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An accountant setting up an accountancy firm is the usual story.
But an accountant setting up a brewery? Now that’s a bit more interesting!
Having long been fascinated by breweries, the brewing process, and – let’s be honest – beer itself, several years ago I looked at setting up a brewery.
The short story is that I did not set up that brewery in the end – I set up Square Mile Accounting instead – but the lessons I learned in the process have been invaluable to me in helping other business owners and entrepreneurs. Particularly those involved in brewing and breweries!
Here’s the story, and I trust it encourages you in your brewing.
The business plan is the second stage of building a brewery
As all entrepreneurs do, the first stage of course was to explore beers and breweries and the microbreweries all around me. But it didn’t feel like the first stage in business, because it was natural to do. Like many great business ideas, it didn’t even feel like a business at first.
My accounting mind kicked in and I quickly moved to the stage of preparing a business plan. My brewery would not be caught out for lack of planning. I did a great deal of research on the opportunity, the competition, the expected capital outlay, the expenses, the proposed income.
Unfortunately, the longer I looked at this opportunity, the more issues rose to the surface in my mind.
Accounting and financial challenges in running a brewery
Naturally, as an accountant I saw the financial issues in running a brewery. It’s easy for any new business owner to set aside these issues in the glow of the initial enthusiasm – or to presume that everything will work out well.
Here are a few of the challenges I identified:
- Capital outlay required: There is a huge capital outlay required for those who are starting their own brewery. The costs were upwards of £100,000 to £150,000 for the ‘kit’ – everything you need to get started.
- Lease on premises: Unless you’re fortunate enough to have the grounds of a castle (or the Tower) to work with, you’re going to need premises, and a lease cost on them to start your brewing.
- High fixed costs: Fixed costs are those that remain the same despite the number of customers you have (and bottles of beer you sell). If you start a consultancy from your back bedroom, there are little to no fixed costs. Brewers face a different challenge, as there are costs that start high and stay high throughout your business growth.
- High levels of competition: As I discovered, I was far from the only one with the newest brewery idea. And in London, there are some who are flush with cash from some other business venture who are simply starting a new brewery as a hobby. If it works out, excellent. If it doesn’t, they’ll move on to another hobby, and consider the cost a good lesson.
And the more I explored those issues, and the costs associated with solving them, the more my enthusiasm dwindled. I found that I was enjoying the accounting side of preparing to run a brewery, but hesitating at actually opening the brewery itself.
Then my enthusiasm re-kindled.
After all, there are many who are keen to build their brewery, and (unlike me) will not be deterred by these challenges. My skills in accounting allow me to see these challenges: and my enthusiasm for brewing and breweries means that I get excited to work with the owner of a brewery to address the financial elements, income, profit, expenses, capital outlays, and more.
Addressing these challenges – at a profit
So, how does your brewery make the most of these challenges? How do you address them so that you succeed, and best of all, make a profit?
Based on my own experiences, these are my top tips:
- Capital outlay
- Find yourself a business partners to co-invest with.
- Try finding yourself a kindly angel investor – if you can prove you have a marketable skillset then that may convince them you’re a sound investment.
- Re-mortgage your home to release that equity.
- Use hire purchase or finance leases to reduce your outlay where possible; for example, hire your delivery vans don’t buy them.
- Use an experienced brewing consultant when designing your brewery to save on expensive mistakes.
- Make use of a Self-Invested Personal Pension (SIPP) to finance the purchase of any commercial property. Up to 50% of the pension fund can be used to fund a deposit.
- Start off brewing on a very small scale to test demand for your beer. Do this before investing in any serious kit and seeking funding.
- As a start-up, you may be able to secure asset finance for your equipment purchase supported by a home owner guarantee
- Lease on Premises
- Consider partnering with a farmer who has spare buildings. But you will need to bear in mind the potentially high conversion costs to make the building compliant with health and safety standards.
- Negotiate long rent-free periods in buildings that have been vacant for a while. Landlords will be paying business rates, and financing costs, so will be keen to shift the cost of business rates to a tenant.
- Understand how your rent reviews work. It’s important to know how much you’re exposed to and how much the lease allows for rent to rise over time.
- When thinking about the location, consider other benefits that may compensate for higher rent; for example, being located in high footfall areas or on tourist trails may yield more than being located on a cheaper industrial estate where you will primarily be a manufacturer.
- High fixed costs
- Start small and consider using an established brewery to brew your beer on contract to deal with times of excess demand.This will minimise overcapacity, reducing any unnecessarily high costs within your own brewery.
- Do as much as you can yourself, such as bottling, delivery etc. But when it comes to brewing, the product has to be top rate, so it’s advisable to hire a skilled brewer or chemical engineer.
- High levels of competition
- Make sure you produce an absolutely top-quality product – there are a lot of top-notch beers out there already.
- The high level of competition in the UK is leading many breweries to look at export markets.With a business like Brewdog, export drives most of their turnover.
- Understand the level and quality of competition in your local area – do your research and know who you’re up against.
- Research your target market and understand what they want. Don’t waste precious time and resources on a product that no-one wants.
- Create a strong brand that resonates with your target market. Talk to experienced brand and marketing experts to get this right.
Even though my brewery did not grow any further than the thoughts in my mind, your brewery – and its profits – can grow through the experience that we both share.
So, if you’ve got the urge and the motivation to start your own brewery, now you know the first foundational steps to take – and some of the pitfalls to avoid.
Good luck with your venture. I hope, unlike me, that you’ll soon be seeing your bottles of quality ale flying off the shelves.