Start a Microbrewery

Opening a microbrewery requires much more than a deep love of craft beer. It also requires significant financial investment and patience. But craft brewing is one of the fastest growing industries you can join. Since 2007, the number of micro-brewed barrels in the U.S. has almost doubled from 8 million to 15 million. If brewing excellent craft beer is your passion, then you can make your business dreams become a reality.

Steps

Financing Your Microbrewery

1. Prepare for a huge investment. The beer industry is one of the most heavily taxed and thoroughly regulated sectors in the U.S. Because of this, you will have to pay for much more than brewing equipment and location. Depending on your state's laws, you might also have to pay for distribution and extra structural reinforcements to support large tanks.
   • You will also have to apply for a federal brewing permit from the Alcohol and Tobacco Tax and Trade Bureau, a process which can take up to a year. In order to be approved, you must have all of your equipment in place and your location completely prepared for business before you can begin selling to the public.
   • It will be up to you to decide how to finance your brewery. If you rely on investments from other people, you will be required to have a quicker return on investment than if you invest your own money. Depending on the size and location of your brewery, it could cost between $500,000 and $1 million to open.
2. Take advantage of the tax code. Although beer is heavily taxed at $18 a barrel, the federal government offers a reduced $7 a barrel rate for craft brewers on their first 60,000 barrels.
   • This reduced tax, first implemented in 1991, was designed to help small business owners open craft breweries.
3. Calculate your barrels. One of the key determinants of your investment and business plan will be how many barrels of beer you want to brew. Remember that 1 barrel = 31 gallons = 320 12 oz glasses of beer. Most microbreweries make less than 15,000 barrels a year, and some make only a few hundred.
   • Your equipment costs will also be determined by how much you plan to brew.. Equipment to produce one barrel of beer can cost $100,000 (bought used) whereas brand new equipment to produce 30 barrels of beer can cost $1 million or more.
4. Scout a location. You should have some idea of where you plan to put your brewery. Will you have a small tasting room or will you also have a restaurant attached to your brewery? Will you plan to sell merchandise like t-shirts and pint glasses in addition to beer? These factors will determine what kind of space you need to have.
   • Finding a location that is on the edge of a busy area is generally a good place to start looking. You will still benefit from foot traffic, but you won't have to pay an exorbitant amount in rent or on your mortgage.
5. Gain startup capital with a business plan. After you have determined the above factors, you need to start raising capital to open your brewery. If you cannot provide all of the startup costs yourself, you will need to get money from other sources. One of the most effective methods for raising funding is to draw up a business plan and show it to potential investors.
   • The business plan should include your operational budget, your location, your plans for making a profit for the first year, and your longterm plans for expansion.
   • Your plan must clearly show how you will fund the business. For instance, make it clear that you will provide 70% of the capital with your own personal money, 15% of the cost from small business loans and 15% from friends and family.
   • The business plan should also include your Unique Selling Point (USP). What does your brewery offer that no other competitor offers in the area (such as unique beer flavors or brewing methods)? Why should an investor pick your project over someone else's business? Make a passionate case for your business.
6. Present your business plan to friends and family. One of the most common sources of funding for small businesses comes from friends and family who already know you. They will understand your level of passion for the project and your general knowledge of the business.
   • Beware that taking money from friends and family could potentially hurt your relationships if you do not handle their investment responsibly or if the business fails.
7. Apply for a small business loan. The U.S. Small Business Administration is designed to help owners like yourself. Their SBA 7a loan is meant to help you pay for things such as real estate, machinery, and other operational expenses.
   • The 7a loans are set at a maximum of $5 million; the average amount granted in 2012 was $337, 730. The interest rates vary because they are negotiated by the lender and the applicant.
   • The application for this loan requires significant paperwork, including your personal financial history, projected loss statements, information for any other owners or affiliates, and income tax returns.
8. Use a home equity loan to finance your microbrewery. A home equity loan is based on the difference between the price your home could currently gain on the market and the amount you still owe on the mortgage. If you have significant equity on your home, you could use this to finance your brewery.
   • Don't just take the first loan that is offered to you. Instead, compare interest rates and repayment plans from multiple banks, credit unions, and mortgage companies.
   • Keep the risks of this loan in mind. If you cannot repay the loan according to the lender's terms, you could be forced to sell your house. This should not be used as your first resort.
9. Look into crowdsourcing for raising capital. If you know that your friends and neighbors would love to have a great brewery in their neighborhood, then look into crowdsourcing web sites like Kickstarter and GoFundMe. These sites will allow your potential customers to donate to you directly; it will also be a great way to promote your business before it opens.
10. Protect yourself legally and financially. Hiring a lawyer and an accountant early in your business strategy will help you make sure your business is functioning properly. An accountant will oversee your costs and help you stick to your budget, while a lawyer will make sure you stay compliant with all state and federal guidelines for brewers.
11. Visit your competitors. The microbrewers are known for being supportive of each other (especially when you have a common antagonist in large corporations, such as Anheuser Busch). Visit other microbreweries and ask them for their opinions, especially on picking equipment and designing the space for their customers.

Preparing Your Microbrewery's Location

1. Get the right equipment. Microbrewing requires a significant amount of equipment, although you can buy most of it ready to use. Companies like GEA Brewing can supply each piece for every system (mashing, fermentation, cooling, cleaning, packaging) that you will need. You can also find better deals on used equipment on sites like ProBrewer rather than spending more on brand new pieces. You will generally need the following pieces of machinery:
   • Kettles
   • Kegs
   • Boilers
   • Fermentation tanks
   • Storage tanks
   • Refrigeration equipment and ice liquid tank
   • Cleaning equipment
   • Filter tank and pump
   • Canning and bottling equipment
   • Consider the scalability of your space for your equipment. If your microbrewery is successful, will you have the space to put in additional tanks to serve more customers?
2. Renovate your location. You might be leasing a space, buying a former business, or building a new one from the ground up. Either way, you should have a team of high quality contractors and designers to help you create the best space for your customers.
   • Ensure you have proper ventilation. Breweries run on steam, so you have to ensure that your space can be properly ventilated and that it is also tall enough to accommodate large tanks.
   • Create a proper drainage system. Brewing on location will require very strong plumbing and a drainage system that can accommodate hundreds of gallons of beer. You should budget for a complete renovation of the current plumbing system in your location.
   • Invest in high quality flooring. This might be an easy detail to overlook, but your floors will suffer a lot of wear and tear from spilt beer. Make sure that you have a high composite floor that can withstand the acidic content of beer.
3. Consider your customer's experience. How will you accommodate your customers in your space? Will customers be seated primarily at a bar and small tables or will there be booths and large tables? Will you serve food in addition to beer?
   • What is the design of the space? Will your brewery have a cozy, pub-like feel to it or will it be light and airy? How many people do you wish to accommodate?
   • You should also consider if you will have space for entertainment, such as a small stage. Microbreweries tend to be popular places to socialize, so you might also consider doing a trivia night or an open-mic night.

Promoting and Expanding Your Business

1. Draw in customers to your location. While you are still building up a reputation for serving excellent beer, you might need to add extra incentives to draw in more customers. Consider offering happy hour specials, promote special or seasonal beer flavors, and host popular local performers for a discounted rate in order to attract more customers.
   • Host seasonal events at your brewery. For example, if you are located in a coastal area famous for its oysters, consider hosting an oyster festival where you pair your beer with a few special dishes featuring the local cuisine.
   • You can also host screenings of popular TV shows or movies to help bring in customers.
2. Get into the community. While your location might draw in a high amount of traffic, you also need to market yourself to the broader community. Beer festivals will be an obvious place to start, but consider also serving your beer at local food festivals, farmer's markets, and at large concert and film festivals.
3. Embrace broad distribution. Ideally, you won't just sell beer at a single location (your brewery). Instead, reach out to other bars and restaurants about carrying kegs of your beer for their customers.
   • If your brewery has a bottling system, you should also try to distribute your beer with local grocery stores and liquor stores.
   • Check your state's laws on distribution. Many states will let you self-distribute your beer to other vendors while others require that you use an approved distributor. You can find a list here:[1]
4. Connect with important influencers. Research popular beer bloggers and local food critics and then reach out to them with an offer to try your beer. If there are popular magazines on food and culture in your city or town, then you should also reach out to them.
   • Create social media accounts (Facebook, Twitter, Instagram, Snapchat, etc) to promote your brand. Also consider adding a blog section to your web site discussing all the best ways to enjoy your beer.
   • Send out a weekly or monthly newsletter with special offers and information for your loyal customers. This will give your brewery a "niche" value and create loyalty amongst your regular customers.

Tips

• Be practical. Do market research about the local area before starting your microbrewery. If there is already a successful microbrewery in the area, is there enough interest out there for another one?

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Sources and Citations

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