A different take on brewery financing

Your Starting Point

Rod Serling

I still enjoy The Twilight Zone. The old ones from the 50’s and early 60’s. Rod Serling, with a dark suit and heavy 5 O’clock shadow would open the show with a simple “Submitted for your approval…” and then he would layout the plot.

Well, that’s what I feel like with this wee article. I’d like to submit for your approval an alternative way to finance your brewery. Like Rod would say, something from a different dimension, only limited by imagination.

There are many traditional ways to come up with the money for you brewery project.

• Bank Financing

• Equipment Leasing

• SBA Loans

• Investors

• Government Grant Money.

All of these are good paths but I want to go over another scenario instead. It would go something like this.

To start you actually do need to put in some of your own money. There is no free lunch and you are going to put your neck on the line to get this brewery done. I think this is a good thing, because one of the best motivators to get you to succeed is by risking it all.

Tap your savings if you have some. Sell off the jet skis and other crap you have accumulated that you do not need. Just selling off excess junk could yield you a few thousand dollars. And here’s the thing; no matter what your brewery cost, the IRS wants to see you put some of your own money in. If it is $4,000 to buy your stock, then so be it. All the rest will be financed. There I go again, getting ahead of myself.

Tap you 401k if you need to, get a second mortgage on your home, get rid of your BMW and buy a used pick up to get rid of car payments (you’ll need the truck). Just look under every nook and cranny of your life to come up with as much cash as you can.

Now that you have a chunk of cash, and I am hoping it can be $50,000 to $100,000 you are ready to start putting this together. Don’t worry if you only came up with $20,000 we can still get this done.

Remember that $4,000 you put in to the company initially that bought your stock? All the rest of the money you personally put in, can be as a loan, in which the company can pay you back with interest at some point.

The next step is to consider what kind of brewery you are going to open. A packaging brewery is going to be very expensive. A Brewpub serving food is great, but to do this on the cheap, you need an existing restaurant for your location. A tasting room brewery is the cheapest to open and again, if you can find an existing restaurant, bakery, coffee house or the like for your location, so much the better.

There are four parts to your brewery opening.

1. The build out

2. The equipment

3. The Legal, accounting, licensing part

4. Cash in reserves to get you going

Getting something that was a restaurant or something similar will save you HUGE amounts of cash building your brewery. The money you bring to the table goes for this. You will use your money for legal and accounting as well, unless you can strike a deal with a lawyer and CPA to work some sort of a trade. And, you also need cash to train your employees and have enough in the bank to cover at least two months in expenses. (Experts will disagree on this saying you need 6 months to a year, but I find that isn’t so, because you with your killer business system will be so on top of your finances from day one, you can budget accordingly including your daily sales which are going to the bank everyday).

What is left is equipment. You all know where I stand on this. Don’t buy the turn-key system with all the bells and whistles if you can’t afford it. A typical 7 BBL Frankenbrew system will cost you about $60,000 - $70,000 and it will be real beer equipment, not dairy tanks (though I have no problem with that).

For this amount of money, you are going to borrow it from friends and family. If the number is $70,000 that could be one rich aunt, or seven cousins at $10,000 each. You will set up a loan with each individual where you will pay interest only in monthly installments at 10%, yes 10%! When the business gets going you will switch those loans to interest and principal payments. That loan payment is only going to cost the brewery $583 per month. That’s peanuts. And the folks lending you the money are getting twice what a really good CD is paying currently.

Here’s the kicker. Their loan is 100% collateralized by the equipment, which will retain its value most likely. You can add sweetness too. Give them a monthly allowance at the brewery. Give them some swag. They will feel like they are a real part of your success and act as goodwill ambassadors in the community driving customers to your door.

If one of these lenders turns out to be a real pain in the ass, constantly at the bar giving you suggestions on how to run your business, then pay this person off first.

I was talking to a friend who was complaining to me while we were in his brewery standing by the bar. He needed a 15 BBL fermenter but the bank wouldn’t lend him the money. I suggested he ask one of his customers and then they could see their collateral right there while they enjoyed a pint. A customer sitting at the bar stood up, interrupted us and said he would be happy to put up the money.

What I like about this approach is you are not going to the bank and you are not having to take on any partners. A good friend of mine who is a lawyer told me along time ago, that any business deal is just a blank piece of paper. It’s up to you to come up with creative ways to structure it. The deal is only limited by your imagination.

Just add this into your toolbox of ideas on how to get your brewery off the ground. The more options you have the better.