By Kate Smith, Craft Brewery Loan Officer at Live Oak Bank
Whether you are planning to start or expand your craft brewery, your first step is to develop a sound business plan. Indeed, any business project that requires a considerable financial investment and is expected to return a profit should generate a business plan before a single dime is spent. Why? Because the business plan is your blueprint for creating profitability and success. Without a detailed blueprint, how do you know what you are building?
Here are five important ways a business plan can help you succeed with your craft brewery start up or expansion.
1) Establishes the viability of your project.
A well-constructed business plan requires you to think through and document a range of logistical requirements for your project in order to establish its viability and ascertain its likelihood of success. Your business plan will answer certain market-related questions such as:
· Where is your business located and what are the demographics of the area?
· What competition do you face in your local community and how do you plan to market your business?
· How will you measure success?
· Who’s your management team?
· How much capital do you need to complete your start up or expansion project?
· What are the projected monthly income and expenditures for your business upon completion of your project?
By carefully researching and documenting the answers to these questions in your business plan, you gain an understanding of the true potential of your company and can initiate your project with greater confidence.
2) Provides a basis for negotiating with lenders.
Most likely you will need to borrow a significant amount of capital in order to start or expand your brewery. The business plan forms the basis for negotiations with potential lenders or investors. It details your business objectives, market research, and plans for staffing, marketing, and cash flow management. If thoroughly researched, it provides a foundation for determining the potential value of your business, and conversely, the level of risk your lender would be undertaking in funding your project.
When choosing your lender, look for a lending institution that is familiar with the brewing industry as they are more likely to understand your specific situation and financial needs. Additionally, lenders who specialize in the brewery category may be able to help spot potential flaws in your rationale or project calculations, possibly saving you valuable time and money in initiating your brewery buildout.
3) Creates a guideline for cash flow management.
The business plan is a living document that should be updated periodically to reflect changes in the company vision and cash flow projections. As a living document, it also serves as a guideline for cash flow management, identifying funding resources and projected outflows for the business over a period of several years. Understanding the cash flow of your business allows you to respond more quickly and appropriately to market trends and opportunities. You are also better positioned to plan your next stages of growth.
As with any major business initiative, you will undoubtedly run into surprises along the way like maxing out capacity. Your business plan provides spending parameters and accounts for contingencies to ensure adequate funds are preserved for critical investments that will support your brewery’s ultimate success.
4) Functions as a business communications tool.
Many small business owners find there are times when they need to effectively communicate the mission and expectations of their company to customers, suppliers, attorneys, distributors, and other third parties. The business plan, partially or in whole, provides a thorough overview of your company’s vision for its future. It can therefore be a valuable tool for giving employees a broad view of the company, educating key partners and suppliers about the scope of the business, and informing financial supporters of your specific plans for future success. Again, the business plan can be considered the blueprint for that success, describing in detail what it will look like and how it will be built.
5) Empowers you to determine your future.
Whether your objective is to run a small, profitable local brewery, or become a leading industry competitor, the only way to ultimately control the outcome of your business undertaking is to plan for it. In the end, this may be the greatest value offered by your business plan. By documenting your ideas and strategies – what you want to see happen and how you plan to get there – you are taking control of your future and placing the power to direct the final outcome in your own hands.
These are just a few of the most important reasons for creating a business plan. You might also consider the benefits your business plan can provide in outlining specific objectives for managers, key investment decisions such as whether to rent additional space or distribute, valuing your business for estate planning and tax purposes, or defining your personal exit strategy.
Developing a thoughtful business plan can help you focus your vision for the future and positively impact your level of success. If you haven’t already done so, get started on your craft brewery business plan today. For instructions on how to write your business plan, see the second article in this series called Crafting an Effective Business Plan for Your Brewery.
Live Oak Bank is the second largest Small Business Administration (SBA) lender in the United States1 and the top SBA lender to craft brewers nationwide in 20152 – Member FDIC.
Sources: 1 - Small Business Administration - 100 Most Active SBA 7(a) Lenders by volume in U.S. in FY 2016. 2 - Based on SBA data a