Building A Small Brewpub - 5
The following is a fictional description of opening a brewpub.
I’m starting to feel a little panicked, as if I bit off more than I can chew, swallow, or live through. But I remember one of those corny inspirational posters I read once: Only those who dare truly live. Of course there are also those immortal last words: Hold my beer.
I am supposed to sign my lease in a week and the white dry-erase board in my house that I use as a temporary office is full with my to-do list. I’ve done well so far but my goal was to have everything in place by the time I signed. The main things are to fill out my state brewpub license and the federal one through the TTB (Taxation and Trade Bureau) so that as soon as I have a signed lease I can submit that can get it out of the way.
The meeting with the architect went well, so we have a deal. I will pay him and his wife, the engineer, cash for half, and carry the other half in trade that they can use however they see fit. What they are really interested in is getting their name out because they just set up their office and want to get the word out, so to sweeten the deal for them I agreed to list them on our web site (still need to do) and if I am interviewed by any media, to plug them as well. So that cost me $4,000, but these days that’s pretty cheap.
Now about that web site. First I need a logo. I tried some of the free AI sites but so far nothing has stood out. I want it to be simple and easy to read. I want to stay away from the typical brewery logos tangled with hop vines and the like. The closer I can get to a simple, easy to recognize one the better. Also, I think just black and white. That will be less expensive in the future to reproduce than a 4-color process.
I went to Godaddy.com and did a search on crookedhouse.com, but it was taken. Then I tried crookedhousebrewing.com and voila! Available, so I snagged it. Godaddy is one of many web site hosts where you can build your own web site. I want an internet presence as soon as I can get one so I’ll build this one in the morning while drinking my coffee.
One thing about web sites is how to make them interesting. Two types of people use them. The first are the ones that just want to see your hours and your menu. But the second group are people who are passionate about brewing. The worst thing I can do is to have pictures of beers. How boring is that? I want to have pictures of brewing equipment and maybe some videos explaining the brewing process. If I was a home brewer looking to go to the brewery, that’s what I would want to see.
My next project was to move onto insurance. The actual building insurance will be paid by the building owner. But I need two other types of insurance: A comprehensive policy for the brewpub that covers slips and falls, product liability and equipment. The other type will be workers compensation. I first went to the Brewers Association web site and searched on insurance options, but wound up just calling local insurance brokers and I’m now waiting for some quotes. I had to guess on what annual revenues would be and what I would be spending for labor. Another resource to try is the state brewers guild. Most usually have an associated relationship with someone who specializes in brewery insurance.
But the pressing question is money! I will need more and I would rather not go through a bank. I want more flexibility in my repayment schedule.
I have already put $50,000 into the account. If I was starting with an existing restaurant, I could get this brewery open for less than $150,000, but with this space I need to be thinking more. I could come up with an additional $50,000 on my own, but I think this will be a $200,000 project, so additional funds are needed.
My plan is to put the word out to my friends and family about what I am doing. Most know already, but now that I have a location and plans in the works, it will be easier for them to visualize it.
What I want are small loans. It could be one person lending me $100,000 or ten people lending me $10,000. Whatever the combination is, I will give the lender 10% on their money. I will pay them each month, interest only, but eventually change the loan to principal and interest to pay them off. At interest only that comes to $833 per month, a very easy amount to come up with.
This loan will be secured by the equipment I buy. The brewing equipment will probably cost between $50,000 and $75,000. That means that there is enough collateral to cover 50 to 75% of their money. I will also be signing a personal guarantee for the amount too.
In addition to the monthly interest payments I will sweeten the deal by giving them a certain amount per month they can use at the brewpub. Let’s say somewhere between $50 and $100 dollars worth of food and beer per month. I will have the ability to pay any of them off first, which is crucial if one of them becomes a pain in the ass, sitting at the bar telling the bartender how to do their job. Oh yes, I’ve seen it happen.
I talked to my lawyer buddy and he say’s this is an easy plan. He can write up a simple loan contract I can use with each individual. I’ve already brought this up with some friends and they want in.
I’m almost at the starting gate.
Sequence of Events
Find a suitable location - Check
Draw up a floor plan - Check
Check with the town zoning to see if a brewpub is allowed in that location - Check
Get someone from the building department to do a walk through in the space while showing them my plan to see if they see any pitfalls - Check
Set up Company - Check
Set up bank account and fund - check
Draw plumbing plans - check
Draw up detail kitchen plans - check
Meet with architect and engineer - check
Apply for state and federal licenses - to do
Come up with a name - check
Get insurance set up - to do
Acquire additional funding - to do
Sign the lease - to do
Demo for plumbing - to do
Hire Contractor - to do
Start acquiring equipment - to do
Start on Business System - to do
Any deal is just a blank piece of paper and you can do anything. I would have a contract that say's I can do interest only for a period of time not to exceed 5 years and see how that flies with the lender. They might want a commitment to start getting paid back after one year. So the difference would be negotiated. Then you could stipulate an amortization of principal and interest for 5 years, which is reasonable. You would also want the right to pay them off as quick as possible, and I doubt they would mind this. The important thing however is to not let anyone in as a partner. Keep the equity yourself. Partnerships rarely last. They are getting a great deal earning 10% and they can sit at the bar and look at their collateral!
Once again, invaluable insights, Tom. I’d love to see just a bit more clarity on the payout you suggested on $100,000 borrowed with interest only repayments(for how long) followed by principle + interest repayments (for how long). Thx!