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MicroBrewr 079: The importance of budgeting for working capital with Lakewood Brewing Co.

MicroBrewr 079: The importance of budgeting for working capital

Wim Bens was born in Belgium and moved to Texas when he was 7 years old. He applied to American Brewers Guild just to have the option. Now, 3 years after opening Lakewood Brewing Co. in Garland, Texas he can barely keep up with demand.

“If you start doubting what you’re doing, then you shouldn’t be doing it.” [Tweet This]

 

Wim’s original business plan called for 3 employees, adding about 1 employee per year, for every 1,000 barrels produced. They had planned to expand production to 7,000 barrels in year 7.

Two years later after opening, they had 13 employees and had started looking for a larger venue.

Today, just 3 years after opening, Lakewood Brewing Co. has a staff of 22. They produced 7,500 barrels last year, are on track to produce 10,000 barrels this year. They are projecting next year’s production at 15,000 – 20,000.

RELATED: MicroBrewr 077: The importance of writing your goals.

Wim says you must have:

  • Good culture
  • Good people
  • Investment
  • Ability to invest at the right time
  • Make smart investments in your business
  • Good beer
  • Consistently good beer

“And I think if all those things come together, especially in a market like Dallas-Fort Worth that had a local beer drought, then you have a good recipe for success,” advises Wim.

On convincing family, friends, and fools to invest in your brewery:

  • It’s very important to believe in yourself.
  • It’s very important to believe in what you’re doing.
  • Hire people who are smarter than you.

“If you start doubting what you’re doing,” says Wim, “then you shouldn’t be doing it.”

“A lot of people think when they open a small brewery, “I’m going to be the brewer.’ Ok, well who’s going to do payroll? And who’s going to do HR? And who’s going to be ordering supplies? And who’s going to be doing facility maintenance? And who’s going to be doing all your advertising? And who’s going to be doing distribution?

“There are so many things that have to happen in a brewery to be successful that you have to be able to delegate that and hire people who are experts in those fields.”

Wim reminds us to budget for working capital. His advice is to double your budget—and then add 20%.

“Working capital is not talked about enough,” says Wim. “You have to have enough money to pay your employees, to order your raw materials in large amounts so that you get a quantity discount so that you can eventually turn that into a more profitable margin. You have to have a lot of working capital until you start seeing the money come back.”

Brewery specs:

Kettle size: 30 BBL.

Size and quantity of fermentation tanks: 30-180, 1,440 BBL total fermentation vessel capacity.

Size and quantity of bright tanks: 180, 90, 80, 60, 40.

Annual brewing capacity/last year’s production: 2014: 7,500 BBL.

Square footage: 30,000 sq. ft.

Years in operation: 3 (opened August 2012).

Listener question:

From Peter Stillmank: How much beer do you need to produce each year to break even?

Can’t-go-without tool:

Rubber mallet.

Book recommendation:

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

Your Free Audio Book

An upcoming beer style:

Sour beers

Other resources:

You can reach Wim Bens and Lakewood Brewing Co. at:

Sponsors:

Beer

Support MicroBrewr

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

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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.

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MicroBrewr 063: A hundred-page business plan and barely enough money, with Crazy Mountain Brewing Company.

MicroBrewr 063: A hundred-page business plan and barely enough money

At the height of the great recession, Kevin Selvy had a hundred-page business plan and started Crazy Mountain Brewing Company in Edwards, Colorado with $500,000. He calls it an irresponsible amount of money and estimates that nobody should do it with less than $1.5 million.

Nonetheless, he met his 3-year sales estimates within 3 months. After 5 years, their beer is distributed to 18 states and Europe, and they just entered the California markets.

“The best advice I could give,” says Kevin, “is give up your day job and go work for a brewery. When it comes to finding investors, if you can say, ‘I’ve got several years of experience in the industry, I know what I’m doing,’ that goes a lot farther than somebody saying, ‘I just like making beer in my kitchen.’”

Kevin sent his business plan to more people than he could count. He drove 10 hours and slept in the back seat of his car to meet with a potential investor.

“Raising money is a very difficult aspect of starting a brewery,” warns Kevin. “You’re going to get 900 ‘no’s before you get one ‘maybe.’”

Here’s some of his advice:

  • Research your business plan
  • Have a packet ready for when investors ask
  • Don’t give up

Although Kevin’s business plan was about 100 pages, lots of it was graphs and financial tables.

“Make sure it’s very thorough and points a really good picture of what you’re trying to accomplish.”

Brewery specs:

Kettle size: 20 BBL.

Size and quantity of fermentation tanks: 23 tanks, 20-BBL, 40-BBL, and 60-BBL.

Size and quantity of bright tanks: 1, 40-BBL; 1, 20-BBL; and 1, 60-BBL bright tank.

Annual brewing capacity/last year’s production: 17,000 BBL brewed in 2013. 20,000-BBL capacity.

Square footage: 10,314 sq. ft.

Years in operation: 5 years (opened 2010).

“The best advice I could give is: Give up your day job and go work for a brewery.” [Tweet This]

 

Listener question:

From Kevin Scott: Can you talk about the pros and cons of contracting for raw materials for your beers (i.e, hops, malts, etc.)?

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 Kevin Selvy and Crazy Mountain Brewing Company at:

Sponsors:

InMotion Hosting

“Fast, reliable, affordable, web hosting.”

advert-inmotion-hosting_250x250

Support MicroBrewr

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

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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

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.

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