Beer. A cornerstone of civilization for thousands of years, it ranks only behind water and tea in popularity, according to Wikipedia. While we are far from the early days of brewing beer, it is only over the past few decades that the craft beer industry has taken shape and begun to flourish. Historically, big name breweries like Anheuser-Busch (Budweiser), MolsonCoors (Miller and Coors), Constellation (Corona), and Heineken have ruled the beer market. While those names remain as the largest beer makers in the world, craft breweries have steadily gained market share over the years. Offering their customers, a wide variety of flavors and types, these “smaller” breweries are typically independently owned, and they market various styles that larger breweries generally don’t have the flexibility to produce. Craft breweries are often owned or managed by a master brewer who has gone through extensive and formal education, training, and apprenticeship. However, the business side of brewing is often left as an afterthought, which can hinder growth and expansion. While starting and running a brewery often begins as a passion project, a means of taking one’s own creations and sharing it on a bigger stage, a craft brewery is still a business. There are several things that brewers should understand that, as new business owners, they may not have been taught as they experimented with different hops and learned new brewing methods.
Even before forming the business, a well laid out business plan should be drafted. This includes identifying key management team members, determining what type of entity it will be (C Corp, S Corp, LLC, etc.), and how the business will initially be funded. As an owner, you should ask yourself some critical questions: will you be taking on investors? How will their ownership in the business affect how the business runs and how decisions are made? Other questions can focus on topics such selecting the right accounting software, finding insurance, and hiring a professional team comprised on a CPA, attorney, and even having a banking relationship.
These concerns are sometimes overlooked before the business gets underway but addressing them early on gives you a more efficient start. Having strong relationships with your supporting service partners will allow you to put tools in your belt to best navigate the road ahead. The beer industry is heavily regulated, so making sure you have an accurate means of recordkeeping is of the utmost importance. Further, you will need to decide if will you distribute on your own or look for a distributor? Some states, like New Jersey, require beer manufacturers to use a distributor to sell to retail liquor stores when they reach certain levels of production.
Another important decision is where you will locate your brewery. Finding incentive zones can help defray some of the upfront costs and provide tax incentives for future years. You will need to decide if your brewery will have a tasting room as, if so, you will have to consider other licensing and regulations.
Next steps
Once you can clear some of these initial hurdles, you can officially form your company. Incorporating, registering, and filing the proper regulatory information can be a daunting task. This is something that professionals such as attorneys and accountants can help you with. Sales tax, federal excise tax, and environmental permits are just a few of the compliance areas that will have to be dealt with.
Getting the business up and running could take several months or longer. Before you can begin brewing, you need to make sure your financial and accounting systems and software are properly set up. Inventory accounting is extremely critical as it will drive financial decisions on pricing and purchasing but also regulatory reporting for excise taxes. Further, having proper accounting systems established is essential to other compliance reporting such as sales and income tax as well as having readily accessible financial reporting when you are seeking financing from banks or potential investors.
It’s not all compliance driven!
The systems you require are critical for budgeting, looking at profitability, and break-even analysis, to name a few. Determining cash flow requirements and capital expenditure needs is going to be critical to the initial and continuing success of the business. For example, do you know what type of equipment can you afford to buy versus what you want to buy? Scaling up over time may be a more reasonable method than going “all in” with the biggest and best equipment at the onset. Further, looking at tax incentives and credits, such as Research and Experimentation (R&E) may be something to help reduce tax liabilities. There are various federal and state incentive programs available for businesses to take advantage of.
Looking to the future
Growing the business will be a significant focus in the early years. Marketing, advertising, and planning for different internal and external events you will participate in are going to help get the brewery’s name out in the market and drive more business to your tasting room or carry out business, as well as provide name recognition for buyers at retail locations.
- What new and innovative styles of beer can you create?
- How much of your focus will be on existing products versus new products?
- How will you handle rapid growth and potential opportunities for expansion, partnerships, or joint ventures?
- Where will you find quality employees in the current labor market?
- How can you differentiate yourself as a business from others by providing employee benefits, flexibility, incentive-based compensation (such as stock or bonuses)?
To address these and many other challenges it may be necessary to bring in the right people. It is also important not to overlook certain business aspects for long term planning, such as making sure you’re operating, or stockholder agreements are up to date and include provisions for buy-sell arrangements; having key person life insurance; and succession and estate planning.
Long-term planning
Most business owners do not even think about the long-term strategy of the business in the early and growth stages. Are you in this for the long-haul? Is this business going to be your “retirement plan?” Even if the answer to that is “yes,” you should always be prepared to entertain the potential sale of your business. You never know when an offer that is “too good to walk away from,” will come through the brewery door. Making sure the brewery can continue with the legacy you have built may be extremely important to you, so planning for your exit will take some thought You may even want to have current employees take on ownership as well for continuity, where an Employee Stock Ownership Plan may be a viable option.
There is not a “one size fits all” approach to running any business – especially a brewery! However, making sure you plan appropriately and organize in a way to help mitigate surprises down the road should be the cornerstone of any strategic plan.
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