1. RICK COX, B.B.A., BREWER Fall ‘18
Business Basics
RICK COX, B.B.A., BREWER
Fall ‘18

2. Objectives (Part 1) What you will learn
Today’s Craft Alcoholic Beverage Industry
Getting Prepared
Different forms of ownership
Business Planning

3. Question
What is business?

4. Today’s Craft Alcoholic Beverage Industry
What eco-friendly generation is driving the market?
Craft sectors emphasize innovation and local identity.
Since 2007, every craft segment has grown by double digits.
Growth in spirits and Cider.

5. Four types of ownership
Advantages and disadvantages of different forms of small business ownership
Four types of ownership

6. Advantages and disadvantages of different forms of small business ownership
Sole-proprietorship
You are the sole business owner
You assume all responsibility
Financial
Legal

7. (Cont) LLC (Limited Liability Corporation) Membership, not ownership
Members assume all responsibility, not one individual
No stock offerings, percentage based on membership

8. (Cont) S-Corp 100 share holders All U.S. citizens Board of Directors
By-laws
SEC regulated

9. (Cont) C- Corp 1,000 share-holders
Any nationality can be a share-holder
Board of Directors
By-Laws
SEC regulated

10. Time to Jump in? Craft Beverage Business
Failure rates hover near 5 percent
Failure rate so low due to traditional craft producers are passion driven who refuse to fail
Survival depends on a demonstrable mastery of the craft
Changing laws

11. Products, Challenges, Markets (cont.)
Breweries
Independently owned
producing no more than 6 million bbls/year
2018 excise tax from $7 to $3.50
Culture
Future

12. Products, Challenges, Markets
Distillers
Independently licensed
producing fewer than 750,000 proof gallons/year
Culture
Future

13. Products, Challenges, Markets
Hard Cider
Production under what license?
History
Culture
Future?

14. Tell me “Why”
Start with Why

15. Make Your Mark
“Craft rewards revolutionaries, those remarkable individuals who are never satisfied with the world as it is an fearlessly seek a better way.”
page 19

16. Make Your Mark
Ken Grossman
Jim Koch

17. Start Prepared Do you and your partners have:
Understanding of the business
Knowledge of alcoholic beverage production
Marketing savvy
legal skills
physical strength
$250k, $2.5 M, apple orchard

18. Know yourself Can you be: Fearless Steadfast Honest and transparent
Devoted

19. Stand Tall Do you have: Generosity Forbearance Curiosity Appreciation
Wisdom

20. Set Goals
Aim for:
Specificity
Optimism
Realism
Short and long term

21. Advice Ken Grossman Think fast and move quickly.
Have a decent marketing plan.
Jim Koch
Make friends.
Don’t forget about the beer.

22. The Student Who is brewing beer? Who is opening breweries?
You have graduated. What do you need to start your craft business?

23. What is the Mission? Answer these questions:
Why are you in the craft alcoholic beverage business?
Who are your customers?
What image of your craft business do you want to convey?
What is the nature of your products and services?
What level of service do you provide?
What roles do you and your employees play?
What kind of relationships will you maintain with suppliers and distributors?
How do you differ from your competitors?
How will you use technology, capital, processes, products, and services to reach your goals?
What underlying philosophies or values guided your responses to the previous questions?

24. Talk to Me
Describe this

25. Business Plan
There is no greater work of fiction than that of a business plan.
Sam Calagione
Dogfish Head Craft Brewery

26. Parts of a Business Plan
Major components:
Executive summary
Business description
Market strategies
Competitive analysis
Design and development plan
Operations and management plan
Financial factors

27. Parts of a Business Plan
Executive Summary
Describe the business
Legal form of operation
Amount and purpose of the loan requested
Repayment schedule
Borrower’s equity share
Debt-to-equity ratio after the loan
Security or collateral
Market value/estimated value
Price quotes for any equipment

28. Parts of a Business Plan
Business Description
Expands on the executive summary
Start with a description of the overall craft beer, spirits, or cider industry
Explain target market, distribution, advertising, promotions, customer service strategies
Describe product or service
Emphasize unique features or variations that set you apart
Explain why the money you seek will make your business more profitable

29. Parts of a Business Plan
Market Strategies
Define your market -- size, structure, growth prospects, trends, sales potential
Based on research, interviews, and sales analysis
Focus on your customers and your competition
Document where your information came from
Who, what, when, where, why of your customers
Emphasize your unique selling position (USP)
Once market is defined and established sales goals, present the strategies of:
Price
Distribution
Sales

30. Parts of a Business Plan
Competitive (S.W.O.T.) Analysis:
Strengths -- What sets you apart from the competition
Weaknesses -- What do you not have the best skills at
Opportunities -- What lies ahead of you that you can make into an advantage in the market
Threats -- What is a threat to you and your company

31. Parts of a Business Plan
Design and Development Plan
Describes a product’s design and charts its development within the context of production, marketing, and the company itself.
If offering a service only, focus solely on development.
Development plan covers:
product development
market development
organizational development
Create a schedule that shows how these will develop over time.

32. Parts of a Business Plan
Operations and Management Plan
Management team and qualifications
Management compensation
Board of directors
Executive officers
Employees
Professional support
Operating expenses (capital and expense requirements)

33. Parts of a Business Plan
Financial Factors
Income statement details the business’s cash-generating ability
Cash flow statement details the amount of money coming into and going out of the business. (Pro Forma/Profit and Loss statement)
Show seasonality
Balance sheet paints a picture of the the financial strength in terms of assets, liabilities, and equity over a set period.

34. Parts of a Business Plan
Building and construction plans
Leased facilities
Building improvements
Subcontracting
The lease agreement

35. Parts of a Business Plan
Additional information
Anything not included elsewhere, but will significantly affect the business.
i.e., ROI, break-even point, return on assets
Gain help from your accountant to help organize raw data for financial section.
including monthly and yearly sales projections

36. QUESTIONS?

37. What you will learn (Part 2)
Regulation and Taxation (Ch 4)
The Craft Customer (Ch 6)
Financing Craft Beverage Companies (Ch 7)
Branding (Ch 8)
The Side Hustle (Ch 9)

38. Regulation and Taxation
Federal Government controlled alcoholic beverages until 1920
Chief source of revenue
Ended in 1920 with Prohibition
Work of the devil
21st amendment repealed Prohibition in 1933
Gave states power to impose restrictions
production
sales
distribution

39. Federal Alcoholic Beverage Laws
U.S. TTB (Tax and Trade Bureau)
Operation permits
Label approvals (COLA)
Formula approvals
Distribution (Three-tier system)
Taxes

40. Federal Alcoholic Beverage Laws (cont.)
Operation permits
Currently less than 60 days
Background checks
Field investigations
Equipment and premises examinations

41. Federal Alcoholic Beverage Laws (cont.)
Label approvals
Currently less than 30 days
Certificate of Label Approval (COLA)
Must have approval for all labels for outside sales

42. Federal Alcoholic Beverage Laws (cont.)
Formula approvals
Brewery, Cidery, Meadery
Must have list of ingredients
Distillery
Must have list of ingredients in detail along with “style” being manufactured.

43. Federal Alcoholic Beverage Laws (cont.)
Distribution
Three-tier system
Federally mandated
Separates alcoholic beverage producers from alcoholic beverage distributors from retailers.
Outdated system
Places undue burden on small craft alcoholic beverage producers.

44. Federal Alcoholic Beverage Laws (cont.)
Taxes
Separate federal tax rates for each of the craft categories
Beer; $3.50/bbl on first 60,000 bbls, $18/bbl after
Distilled spirits; $13.50 per proof gallon
Cider; $1.07/gallon if less than 14% alcohol, $3.40/gallon if “sparkling”

45. Do you need an accountant?
Accountants
Start-up
Big picture
Lifetime partnership?
Business advisory services
Accounting and record-keeping
Tax advice
Auditing

46. Just like having Microsoft Word does not make you a writer, having accounting software does not make you an accountant.
page 55

47. Choosing an Accountant
Services
Personality
Fees

48. State Alcoholic Beverage Laws
Each state and DC has its own distinct set of rules for each alcoholic beverage
State guilds resource for laws

49. State Alcoholic Beverage Laws
Tennessee has highest state excise tax at $1.17 per gallon

50. State Alcoholic Beverage Laws

51. Craft Customer
T-shirt-and-jeans crowd
What’s new?
What’s different?

52. Agree or Disagree?? Craft Customer
The bottom line takes care of itself if you make good beer.
Agree or Disagree??

53. Craft Customer Who is the fastest growing audience of craft?
Millennials (born between early 1980’s and early 2000’s)

54. Craft Identity Craft drinkers Experimenters
jump from one new beer, spirit, cider to another
Tracks styles rather than brands
Wants to feel a “connection” to what they buy
Authenticity matters

55. Financing Self-financing Equipment leasing Investors Private equity
Institutions
State support
Crowdfunding
Crowdfunding equity
Craft buying craft
Big beer buying craft

56. Branding Company’s foundation Creates value Clarifies your message
Reason for being
Your “why”
Creates value
Creates buyer trust
Clarifies your message
Makes your advertising work harder
A promise

57. Branding Building a Branding Strategy Set yourself apart
Know your target customer
Develop a personality

58. Branding Getting started branding
Tell the story and explain the product
Build a website
Social media
Make the product center stage

59. Selling Shovels It may not be about beer, spirits or cider Equipment
Services
Other businesses

60. Questions?

61. Location, Location, Location
What determines your location?
Style of operation
Demographics
Foot traffic
Accessibility and parking
Competition
Proximity to other businesses and services
Image and history of the site
Ordinances
Infrastructure of building
Utilities and other costs
Taxes

62. Cost of Brewing Supplies and Equipment
System Size
FV & BT/SV sizes
Glycol system
COG
Grain
Hops
Yeast
Nutrients
Water

63. Cost of Wastage in the Brewery
Every penny adds up
Wastage includes
Dumped beer
Water
Under-modified malts
Old hops
Spent grains
Man hours
Electricity
Gas
Spilled beer

64. Purchasing and Economic Order Quantity Analysis
Budgeting
Timeframes
Economies of scale
Savings vs. Storage

65. Inventory control systems and JIT Inventory
First in / First out
“Par” levels
Re-ordering

66. Questions?

67. What you will learn (Part 3)
Total Quality Management and its Impact
Small Business Insurance

68. Total Quality Management and its Impact
Management philosophy, a paradigm, a continuous improvement approach to doing business through a new management model
Focus on meeting owners’/customers’ needs by providing quality services at a reasonable cost
Focuses on continuous improvement
Recognizes role of everyone in the organization
Views organization as an internal system with a common aim
Focuses on the way tasks are accomplished
Emphasizes teamwork

69. Insurance DRAM SHOP liability Health Workers compensation Liability
Serving of alcohol to an intoxicated customer
Health
Optional dependent upon size of company
Workers compensation
Liability
Structural and equipment loss
Product loss
Future retail value

70. Government Regulations
TTB (Brewers Notice)
OSHA
Department of Agriculture
City Inspections
Building
Fire
Health Department

71. QUESTIONS?