Uber quick post. Last week I was approved for my small business loan which is HUGE! More investors on board (and room for a few more). Lease negotiations seem to be complete, contract being written up now. Will be ordering 20 BBL brew house, 40 BBL fermenters, 40 BBL bright tank, 40BBL hot liquor tank and accessories this week. So busy, lots to do in order to close on the loan. I'll go into great detail on loans, leases, and such when time allows.

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The brewery is finally happening!



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.



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.



The Business Plan: Part I - Overview

Now where did I put cash flow statement? As I move on to the next and more difficult phase of this endeavor, financing, I thought I would share some goodies I learned from the business plan phase. Here is a link to the template of my business plan. This is simply the business plan with all section and subsections and all content removed, save for an introductory sentence or two in each.

I will not claim to be an expert on writing business plans, but I think I know a lot more now than I did six months ago. The pdf I've included in this post will show how I organized mine. I based it almost completely off of the "Business Plan for a Start Up" template located at the SCORE website. One notable change is that I pulled the "Competitive Analysis" section out of the "Marketing Plan" and made it its own section. I felt this was a better way to organize it and to really emphasize to would be loaners or investors that I've done my research and I'm not expecting to just jump into easy street. There is a lot of competition and it's important that anyone willing to give me money understand that and understand that I understand that. Understand? I really put a lot of work into the competitive analysis.

The business plan was written with the assumption that any commercial banking representatives I meet will not have the faintest idea about the craft beer industry, specifically the growth rate. A big part of my plan is to educate the would be loaner about the industry. Obviously any business plan would need to do that but it would be easy to assume that because of the ubiquitousness of craft beer everyone already knows this, right? (I don't actually know what "ubiquitousness" means, but I see that word everywhere.) I mean, jeez, it's craft beer! Are bankers living under a damn rock? Well, I'm sure there are plenty of Bud Light drinkin' bank folks who will require education and convincing. To help me make these points, I have included numerous facts, tables, and supporting news articles on the industry. Much of the information comes from the Brewers Association. I have an individual membership to the BA which allows access to all of this material, and I highly recommend you do the same. I want to make it really, really apparent that this is not a particularly risky enterprise. At least relative to, say, a new social media website startup or an online pet store. To underscore this, I'm going to work hard to communicate to bankers that I'm not making widgets here, I'm not competing against InBev, and there is a real dearth of craft breweries in Chicago, one of the world's great cities which also happens to have a rich brewing history.

With all of that in mind, I think it's important to note that regardless of what kind of business you're trying to open, the first thing a banker is going to do is open your business plan and turn to the financial sections. Your friendly banker wants to know how much money you're asking for before anything else. After that, they're going to look at your profit and loss and cash flow statements. They need to know that they're going to get their money back and they need to know they're going to make a profit. So although educating a banker about the craft beer industry is important, they're first concern is the numbers. I've learned this because I have a friend who used to be commercial loan banker for a locally owned bank. When I showed him my business plan, he went right to the numbers and ignored "the fluff", his words, not mine. That's something that will be at the forefront of my mind as I navigate these waters.

In the next few posts I'll delve into the financial sections and I'll talk about some of the other important sections.

Note: I've had quite a few people ask me for my business plan. Complete strangers who've read this blog and have emailed me requesting it. Now, if you read the FAQ you'll see that I'm not freely sharing the entire business plan. I would expect most people to understand why that is but there are a few folks who seem to think that it's a legitimate request. For those few let me ask you this: would you want to give away something that required months and months of work? Or something that contains confidential information about you and your family? Exactly. The only people with whom I've shared the business plan are advisors, trusted acquaintances, and a few close friends. All sharing was done quid pro quo. Each person has provided me helpful insight in some form or other. Another valid reason for not sharing is that my business plan is exactly that, mine. It reflects my viewpoints, my research, and my environment. Opening a brewery in Chicago is probably quite a bit different than opening one in a rural area. Opening a 15 bbl brewery is quite a bit different than opening a nanobrewery. So I say to you here today, go forth and write your own business plan. You will learn so much about the business when you do. And you'll tailor your business plan to your situation which is completely different from mine. Then there's the possibility that my business plan isn't very good. Right? I've never written one before. There are assumptions in there that might be completely wrong. Who knows? I've done everything I know how to mitigate mistakes but I am human and I don't have a crystal ball. Finally, remember I've just shared the template. C'mon man, that's pretty generous, ain't it? ;-)

Progress This Week

I've been incommunicado this week as I'm trying to power my way through the rest of the business plan, I've been doing research on a variety of topics, and I've been doing a lot of mulling in my head. Let's discuss. First, I'm still focusing on the marketing plan portion of the business plan. Because there's so much material there, I'll write a different post about all of that shortly, lots of good info to share.

Outsourcing Saves Money And Adds Excitement!

One of the main topics I researched this week is SBA backed loans. I've done more digging into that complicated world in order to have a better understanding of what my options are and to be able to speak intelligently with banks when the time comes. The SBA has many products with their "7(a)" loans being their most popular. But they also have another interesting loan product, the "504" loan. This loan has specific requirements for which is can be used but the one relevant to Panic Alarmist is that it can be used to purchase manufacturing equipment. The program involves participation by a bank, an SBA "Certified Development Company", and the SBA. Each entity takes on a portion of the risk. Very interesting program and I'll have much more to say about this in the very near future.

Also related to the SBA, I dug deeper into which banks do the most SBA lending in the Chicago area. Not every bank deals with SBA loans and there are some banks who do a lot of SBA loans which means they have a thorough understanding of the ins and outs of dealing with a large government agency. What did I find? The jackpot! Crain's Chicago Business has a list from 9/30/11 with the names of all the biggest Chicago SBA lenders, how much they've loaned, and how that amount compares to the previous year.  Wanna see it?  It's here (skip the ad by clicking the link in the top right corner).

So what am I mulling around in my head? Well, I'm a big fan of options. Options create mitigation of risk and they also provide solutions to potential problems and I'm a big fan of both of those things. What I'm thinking about is what makes the most sense financially: buying a canning line on day one or opening a retail store on day one? Canning line = $70,000+, retail store = ???+. Could I get the loan for the construction build out for the retail space? My guess is no, not for a start up (that collateral thing again). So can I get a loan to cover a canning line? Probably easier. But if I open a retail store instead and I have no canning line, then I'll be selling growler and keg only for awhile in the store and keg only out in the trade. No cans would severely limit my sale of beer initially but then I'd have the excellent revenue generation from the retail store...but with no cans. This is a catch-22.  I'll be creating another spreadsheet to dig into the retail store stuff and talking to some people who might know a bit more about this.  Ideally I'd like both the canning line and the retail store, but I'm not convinced that will happen on day one. This is what's been on my mind this week more than anything.  Guess what?  It's a problem and it will get solved.

Finally, the logo is in the final design stages. The colors are being tweaked a bit to better address color matching in the print world. More on that when it's 100% completed. I have some really talented people working on this and they're doing it for free, which means they will be VIP's at Panic Alarmist for life. As Panic Alarmist grows, I'll fully intend to be able to pay these same folks for their services in addition to all the beer they will have access to.