Guest Post by Rick Wehner from Brewery Finance
It’s a great time to own a brewery or distillery. There seems to be no limit to demand for quality beer and spirits. It’s no wonder that so many new breweries and distilleries are opening and so many existing breweries and distilleries are expanding. From the outside looking in, it would seem that these are very lucrative businesses to be involved with.
However, all that glorious product is not the only thing going out those doors every day….so is your cash! The insatiable consumer appetite creates a chain reaction all the way upstream that finds you constantly managing growth. Part of managing that puzzle is keeping up with equipment needs in order to continue producing more and more beer and spirits.
In many ways, it is a race to reach that critical level of growth where your cash flow can sustain not only your operations, but also future growth. Thankfully, until you get to that point, there are options for you to explore to help you acquire the gear you need to meet demand.
Banks have recently become very active in the beer and spirits markets and they are typically the cheapest source of money for working capital. However, despite their new enthusiasm and interest in these industries, they have restrictive underwriting parameters that not every business can qualify for…especially if you don’t have (or are willing to use) assets that they can use as security or collateral on the financing. The underwriting process can also take several weeks or even months. In this business, delays can be expensive. However, the right applicant can find themselves some great terms with banks, especially when working with one that has taken the time to understand these markets. Breweries and distilleries have “rock star” or “sex” appeal, which makes finding investors a little easier than it would be for other industries. However, when a business takes on an investor it is taking on a partner that may not have the same goals as the original owner(s) do. Also, you are selling shares in your business when it is likely valued lower than it will be when the investor wants out….in other words, you really have no idea what that investment will cost you over the life of your business. That being said, if you find the right investors, you can easily be on the fast track to getting to where you want to be and for every “war story” you hear about a partnership going sour, there are countless that have not. An equipment lease is another way for an expanding or startup business to acquire their equipment. The process is quick and typically requires far less information than other forms of lending. Lease companies, especially those that understand brewing and distilling, are much more likely to approve a request that traditional lenders will decline because they understand the value of the equipment and have first-hand knowledge of the industry. A lease offers the customer the flexibility of financing with a minimal down payment and can be structured to maximize tax benefits, or can be structured so that the customer owns the equipment at term for with no balloon payment . Equipment leases are priced according to risk. So, if you have good time in business and great credit, you’ll get a lower monthly payment than if you are a startup. Either way, a lease will typically cost you more than bank financing and less than taking on an investor. In addition it helps to establish business credit which will make getting bank financing in the future much easier.
There are a lot of ways to go about starting or expanding your business. There is no “one size fits all” solution and you need to have a full understanding of what you hope to achieve with your financing and be sure to understand the contracts you are signing. The beer and spirits industries have the attention of the financial markets which means that you have a lot of choice in who you work with, but it also means there are a lot lenders and investors out there who are looking to make a quick buck off of your addiction to stainless steel and barrels. Do your due diligence and make sure you know your options and know who you are working with. It is an exciting time to be a part of the beer or spirit industry and while it can sometimes feel like a race for shelf space and tap handles, it will pay off if you take your time and understand your options.
Rick Wehner is the founder of Brewery Finance and currently serves as its Director. He has been working with breweries and distilleries since 2005. www.breweryfinance.com firstname.lastname@example.org 303-800-1063
To meet with Rick or to hear from his colleague, Brent Hall, plan on attending the Craft Beer Finance & Investment Conference, August 24-25 at the Manchester Grand Hyatt in San Diego! To learn more, visit http://www.brewdistill.com/events/craftbeerfinance or call (540) 222-2742.