in tune with all of the operational requirements you must comply with.
- A used system might get through the door quicker and save you money up front, but make sure you’ve thoroughly reviewed the system and seller. Keep in mind that when you have problems, you’ll likely be on your own to fix them.
- Once your brew is brewing, you’ll need a process in place to manage your inventory — and you’ll need to think bigger than simply checking the back room to see what you have left in stock. Your inventory control should be fairly sophisticated in order to help you effectively track your cash flow and profits.
Make sure to take the following factors into account:
- Barrel aging: The amount of time it takes to brew each beer before it can be sold.
- Compliance with TTB: How much tax do you pay for each beer once it is ready for consumption?
- Stock: How much beer went into kegs, bottles and cans? How much of this did you sell versus how much did you lose?
Finally, take a look at your POS system. At minimum, a brewery will need to cover its bases for transaction processing and payroll. If you’d like to have a POS system on site, this typically includes a register and a debit and credit card reader. When choosing a POS system, be sure to also consider the needs of the people who will be using it. Do you want to invest in a Square register? Will you allow payments from customer’s phones? Will you be selling your beer to outside bars or retailers?
This is how you will receive and track your profits, so make sure you invest in a system that you are comfortable with, as well as one that is convenient to your customers.
3. Be on the watch for fresh business opportunities
You know things are going well when your friends stop asking for your beer for free and are willing to actually buy it from you. But, this doesn’t mean you can relax and let things run themselves.
The key to long-term success is continuing to review and update your business plan and cash flow projections, looking up to three years out at a time. A good forecasting tool for small businesses — which can be found in web-based business planning applications like LivePlan from my company Palo Alto Software — can help plan and prepare for potential what-if scenarios. Also, conducting regular SWOT analyses can allow you to more clearly identify and digest the ongoing strengths, weaknesses, opportunities and threats for your brewery business. This will give you a better idea of the important things to focus on in the coming year, as well as potential business opportunities to explore.
Now that you have completed Part 2, you are ready to follow your passion for creating great beer. With your business plan in hand, you’ll be well-equipped to not only keep the beer flowing, but the cash as well. Cheers to your craft!
Sabrina Parsons is the CEO of Palo Alto Software.