What Has Two Thumbs, One And A Half Chins, And Is Quickly Raising Funds For A Brewery?

This guy right here! Hi again! It's been awhile. I've been busy as usual, and I actually got to take a family vacation to Wisconsin this past week, which was much needed. So let's do some status updates. First and foremost, investor fundraising is going through the roof! As of yesterday Panic Alarmist has 48.5% of the investor funding goal in the bank, as in, actually deposited in the Panic savings account! That's after 2.5 weeks of official fundraising. Not bad, eh? And there is at least another 25% on its way, just coordinating meetings and phone calls to answer final questions and figure out document signing logistics.

It would be nice to sit back and spend some time trying to absorb the fact that my over 2.5 years of planning is actually paying off but we're not there yet. Still lots to do, like......

As my investor funding comes in, it's now time to pivot a bit from investor/lease mode to investor/lease/bank loan mode. As I've written in the past, there are two pieces to the funding puzzle. Investor funds will be used for things like construction build out, operational cash flow for the first year+ and miscellaneous other expenses that a bank won't want to pay for. The bank loan, which is larger than the investor funds, will be used primarily for purchasing the brewing and packaging equipment, ingredients, packaging supplies and other tangible assets

Before a bank will loan me money, they want to see skin in the game, meaning they want to see how much money I'm putting into the business (meaning my own personal investment plus investor funds). For a start up, a bank likes to see anywhere from 25-50% of the total start up cost provided by the business before they're comfortable with providing the rest. The actual percentage is based on the bank's risk appetite, their financial health, the loanee's credit rating (mine is stellar, just sayin'), the business plan, the size of the loan request, and much more.

Now that I'm about to blow by the 50% of the investor funding requirements, I can start the loan process. This is the tricky part. Will a bank see that I have half of the investor funds plus my personal investment, feel comfortable that the rest will be funded in the future before it's needed, and loan me the rest? Or will I have to be at 75% or more before a bank will even consider the risk? Well, based on what I've been told by business bankers, 50% is a good place to start the loan application process, which I officially did yesterday!

My bankers are very powerful people, as clearly shown here. Once I have their money, I too will be very powerful. Might even buy a suit.

I will be applying with one very large bank, and one local bank at first. The local bank was referred to me by one of my investors who has been a business customer with the bank for a decade. I was given an introduction, we chatted on the phone, and the business plan was emailed out. I should have some kind of feel next week as to whether or not a loan with either institution is a possibility. Both loans will most likely be backed by the SBA and that should be quite the learning experience.

Next up in my three prong attack is the lease. My real estate agent put in a Letter of Intent to the owner of the property I'm interested in leasing last week. The first thing the owner wants to see are my finances, which is expected. So here we have a bit of a catch-22. I can't get a lease without my finances in place. What does the owner want to see? No idea yet. Just like banks, commercial real estate owners have different risk appetites based on their particular situation. Maybe the owner will see my investor funding total and be comfortable with that. Maybe they'll want to see the bank loan in place. The latter is probably most likely. Now the bank wants to know if I have a location. Well, no, I don't, because I need my finances in place. So far, it appears that as long as I've identified a location and am in the leasing process, the banks aren't too concerned. Having a location in mind though will very, very likely help assuage the loan underwriters. I'll report back on that once I know.

I'll have some other news to report which I'll do in the very next blog post to help break things up a bit.

Cheers!

G

Where You At?

Chicago Craft Beer Week is over and what a week it was! My favorite part of the whole week was meeting new Panic Alarmist fans and admirers. I've lost count how many people came up and thanked me (I was wearing my Panic T-shirts all week) for sharing so much and offering wonderful words of encouragement at the four events I attended. My wife, Bridget, who isn't usually a big beer festival fan, accepted that beer events would be a part of our lives from now on and joined me for all of them. She really got to see first hand how much all this work I've done has started to pay off and she's more excited than ever to get this brewery up and running. And as usual, people liked my wife more than they liked me. I'm used to it. This is what I hope to be the home to Panic Brewing. There's lots of space, but the other tenants are either a bit insular, pregnant, or dead.

Let me start with the biggest news thus far: I've found a space I'd like to lease. I like it a lot. It's almost perfect. I say it's "almost" perfect as there are some potential zoning issues I'm trying to hash out with the alderman's office for the location. I want to be able to open a retail store first, and then a tap room down the road. There could be some problems with the current zoning, but like everything else, it will all work out. As much as I'd love to reveal the address, I can't let the cat out of the bag just yet. There's a lot that has to happen before I can sign the lease and it will definitely be several weeks or more before the deal is done, but I REALLY want this space. I'll gladly share the ins and outs of leasing once I have it signed.

Another big deal for me was opening a business checking and credit card account, which I did last week. Yes, it's easy to do (you need to be a registered business entity with your state and get your EIN from the IRS, which is easily done online here), but I had put it off as I thought it might be an additional expense I wasn't ready to take on yet. Turns out, it's pretty cheap and actually free if you maintain a certain balance. An easy task, but it's checked off the list, and that's a good thing.

Now, the big question is, where is Panic Alarmist now in the process? It seems like I'm always saying, "almost ready to fund raise", or "finishing up the legal investment documents". Well, I'm almost ready to fund raise. I'll officially begin once we finally finish up the legal documents. I spent 2 hours on the phone with my attorney last week to go over the damn near final versions of the operating agreement and PPM. We've agreed to have these 100% completed by mid June. Monday, June 17 to be exact. I'm sure I'll have to go through at least a couple more reviews before then, but that is my focus right now. I want this shit done NOW!

I have some final tweaking to the business plan that I will be finishing up over the next two evenings and then that's it. No more business plan changes. Over the past couple of months I've received some new equipment quotes and learned some new info that has allowed me to make some pretty significant changes to my financial analyses ranging from start up costs to ongoing monthly costs. Some changes are required due to how some banks underwrite loans. I'll go into painful detail on bank loans, especially SBA backed ones once I have my loan in place.

Let me go into my business plan process real quick. I finished the plan months ago. Since then I've made numerous revisions both big and small. This is how I operate. When I am learning something new, I iterate over and over until at some point I feel comfortable with the result. I'm not looking for perfection with the business plan, but I'm definitely looking to not commit any egregious errors. Perfect example: there are so many things that could go wrong during the construction process that my costs could be way beyond what I've budgeted. I've tried very hard to mitigate that. But at some point, you have to let it go, roll the dice, and do your best. Most people would've started the dice rolling much sooner than me. That's ok. Everyone is different and I'm very comfortable with how I learn and execute. It's now time to execute.

So here's kinda how the rest of this story unfolds, as I see it:

  1. I get the completed investor documents from my attorney (which is my current primary focus)
  2. I contact all the folks who've expressed interest in investing (there are quite a few), email them the operating agreement, PPM, and some other stuff.
  3. We meet or talk on the phone, I answer any questions investors may have. (more on this when the time comes, which is SOON)
  4. Investors invest, money goes into an escrow account and stays there until a certain funding level is reached
  5. Once a certain funding level is reached, I continue my conversations with the banks I've been dealing with. They see I have investor money and personal investment, they analyze the business plan, they approve, the SBA agrees to guarantee it, loan gets funded. This takes several weeks.
  6. As soon as the loan is funded, I order equipment. Brew house and fermenters require about 6 months to arrive.
  7. Also, as soon as loan is funded, lease is signed. This will take a few weeks of negotiation.
  8. Once lease is signed, contractors allowed to bid, contractors hired, work is completed. How much and what type of work will depend on the space I lease.
  9. On the day the lease is signed, I will submit my paperwork to the TTB (Federal agency in charge of breweries amongst other things). I will have begun completion of this paperwork way before this. TTB approval takes about 2 months. Could be more, could be less.
  10. Once TTB approval is received, I can then start the Illinois state approval process which can take up to 2 months. It would be nice to start this process in parallel with the TTB, but that would make Illinois business friendly.
  11. Construction finishes, equipment is installed, licenses all received, brewing begins.
  12. Beer is brewed, packaged, and sent to a distributor in the Chicago area. I will not be self distributing.
  13. Once operations are smoothed out and cash flow is good, I'll begin the process of opening up a retail store or tap room, depending on zoning and Chicago liquor license bull shit.

So, that's the plan. There are lots of mini tasks in there as well, but this is a good overview of what's involved yet. From the day I get the loan, we're looking at at LEAST 6 months to opening day, most likely 7 or 8. Who knows?

But this I can promise you, it's moving along better now than ever before. It feels very real and there's no stopping.

Last note: My latest batch of Panic Pale Ale is finally in the ballpark of what I'm looking for. There's a lot of tweaking yet to do, I'll be experimenting with some hop schedules, but it's close. Very close.

Cheers,

G

Hot Dog! We Have Some Big News!

Yesterday I posted about how Nate and I have been presented with an "awesome opportunity that will make this journey a lot easier and cheaper". About an hour after I posted it, Nate called me and told me the deal was approved and we are in business! So what is this deal that we've been chomping at the bit to share? Let's start at the beginning. Once Nate came on board as a partner about a month ago, we started bouncing ideas off of each other as to how to further mitigate our risk. We're both married with mortgages and children and despite our passion for brewing beer, we're not interested in putting any of that needlessly at risk. That meant we needed to seek funding from sources other than just banks and individual investors. Banks are fine and all, but we would have to put up personal guarantees which could put our houses at risk. Investors are a great option but the more investors we bring on board, the greater the risk of someone rocking the boat and expressing dissatisfaction with how the business is going.

So what's left? Well, there are venture capital firms, but those deals require relinquishing control of the business you've built with your heart and soul. That wasn't an option. What we needed was a partner with lots of cash who would let us run the business our way and trust our judgement and vision. Someone who maybe wanted to get a foothold into the craft beer industry but wasn't quite sure how to make it happen, and someone who was based in Chicago.

Well, after mining through many business and personal connections, making about 30 phone calls, and with a heaping dose of blind luck we've found our partner.

Luckily Nate didn't notice the clause in the contract regarding who has to wear the obligatory Vienna Beef Man suit to all events.

Ladies and gentlemen, please welcome Vienna Beef, Ltd to the Panic Alarmist Brewing family!

Wait, what? What do hot dogs and lunch meat have to do with craft beer? Well, perhaps that might seem a stretch at first. Initially it definitely seemed incongruent to what Nate and I are trying to do. Allow me to explain.

One of our mutual friends has a close cousin who is not only a huge craft beer fan, but also happens to be an executive at Vienna Beef. Our friend was at a family gathering and mentioned in passing that she was friends with some guys opening a brewery and they were looking for a business partner based in Chicago. Her cousin's ears perked right up apparently and by the end of the day, Nate and I were on the phone with her discussing our vision for the brewery.

Well, it just so happens that Vienna Beef, founded in 1893 here in Chicago and still headquartered here is looking to branch out from its ubiquitous hot dogs, Italian beef, and deli meat business. The owner, Josef Schulkerstein, is 5th generation of the founding family and still runs the company as a family business.

Two days after our initial conversation with our contact, Nate and I were sitting in Mr. Schulkerstein's office discussing brass tacks. We educated him on the economics of the craft beer industry, the capital requirements for starting up and future expansion, and our passion for brewing beer. Josef (I'm tired of typing "Schulkerstein") was genuinely fascinated by the industry. He freely admitted that he was not a craft beer aficionado but greatly enjoyed new beers whenever the opportunity presented itself. Nate and I shared the same vibe about Josef: a very open minded man with solid business sense. We were hooked. And so was he.

So it's been two weeks now and we, along with our attorney, have been in intense negotiations with Vienna's executive team (and their attorney). As of last night, we've reached a tentative agreement. The contracts need to be drawn up, reviewed, and signed, but all signals are green and I'm 99.999% confident the deal will happen. Josef is equally confident and gave us permission to share the great news!

What does this mean to Panic Alarmist Brewing? Well, it means we'll be starting off with a larger brewery, 30 barrel brewhouse vs 15 barrel. We'll definitely have our canning line, we'll be able to sign a lease on a particular property we've been eyeing, and we can be up and running by early 2014 no problem! But wait, it gets better.

Vienna will actively market our beers wherever they have an existing foothold including sports stadiums, grocery stores, you name it. They will also encourage all the various Chicago "hot dog stands" that carry Vienna Beef products to obtain Chicago liquor licenses so they can serve our beers! That's about 350 outlets in the city of Chicago alone!

But wait, there's even more! Josef is so excited about this whole new world of beer (to him) that he's offered really great ideas for unusual ingredients, many of which Vienna Beef uses in their various products. So Nate and I will be experimenting with Vienna's various spices used in their Italian and Polish sausages! And we're going to brew a special beer specifically for Vienna Beef outlets called "WeinerBrau". It will be a traditional German style lager but spiced with sage, fennel, onion powder and garlic powder. Our idea is to have it taste as much like a delicious sausage as possible. So much so that customers will actually want to buy a Vienna Beef sausage product to go with the beer. And more sausage eating means more beer to drink! It's true honest to goodness synergy.

We have so many ideas in the hopper now so once we have things figured out we'll announce all the great happenings!

So please, once again, welcome Vienna Beef to the Panic Alarmist Brewing family! We are thrilled and honored to have them as a partner in this adventure!

-G

Update: April Fools'

Lots Of Balls (In The Air)

That's a lot of balls for one man. I wish someone could help me with my balls. My wife probably wishes I weren't so childish. Just for that she doesn't get to touch my balls. I'm juggling a lot of balls at the moment. It's hard keeping track of so many balls. But no matter what I'm not going to get testy. Hey! Get your mind out of the gutter! Don't start reading into those innuendos and start thinking that they're innuendos. That's just nuts!

OK, enough of that, let's get busy. (heh)

Here's what's going on in no particular order:

  1. First draft of the Private Placement Memo is completed, second draft should be in my possession this week. If not, that's OK, I have plenty to keep me busy (heh). What this means is all you lovely, wonderful folks who've expressed interest in being a part of Panic Alarmist Brewing will soon have that opportunity. Stay tuned. Speaking of which, if you think you might be interested in investing in Panic please send me a message through the form on the Contact Me page. The minimum investment will be $8,000 and there will be lots of legal documents spelling out precisely what you get, what I get, what you don't get, and what I don't get. Everyone will be protected to the best of my attorney's ability, whom I trust completely.
  2. The first draft of my real estate lease RFP (request for proposal) is in my possession and I'm trying to get time to review it. My real estate broker, "Nick", has created this document which will be submitted to the real estate brokers/owners of the properties I've expressed interest in. This RFP spells out what kind of infrastructure I require such as electrical, plumbing, and floor loads. We'll see who offers some TI and/or abatements. See here for an explanation of those terms.
  3. I've started the small business loan process. I've spoken to several commercial lenders thus far. The response has ranged from extremely enthusiastic to mild irritation. The banks that responded professionally, got back to me, or loaned me money will be lauded on this website. The ones who didn't will also be mentioned as a warning to others. One lender, whom I spoke with on the phone today was very interested in the project. We will be meeting this coming Thursday. I am very excited.
  4. The first batch of beer from my 1 gallon rapid prototype process is ready to bottle. I split it into two different half gallon growlers and dry hopped them slightly differently. Can't wait to try the final results.

So that's a quick list of where I am. Still so much to do but things are really coming to fruition.

Oh, and there are quite a few secret developments happening as well. Really good stuff and I wish I could share, but instead I'll just tell you that I have some cool things going on and you should be titillated (heh).

Cheers,

G

Screw Glaciers! Panic Is On The Express Train!

Funny how things change in just a few weeks. Two weeks ago, I couldn't stop wearing pantyhose and now I want nothing to do with them! No wait, that's not what changed! I mean, yes it did. No, no...oh never mind!

What's really changed is that my glacial pace, as mentioned here, has become more of a missile-like pace! A high speed bullet train-like pace! A Millennium Falcon-like pace! Some other analogy regarding something really quite fast-like pace! One reason for this change is that with the increased rate of global warming, glacier references won't be very meaningful to people who should happen on this blog in a couple of years. Another reason is, well, I'm in my zone and it's time to finish this up. I have beer to brew and people who want to drink it! At least I hope people want to drink it.

First, let me explain that even though I'm not blogging every day or even every week or even every year (it seems), I am constantly writing quick status updates on the Panic Alarmist Brewing Facebook page. So if anyone is interested in very up to date news, that's the place to be. If you're not interested in reading what I had for breakfast or why Panic Alarmist will not be brewing any beer with turnips, well, I can't say I blame you.

Now, onto the news....

Here's what I've done since the last brewery related blog post (not the post about correspondence, that one is boring):

  1. Worked with my attorney to finish up the operating agreement. It is now 99% completed. There will be amendments once the financial picture becomes clearer, but the hard part is almost complete.
  2. Hired a CPA to review the financial statements in my business plan for accounting accuracy (balance sheet, profit and loss statement). I will also be hiring her for all general accounting and tax issues for Panic Alarmist as well. She has my latest business plan in her possession and I should have that wrapped up next week.
  3. Received feedback from my CPA and made lots of tweaks and changes to my financial analyses. Most changes were simply accounting related, but I want to ensure that any would be lender or investor is confident in my business plan, and that confidence is directly proportional to the accuracy of the business plan finances.
  4. Requested and received an updated quote from DME, one of the brewing equipment manufacturers I'm strongly considering. They are the manufacturer of choice by no less than three brand new breweries here in Chicago and all three breweries have told me nothing but good things about them. I also have a lead time from DME as of yesterday. That lead time is 18-20 weeks, meaning the amount of time from the date I order to the time it arrives. Pretty typical timeline and not as long as some other manufacturers.
  5. Started the real estate search. That's right, you heard me. Real estate. The location of Panic Alarmist Brewing. The answer to the most oft asked question about Panic Alarmist will soon be answered. I am searching for a space to lease somewhere on the North/Far North/Northwest/Far Northwest side of Chicago. Nothing fancy, just your standard commercially zoned area. I have a commercial real estate agent looking for me. We'll be doing our first tour tomorrow. I'm very excited.
  6. Decided that Panic Alarmist will definitely have a retail store before a tap room. Eventually both, but due to probable capital limitations (the bane of all start ups) at the outset, I will only be able to do one or the other. After talking to Gabriel and Matt, owners of Half Acre Beer Company, which has both, it became obvious that the retail store was the way to go. I think when they said, "Retail store, not even close" was probably what won me over. Why a retail store first? Revenue. Money. Cash inflow. I'm going to be a nervous wreck until this brewery is cash flow positive and then profitable. Until that time, I will be focusing on figuring out how to maximize revenues. Based on Half Acre's experience, a retail store generates much more revenue than a tap room because of sheer volume. Fear not, there absolutely will be a Panic Alarmist tap room, but first I gotta make sure the business is healthy.
  7. Decided to begin a new fast recipe prototyping process with 1 or 2 gallon batches using "brew in a bag". I spent a couple hours working out the water calculations in my fancy brewing spreadsheet that I've been using for a couple of years. Now I simply click the "Brew in a Bag" check box and all volumes convert automagically. This involves using a single brew pot for both the mash tun and kettle. No sparging, no pumping. I'll ferment in growlers which will allow me to try different yeast strains, fermentation temperatures, and/or dry hop schedules. I'll then bottle/carbonate the finished beer in 22 oz bombers. I thought of doing this months ago and finally getting around to doing it. Should be interesting.
  8. Received the first draft of the Panic Alarmist Brewing PPM (Private Placement Memorandum) from my attorney. This is the second of three documents required to execute the LLC member interest offering. That's the correct legal term for "investors" in an LLC.

Lots of big stuff happening all at once. Yes, it's stressful, yes I'm busy, but I love it and this train isn't stopping until the beer is brewing. There is oh so much more to share and I will when I can. Again, for quick updates, check out the Panic Alarmist Brewing Facebook page.

Cheers,

G