Nano Brewery Expenses and Funding
Article via ProBrewer.com
The first question a prospective nano brewery owner should ask themselves is not “How much money can I expect to make?” but rather, “How much money can I afford to spend?”
From equipment costs to building expenses to licensing, the cost of opening even a small brewery can be staggering. And that’s before you brew your first batch.
The equipment costs for starting a nano brewery may be significantly lower than those for a full-sized brewery – although a new turnkey 3-barrel system can still run upwards of $45,000. But just as brewing beer is but a small part of the job of owning a brewery, the equipment costs are just a fraction of the total startup capital.
The costs of registering your business, licensing the brewery, meeting state and local building and health codes and paying taxes are the same whether you are brewing one barrel or 100 at a time. Here is a breakdown of some of the startup costs – besides brewing equipment, which will be covered separately – you can expect to pay:
Occupation Expenses
If you don’t already own the property where you are locating your brewery, there will be costs associated with securing the space – either by lease or by purchase. If you are leasing (the most common scenario for a nano brewery), there will be deposits, utility deposits and pre-opening rent and utilities to consider. When negotiating a lease, always try to get a few months of rent-free occupation to get your brewery up and running before rent bills start coming due.
Licensing and Permits
Federal Brewers Notice: There is no cost for your Brewers Notice, but you must also obtain a brewers bond, which will cost $1,000. Forms are available online at ttb.gov.
State brewery license: Fees vary by state and by type and size of brewery.
State business registration: This varies state by state, but is required to do business in the state. You will file with your state’s secretary of state.
Local business license: Again, this varies, but your local city government business office can assist you there.
Local building permits: Any alterations you will be doing to your location will need to be permitted by your city or county’s building department and, most likely, fire department. The cost of building permits is often tied to the value of the work being performed.
Local health department permits: If you are going to have an on-site restaurant or taproom, you must also get approved by your local health department. If there will be no on-site service, you still may be required to be licensed and inspected by your state department of agriculture.
Your state’s secretary of state and your local city or county business development office will be able to inform you of any state and local licensing requirements for your location.
Construction Costs
Depending on the size and scope of your brewery, you may need to hire licensed contractors to perform some of the work of preparing your space and setting up your brewery. This could include carpenters, concrete workers, plumbers, electricians, refrigeration technicians. In each of these cases, it is strongly advised to get at least three bids on each job. Even if you have a friend who says they can do the job for cheap, get a bid in writing – it may end up saving your friendship if a dispute arises.
Furniture and Fixtures
If you have an on-site tasting room or pub, you will need to factor in costs for items such as tables, bar stools, any cooking and/or serving equipment, glassware and glassware washing.
Even with no on-site service, you will need sinks, work tables, storage for small equipment, supplies and ingredients.
Insurance
In addition to regular business insurance, you will need to carry liquor liability insurance as well as workers compensation insurance and unemployment insurance if you have employees. Finding an insurance agent that has worked with breweries before will help you make sure you get all of the proper coverages.
Even without a full-service pub or restaurant, startup costs for a nano brewery can run as high as $30,000 per barrel. So how will you pay these costs and still have operating capital available to keep you going until you get cash flow from sales? Because nano breweries have a lower profit margin that larger breweries, securing a bank loan for startup can be very difficult. That leaves many of the “traditional” methods brewers have been using for the past 30 years: cashing in retirement plans, borrowing from friends and family, selling or mortgaging a house. But, as the number of nano breweries has soared, prospective brewers have tapped a number of new sources for startup capital.
Crowdfunding
A number of nano breweries have successfully used crowdfunding platforms such as Kickstarter, IndieGoGo and GoFundMe to start breweries. The rules for these sites vary, but the basics are the same: The project creator provides a description of their project and a list of rewards for those who contribute to making the project a reality. Individuals can then pledge a certain amount of money and if the total pledged meets the project creator’s goal, they receive that money, minus a fee charged by the crowdfunding site.
The success of breweries such as Portland, Ore.’s Natian Brewery, Chicago’s Pipeworks and Raleigh, N.C.’s Crank Arm Brewery has led to the launch of craft beer specific platform CrowdBrewed.
There are also equity crowdfunding platforms, where companies promise shares in the company for investment and debt crowdfunding platforms where investors receive their money back, plus interest.
Community Supported Brewing (CSB)
Based on the Community Supported Agriculture (CSA) model, CSB breweries offer subscribers the opportunity to “pre buy” a certain amount of beer – often in the form of a growler or two per week. The up-front money gives the brewer start-up capital and money for ingredients, while providing a vested cadre of regular customers.
Brewery Incubators
Some would-be brewers are banding together to make their brewery dreams come true by forming brewery incubators. The idea behind an incubator is that several brewers share one brewing system and operate under alternating proprietorship licenses. When a brewer grows large enough that they need their own space and system, they leave the incubator, making room for a new member. The first of these incubators, The Brewery Incubator, opened in Houston in 2013 and is currently looking for a new home after a landlord/tenant dispute. Incubators are now planned or in the works in Colorado, New York, Washington and Michigan.
