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MicroBrewr 068: An SBA loan can help open or grow your brewery with Hi-Wire Brewing.

MicroBrewr 068: An SBA loan can help open or grow your brewery

Two years ago, Adam Charnack and his partners got a $254,000 SBA-backed loan to start Hi-Wire Brewing in Asheville, North Carolina. Today, they’re expanding to a second brewery with another SBA loan.

“The SBA involvement in craft beer,” says Adam, “has been a part of the success of craft breweries being able to open and grow.”

“The way that banks are willing to look at breweries is totally different under and SBA lens. We’re all just young guys that wanted to start a brewery. So we’re not rolling in [money] or have some big financing. Without SBA involved it definitely would make getting financing a whole lot more difficult.”

Adam advises to focus on your business plan. “If you show up with a notebook paper, or a page-and-a-half typed, with a bunch of typos on it, that’s not going to cut it.”

The financials are the most important things that banks look for when you apply for funding:

  • Financial projections
    • How much it’s going to cost to make things
    • When you’re going to get paid
    • What the prices are
  • Sources and uses of funds
  • Projected and net operating income (12 months, and next few years)
  • Cash flow

“A lot of that is a shot in that dark,” admits Adam, “but at least you’re making intelligent assumptions.”

With so many breweries in and around Asheville, there is an abundance of qualified workers. Even still, employee retention is important.

“We’ve never had anybody leave our company that started with us in the last 2 years in our brewery operations,” says Adam.

His tips on how to keep quality workers:

  • Throw parties throughout the year.
  • Organize fun company outings.
  • Have a lot of fun.
  • Respect people.
  • Provide opportunity.

“If you treat people right and you respect people,” says Adam, “we’ve had no problem retaining talent here.”

Other tips:

  • Bring on a partner with an understanding of, or background in, finance.
  • Assets or an alternative means to payback a loan helps to secure funding.

Advice for someone who wants to do what he has done:

Brewery specs:

Kettle size: 30 BBL + 30 BBL (two breweries).

Size and quantity of fermentation tanks: 90-BBL and 30-BBL.

Size and quantity of bright tanks: 90-BBL and 30-BBL.

Annual brewing capacity/last year’s production: In September 2015, capacity will be approx.. 17,000 BBL/year. By year’s end, on pace of 10,000 BBL/year.

Square footage: 27,000 sq. ft. and 4,000 sq. ft.

Years in operation: 2 years (opened July 2013).

“I would definitely advise having a business partner.” [Tweet This]

 

Listener question:

From Daniel: What’s your biggest regret?

Book recommendation:

Check out the entire list of recommended books, click here.

Your Free Audio Book

An upcoming beer style:

Lager

Other resources:

You can reach Adam Charnack and Hi-Wire Brewing at:

Sponsors:

Beer

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

Subscribe on iTunes             Listen to Stitcher

MicroBrewr 067: How to find investors for a brewery with Jenny Kassan.

MicroBrewr 067: How to find investors for a brewery

UPDATE: Mistakes and clarifications have been corrected, per Jenny Kassan.

You planned the brewery of your dreams. You researched the market and you know it will be profitable. But you don’t have a million dollars under your pillow to start it. Now how to find investors for a brewery?

Jenny Kassan, an attorney and consultant in Oakland, California, graduated from Yale law and worked for 11 years helping to build really small businesses. For the last 9 years she worked in securities law, “the very highly regulated world of raising money for a business.” Now she does consulting and teaches classes on how to raise funds for businesses.

As soon as you ask someone to invest in your brewery, you’re conducting a “security offering,” which is regulated by the U.S. Securities and Exchange Commission (SEC), as well as the securities regulators in each state where you offer the investment.

“Even if the regulators don’t catch you and fine you, you have created this liability for your company,” cautions Jenny. “If, for example, one of your investors was unhappy later and wanted their money back because you couldn’t afford to pay them or something, they could complain. And then it would be uncovered that you never did comply with those laws. And they would have a pretty good case against you.”

First, some background info.

There are generally 2 kinds of investments:

  1. Equity – ownership in the company
  2. Debt (loan) – must be paid back

There are 2 kinds of investors:

  1. Accredited investor – A person with a net worth of $1 million (excluding his or her primary residence) or annual income of $200,000, or an entity with $5 million in assets.
  2. Unaccredited investor

If you offer a security only to accredited investors, the legal compliance hurdles are generally fewer. However, there are legal ways to include both kinds of investors in your offering.

 

Until you have ensured that your offering is legally compliant, don’t solicit investors directly. Also don’t advertise your offering publicly unless you have done the legal compliance that allows advertising. At this point, don’t solicit investors directly, just ask general questions.

Anything other than one-on-one communication is considered advertising, which is regulated by the SEC.

“Have some informal conversations with potential investors,” Jenny instructs, “and say, ‘I’m thinking about raising some money—I’m not doing it now, but I’m thinking about.’”

Then ask general “if scenarios.” For example, “If I were to offer an investment opportunity in my brewery:”

  • Would you be more interested in equity or debt?
  • How would you expect to get paid back?
  • How long would you be willing to have your money tied up?
  • What kind of perks would you want?

The laws are flexible enough that you can design your investment agreement in lots of different ways.

“There’s a lot of kinds of equity that can look a lot like debt,” says Jenny. “There’s also debt that can look more like equity, where the payment that you make to your investor can vary based on the success of the company.”

After both parties come to agreement, they each need to talk with an attorney to make sure their desired agreement is legally compliant.

Most investments require some kinds of securities filing at the state or federal level or both.

After you figure what you’re willing to offer, you might be ready to conduct an offering. Talk to an attorney to help you do the necessary filings.

Direct Public Offerings

If you want to do a Direct Public Offering which allows you to do public advertising and include unlimited number of both accredited and unaccredited investors, you may need to file a Form D with the SEC and register with your state regulators. The filing requires attachments such as:

  • “Prospectus”
    • Risks
    • Business Plan
    • Description of management team and qualifications
    • Anything investors would need to help them make a decision
  • Sample security to be offered
  • Organizational documents for the company
  • etc.

The filing fee can range from a few hundred to a couple thousand dollars. Legal fees usually range from $15,000 – $30,000. It sounds like a lot, but if you’re opening a million dollar brewery, it’s a worthy 3% of the overall budget.

“I think it’s possible to do without an attorney,” speculates Jenny. “It’s certainly not the best strategy. It may take you twice as long and it may be a nightmare, but you should be able to get through the process.”

If you go at it without an attorney, remember that the regulators are there to help. So work with them, respond to all of their questions, and make their requested changes.

Once you get approval from the regulators for your Direct Public Offering, now find money!

Advertise your offering:

  • Talk to media
  • Get in the newspaper
  • Put it on your website
  • Send mass emails
  • Host parties and events
  • “Set up a million meetings”

Have your investor packet ready for when people want to know more.

“The best thing to think about,” says Jenny, “is to put yourself in their shoes and ask yourself, ‘What is everything I would want to know if I were them, before making a decision?’”

Include anything to help them make a decision, even the risks.

“If they find out later that you didn’t disclose something that was material to their decision,” cautions Jenny, “they could sue you and say you misrepresented what the opportunity was.”

Vet your investors

Another important thing is to make sure each investor is a good fit.

“You don’t want to accept the first investor that says ‘yes,’” cautions Jenny.

Find investors with whom you get along, and with whom your values and vision for the business align.

“When you are bringing in a fairly large investor,” says Jenny, “they may have a pretty big role that they are playing in your life for the next 10 years.”

And maybe we should saying something like… Of course this is lot legal advice. The laws are highly complex and vary from state to state. You need to speak to an attorney about your specific situation.

“You really have to vet your investors in the same way that they’re vetting you.” [Tweet This]

 

Listener question:

If you could ask one question to every brewer or brewery owner, what would you ask? Let me know.

Book recommendation:

Check out the entire list of recommended books, click here.

Your Free Audio Book

An upcoming beer style:

Cider

Other resources:

You can reach Jenny Kassan and her legal work at:

Sponsors:

Audible

Download a free audiobook.

Audible. Download a free audiobook. http://microbrewr.com/audible

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

Subscribe on iTunes             Listen to Stitcher

MicroBrewr 066: How to get an SBA loan for a startup brewery with First Community Bank.

MicroBrewr 066: How to get an SBA loan for a startup brewery

Kris Kennedy works in the Small Business Lending Group with First Community Bank in Roseville, California. They were the first financial institution listed as an allied trade member of California Craft Brewers Association.

The U.S. Small Business Administration’s loan program makes it easier for small businesses to get funding from traditional lending institutions. Kris teaches us how to get an SBA loan for a brewery.

All participating banks must go by the SBA guidelines. There are typically 5 criteria to judge worthiness for a loan:

  1. Cash flow – This could be historical or projected. Can you repay the debt?
  2. Economic environment of the industry – Also includes changes to the industry such a new regulations or supply issues.
  3. Collateral – Can include business assets and personal real estate.
  4. How much the borrower is investing – They typically require 20-25% for startups.
  5. Character – They check your credit score including public records such as judgments and liens. Credit score must be at least 680.

Loan funds can be used for a variety of things. Eligible expenditures include:

  • Operating equipment
  • Real estate
  • Tenant improvement to real estate
  • Construction of a new building
  • Refinancing for business debt
  • Purchase of an existing business
  • Working capital

Loan amounts can range from $350,000 to $5 million dollars. Loans are offered in 10-year and 25-year terms. They’re fully amortized, meaning that the monthly payment will be the same through the life of the loan. There’s usually no pre-payment penalty after the first 3 years.

Kris says the ideal candidate should have experience working in a commercial brewery. Planning on opening a brewpub, have restaurant or hospitality experience. Basically, show that your past experience applies to running a brewery.

If you’re a homebrewer wanting to get an SBA loan, it could help to have awards for your beer. So start entering in contests!

Lastly, Kris says, it’s good to work with a lender that has experience in the industry. If you’re in California, Arizona, Nevada, Washington, or Oregon, and you need funds to start or expand a brewery, get in touch with Kris.

“Not every startup is something that a lender is going to be able to finance.” [Tweet This]

 

Listener question:

From Josh Button: How much business experience should I have? What kind of experience or education would you ecommend?

Book recommendation:

Check out the entire list of recommended books, click here.

Your Free Audio Book

An upcoming beer style:

Pale ale

Other resources:

You can reach Kris Kennedy and First Community Bank at:

Sponsor:

Beer

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

Subscribe on iTunes             Listen to Stitcher

MicroBrewr 031: Accounting solutions for your craft brewery, with Brewed For Her Ledger.

MicroBrewr 031: Accounting solutions for your craft brewery

So you want to start a brewery and you don’t know what to do about bookkeeping and accounting. Audra Gaiziunas, Brewed For Her Ledger, guides us through accounting solutions for your craft brewery.

With a degree in accounting and a Masters of Business Administration, Audra worked as controller for Dogfish Head Craft Brewery. Later, she served on the board of North Carolina Craft Brewers Guild and worked as CFO of Mother Earth Brewing.

Now Audra provides a “kind of one-stop shop, mercenary, CFO for hire” for craft breweries. She helps with accounting solutions such as business plans, pro-formas, costing templates, and software implementation. She also does operational audits and more.

Recently Audra won a business plan competition at Oregon State University to earn an internship at Ninkasi Brewing. At the brewery in Eugene, Oregon, she enhanced her first-hand experience in production, technical, and maintenance aspects of Ninkasi’s operations.

The 3 biggest mistakes she sees breweries make:

  1. Not having enough capital on hand. You’ll need more than 3 month’s cash on hand.
  2. Not planning for information flow. Set up processes to make sure information and documents flow efficiently from one department to another.
  3. Not having funds for contingencies. Set aside 10%-15% for unexpected expenses.

6 tools she suggests to manage your breweries finances:

  1. Set aside time each week to handle paperwork.
  2. Take a cash flow class at the community college.
  3. Use Microsoft Excel or simple accounting software to track your data.
  4. Ensure information is communicated between all departments of the brewery.
  5. Build a budget annually and review it monthly to stay on track.
  6. MOST IMPORTANT: Understand how much your beer costs at any given time, by beer type and by packaging type.

SPECIAL BONUS:

Ask Audra any question about accounting, finance, and strategy for your brewery.

Leave your questions in the comments section below.

Audra will keep watching the comments for the next 30 days to answer as many of your questions as she can.

Be sure to connect with Brewed For Her Ledger and thank Audra for being on the show and for helping us out with questions.

UPDATE: Thirty days is up, Audra is no longer monitoring the questions here. You can still reach her through the links below. Thanks for your great questions everyone!

Listener question:

From Orlando: How do some breweries buy or lease a building for sometimes years while completing renovations and licenses?

From Dan: How much capital does a brewery need to start? Where can they get the capital?

Book recommendation:

Check out the entire list of recommended books, click here.

Your Free Audio Book

An upcoming beer style:

Session lager

Other resources:

You can reach Audra Gaiziunas and Brewed For Her Ledger at:

If you like the show, please subscribe in iTunes or Stitcher. When you subscribe, it’ll let you know when there’s a new episode, you won’t miss a thing!

You might also like:

MicroBrewr 033: Wastewater treatment solutions  for a craft brewery, with Brewery Wastewater Design in Montrose, Colorado.

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

Subscribe on iTunes             Listen to Stitcher

MicroBrewr 022: Expanding to... India! with Arbor Brewing Company.

MicroBrewr 022: Expanding to… India!

Matt Greff fell in love with beer while at university in Germany. He and his wife, Rene Greff, opened Arbor Brewing Company Brewpub in Ann Arbor Michigan in 1995. Since then, they opened a microbrewery in nearby Ypsilanti, Michigan and, just a year and-a-half ago, opened a brewpub in Bangalore, India!

They operate under the principle of “capitalism with a conscience.” Rather than being focused solely on profits, they aim for their business to be good for the community and good for their employees. “The best decision we every made,” says Matt, “was giving our management team a lot of autonomy.”

Do you want to open a brewery? This is Matt’s advice for you to start doing tomorrow:

  1. Develop a vision
  2. Do your homework
  3. Get experience

Matt also talks about:

  • How his love affair with beer started
  • How to use geothermal cooling to reduce energy costs
  • How being named “best brewpub in the Midwest” affected their sales

Support Arbor Brewing Company’s crowdfunding campaign on Indiegogo

ABC Microbrewery Needs a Kitchen

(Deadline: September 4, 2014, 11:59 p.m.)

UPDATE: They met the goal of their fundraising campaign. Woohoo!

Listener question:

From Tanner Munro: Have you thought about pairing beer to food, as a compliment beverage to food?

Book recommendation:

Check out the entire list of recommended books, click here.

Your Free Audio Book

An upcoming beer style:

Session IPA

Other resources:

You can reach Matt Greff and Arbor Brewing Company at:

If you like the show, please subscribe in iTunes or Stitcher. When you subscribe, it’ll let you know when there’s a new episode, you won’t miss a thing!

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

Subscribe on iTunes             Listen to Stitcher

Start-Brewery-for-125000

MicroBrewr 012: How To Start Up a Brewery for $125,000 w/ Wild Earth Brewing

The Final Episode of the MicroBrewr Podcast

As a lot of you know, my wife and I are currently expecting our first child just about any day now. With him coming, I’ve taken a step back to analyze priorities since I feel like I don’t currently have enough free time to give to him with everything that I’m currently doing. While doing this podcast has been an absolutely amazing experience, after a lot of consideration I’ve come to the sad conclusion that I’m going to need to give it up to be able to focus on my family. I hope that you understand and I just really want to say thanks for all of the amazing support that I’ve had along the way. This will be the final MicroBrewr podcast and I have an awesome interview with David from Wild Earth Brewing to wrap up the MicroBrewr podcast series!

UPDATE: This is not the last episode!!! See episode 13 for more details.

Meet Dave From Wild Earth Brewing

Dave Kilgour was able to start up Wild Earth Brewing in 6 months, fully funded from friends and family and with a total cost of $125,000.  From moving in the fermenter from his garage with a couple guys from town to being the only employee of the brewery, David has planned to keep costs down while still producing awesome beer for the masses.

In this podcast, we discuss:brewerytaproomlogo

  • The dynamics of starting a brewery in a small town
  • How working in a brewery before starting your own is key to your success
  • Discussion on the financial aspect of nano-brewing and the lost costs to increase brewing size
  • Selecting the styles of beer to offer when opening your brewery
  • The process of scaling up your homebrew batches to the full brewery process
  • How to bottle your beer while keeping costs down
  • The benefits of being able to fully fund your brewery without outside investors

Support Dave and Wild Earth Brewing Co!

Check him out at the links below!

Wild Earth Brewery Website

Wild Earth Facebook Page

Wild Earth Twitter Page

Your Free Audio Book

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

Subscribe on iTunes             Listen to Stitcher

Raise Money For Your Brewery

MicroBrewr 008: Raise Money For Your MicroBrewery Without Having to Give Away Any Ownership w/ CrowdBrewed

Raise Money For Your Microbrewery Using Crowdfunding

In this podcast I got to interview Mark Slattery from CrowdBrewed which is a crowdfunding platform targeting the craft beer industry.  While I have heard of crowdfunding campaigns on sites like Kickstarter, I still wasn’t sure on the details of how they worked.  Mark walks us through the process and details how you can raise money for your brewery without having to give up any ownership!  While crowdfunding can work really well for starting up a brewery, Mark also discusses how established breweries can use crowdfunding for expansions or if they want to offer a new beer line.  Besides raising money for your brewery, crowdfunding also has a great marketing aspect since your campaign will get attention and those that invest are going to be even more loyal fans in the future.  By the end of this podcast, you’ll know how crowdfunding campaigns work, how to avoid pitfalls of campaigns that have failed and if crowdfunding is right for you!

Some of the topics that we cover:

  • What exactly crowdfunding is and how it works
  • The difference between rewards-based crowdfunding and equity crowdfunding
  • What sets apart the successful crowdfunding campaign versus those that fail
  • Examples of the best performing rewards that you can offer in your campaign
  • The best time to do a crowdfunding campaign if you’re starting up a brewery
  • How established breweries can use crowdfunding for that upcoming expansion or product offering
  • The marketing value of a crowdfunding campaign
  • The next steps on what to do if you want to start up a crowdfunding campaign

Find Out More About CrowdBrewed and Links to Other Resources

crowdfunding-microbrewry

CrowdBrewed Website

CrowdBrewed Twitter and Facebook Pages

Connect with Denver Beer Guy on Twitter

BrewDog – Scotland Brewery that Used Equity Crowdfunding To Raise Money

J Wakefield Brewery – Broke Craft Brewery Crowdfunding Record Raising $112,000

Your Free Audio Book

Build Your Social Media Presence Before Starting Your Campaign

To help with those crowdfunding campaigns, you’ll want to already have a good social media following to get the word out once you start the campaign.  Since time and money is tight, I’ve put together an e-book with six free social media tools that you can use to build your presence online and get your beer into the hands of more people.  As my thanks for visiting MicroBrewr, simply click the button below and I’ll send you the e-book free to your email.

 

Sign me up!

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

Subscribe on iTunes             Listen to Stitcher