Welcome The Business of Craft Brewing 2.0 The Financial Discussion NEPD Charley Ininger Vermont Small Business Development Center

Workshop Summary The workshop is geared to helping the advisor understand that the financial discussion for new, existing as well as expanding breweries is really the same. We will review the key elements in that conversation.

The Business Model Canvas

Financials The financial plan defines the viability of the business plan and outline. Do you have production capabilities to support the financial projections? 3 years of P&L, Cash Flow and Balance Sheet

Key Financial Impacts on Your Business Model Lets Look at some of the financial Considerations that will impact the financial viability of the brewery. These Elements and considerations are true for New Breweries, Existing or Expanding Breweries.

Major Cash Investments Cash Needs Major Cash Investments Ingredient Inventory & Supplies (Vessel) Equipment – Actual Brewing Equipment has 10 yr. or greater life qualifies for a 10 year financing loan Retrofitting Space – Can be rolled into Real Estate if owning/purchasing Real Estate. Waste Management – Check with local folks as to what is needed. Can be as much as $500,000 for a pretreatment system. Real Estate or Equipment? Preopening expenses including Labor, Working Capital etc. Tasting Room Build out. Furniture, fixtures etc.

Revenue Stream Based On System Size & production Starting Point for Revenue Stream might be System Size 5bbl - $450,000 - $600,000 7bbl - $600,000 - $900,000 10bbl - $800,000 - $1.3M 15bbl – $1.2M - $1.8 The above estimates are based on 4 production which would be 2 days +/-

Revenue Stream What are the Revenue Streams? Be sure production supports quantities in those streams Generally talk in BBL with one BBL equaling 31.5 gallons Use projections to support Revenue

Beverage Distribution Model The Beverage Distribution Model Known As A Three Tier System Brewery - Distributor - Retail

Pricing The Impact on Revenue Based on the Three Tier System What is the Business Model? Cans, Kegs, Bottles etc. Most likely a combination. You do need to know your competition. What vessel are you using? Remember what impacts pricing: Your COGS % trying to attain – Industry 48-52% Distributor Margins – 25% - 30% Margin Retail Margins – 25% Margin (Know Your Market) Knowing your margins is critical in your market!!

Each Tiers Impact On Pricing Brewery What Might be included in Cost of Goods Sold Ingredients Production Labor Packaging State and Federal (?) Excise Tax Water? Example: If the COGS$$ is $34.50 and want a 46% COGS the price to distributor is $75

Distribution Impact The Distribution Margin is added even if the Brewery does Self Distribution. You are setting Market Price Once The distributor will use a margin rather than COGS% so be sure to divide by the inverse. Example: If sell the Keg from previous slide to distributor and he has a 25% Margin the selling price to the Restaurant is $100

Retail Price Impact On Premise Pricing For the Brewer to Maximize their Retail Sales they need to speak the language of the Restauranteur What is the glass price range for the restaurant? What COGS% do they operate under? Example: Assuming $6-9 per glass and 25% COGS% Keg price $110 with 95% yield Cost on 7.75 gl. per oz. $.11 $.11 X 16oz. Serving = $1.76 $1.76 / 25% = $7.04 per glass or $7.25

Retail Price Impact Off Premise Pricing Lets look at Retail Pricing The Price is Impacted by Brewer COGS along with Distributor and Retail Margins You have to understand the retail pricing method to understand where you will sell Example of Pricing using Retail Margin of 25% Brewery sells to Dist. $47.50 with Dist. Selling at $63.00 assuming 25% Margin Retailer Sells case at $84 assuming 25% Margin If case 6/4pks 16.oz the Retail is $14.00

Avoid the Pitfall When Pricing, you must remember that if you sell at the brewery or do self distribution to retail and restaurants, you need to price at what the distributor or retailer would charge. Set the market price once!!

Some General Financial Metrics Some Industry general rules of thumb Cost of Goods Sold: 44-50% (Includes brewing Labor) Labor: 18-22% (25-30% including production) Rent: 4-8% (NNN vs. Gross Lease) Utilities: 3-4% All Percentages based off Gross Revenue

Questions? Charley Ininger Area Business Advisor 802-279-9941 cininger@vtsbdc.org