What's Faster, Me Or A Glacier?

Once I kick this guy's ass in the 1,000,000 mile hurdle, I'm going to boil him and make beer. It's been over a year since I first started blogging this adventure. I wish I had remembered the anniversary back in October! Here's my first post. Hard to believe 14 months have passed. That brings me to today's subject which is: "Where's the damn brewery!".

My wife brought up the point today that I'm moving very slowly on this and I agreed with her. I know lots of folks opening breweries in Chicago and they are moving quite quickly. Some have already begun looking for real estate, I have not. Now it's hard to compare apples to oranges as we all have different stories including size of brewery, financial resources, life responsibilities and such.

Of all the folks I know here in Chicago opening breweries, I believe I'm the only one who has all five of these attributes: 1) has kids, 2) is in his mid 40's, 3) has a mortgage, and 4) is opening a full sized non-nano brewery, and 5) has a good paying day job which happens to be the sole source of funds for the family. I could be wrong about the other breweries, but I believe this is the case.

These five things plus a few others combine to make me very cautious during this journey. I have a shit load of responsibilities on my shoulders that weigh in on every decision I make. I'm not saying others do not have equal responsibilities or limitations but these are mine. The only reason I mention my age is the whole idea of waiting so late in life to make these major changes is daunting. Add in children and all these other things and you get a very cautious man moving slowly and deliberately.

I've spent a lot of time playing out scenarios in my head. No failure scenarios, but lots of contingency plans. What if I can't afford a canning line? Can I grow the business by packaging only in kegs for the first year? Would it be more profitable to open a tap room before spending money on a canning line? What about a retail store? Does Chicago need another xyz beer? What about those damn hops I want so badly?

Well, I'm at the point now where I feel I'm ready to deal with just about any contingency. The only really big hurdle that I will be facing soon is getting bank financing. The result of that will play a big part in all of these other decisions.

So that's my litany on why I'm moving at the pace I am. Some might think it slow, some might not care one way or another. Just realize that this is my journey and I have to do it the only way I know how. Patience is not something I'm known for, so this enterprise is a real test for me.

Enough of that touchy feely Oprah crap! On to brass tacks.

I had a really productive meeting with my attorney a week ago yesterday. He's been amazingly helpful in guiding me through the maze of LLC's and member investment. We're getting very close to the first draft of the Operating Agreement. From there we'll move onto the other documents discussed in my previous post.

Despite my glacial pace, things are really moving along now. I've received rousing reviews of my business plan. People are complimenting me on how detailed and well thought out it is, which makes me feel like I'm on the right track.

I now have several commercial real estate agent referrals and I'll be talking to them this week to try to find one who's a good fit. It looks like the search could take several months so I better get my ass in gear to make sure I have a few choices once I'm funded.

Stay tuned, we're getting into the good stuff now.


Remember me?

Hey, what is this place? Some sort of "web log" thing it seems. I vaguely remember being here before. Hi there! It's been over a month since I last posted! That's dumb! So are all of these exclamation points! There's another one! Crap.

Well, we're officially in that phase I call "Write Checks to Lawyers". In this phase, you get out your check book, write large numbers on the checks inside it, and make the checks out to, um, lawyers. Well, "lawyer", not "lawyers". I can barely afford one.

So what's this all about? Well, good question. I'll explain as best I can't 'cause I ain't no lawyer (but today I wish I was). Primarily, the things I'm getting out of this lawyer stuff are an Operating Agreement (OA), a Private Placement Memorandum (PPM), and a Subscription Materials (SM) document (I think). That sounds exciting, doesn't it?!

The OA (I'm not typing "operating agreement" a million times) is a legal document which defines how an LLC will operate including managerial rights (that's me) and members' rights (maybe that's you?). I should backtrack a second here. An LLC, limited liability corporation company, which is Panic's (now named Alarmist) chosen business entity, has members. Those members are me and anyone else I let be a member. The people I will let be a member are my wife (she'd kill me otherwise), Charlize Theron* (never mind, my wife will kill me anyway), and anyone who buys into the Panic Alarmist private equity offering. The OA protects me, my wife, and Charlize if things go wrong, and it protects the investing members by letting them know exactly how Panic Alarmist will operate. This includes things like how profits will be handled, who calls the shots (me and Charlize if she wants to), how taxation works, etc. The OA is all about covering our collective asses. There should be another Charlize Theron joke in that last sentence, but my wife might read this. That's all I know about the OA for now. Google it for far more information than I can provide.

The PPM is a different animal altogether. A PPM is more about informing would be investors of the potential risks involved if they decide to join me, my wife, and Academy Award® winning actress, Charlize Theron in this venture. It's another ass covering legal document that gives full disclosure of what the business is, what the financial projections are, what the value of a share is, how to invest, and much more. A large portion of the Panic Alarmist Brewing business plan will be in the PPM for potential investors to read and ingest.

Finally, there is the Subscription Materials document. This is an application, along with a check, that the investor signs in order to apply to become a member/investor in the LLC. It contains lots more legal mumbo jumbo and requires the applicant to answer various questions about themselves. Again, another covering of the ass.

Once all of the legal docs are completed, I'll be rounding up investors. I have several ready to write checks, but I'll need more. The documents will explain how I'll put all investment cash into an escrow account where it will stay, untouched, until a certain funding level is reached. Once that level is reached, the money will be available for Panic Alarmist to use.

It's important to point out that I'm just writing about what little I know thus far. Do not take any of this as gospel. The above paragraphs may have glaring errors so please don't rely on me for any legal advice. Use this as one tiny data point in a much larger universe of research you'll need to do.

So that's where we are. I should have a better idea of the timeline soon for document completion.

*Full disclosure: Charlize Theron is not a member of Panic Alarmist Brewing, LLC, but a man can dream, can't he?

Where We Are, Where We're Going

I've been very bad about posting updates. I'm in kind of a transitional phase in this monstrous process. Finishing the business plan (which will require some additions and some modifications to the numbers) was a great feeling, but after I completed it I realized this: shit just got real. Working on my business plan seemed like the biggest hurdle in the world. Now that it's completed, it's really dawned on me that from here on out things are going to get very real and very busy. This is indeed the calm before the storm. I always knew this would be the case, but I was inside the business plan bubble and not really focusing on the next steps. That time has come. So the three biggest tasks ahead are also three of THE biggest ones of the entire process. Money, money, and finding a suitable location to lease.

First, money. I require two sources of capital to get this brewery running: debt and equity. Debt means a bank loan. In order to get the bank loan, which will be north of $400,000, I will need to present the business plan. Before I do that however, I need to register Panic Alarmist as an LLC with a federal tax id and such (I'll get to that in a second). This will be a very interesting challenge and one I don't know a lot about yet. Once I meet with the different banks, I'll definitely post what I learn.

My esteemed attorney.

Second, money. Equity means selling equity shares to private investors in order to raise money for operating cash flow, construction, and other expenses that a bank won't loan me money for. See this post for info on that. In order to offer equity, I require legal documents. These documents spell out precisely the terms of the offering including things like what the investor gets for their investment (a picture of me mashing without pants), whether or not they'll be allowed to sell the shares (they won't), and what my role is in the business. Here's what I can tell you about the legal stuff thus far: it's really fucking expensive. If you are thinking about moving into a career as a brewer or brewery owner, stop right now and apply to law school. Work for 10 years, then open a 300 bbl brewery with all the pocket change you have in your Armani suits. Lordy. I've accepted the fact that it's expensive, but it took about 48 hours for it to sink in. But guess what, it's just another problem to be solved. I'll pay an attorney a princely sum, get the documents I need, get the investors on board, then the ship sails to brewery land!

Third, location. I have no idea where the brewery is going to be exactly. I'm pretty confident that it will be on the far north or northwest side of the the city. It needs to be a reasonable commute for me plus all the other features that I would like or require. I discussed that briefly in this post. Once this part really gets rolling, I'll post everything I find out. I've been doing lots of online research on TIF districts, which are special areas in Chicago that provide city funded rebates for improvements to property. These rebates are quite significant as in $100K+ but they require a multiple step process, which will be a thrilling ride, I'm sure.

As I mentioned above, before I can secure a bank loan, I will have to get Panic Alarmist registered as an LLC and have a federal and state tax id. In order to get those tax ids, the business has to be a formal legal entity. This process will happen very, very soon. As in next couple of weeks soon. I may do it through an attorney or I might just do it myself. I'll find out more next week. I'll announce that little milestone when it's completed.

Finally, I will not be able to advertise on this site when I'm officially looking for investors. Them's the rules. That's all I can say.

So that's where we are. Make no mistake, this process is about to get very, very intense very very soon. I think I've written that several times before, quite prematurely. Well, we're here now. I cannot wait to get this brewery up and running!



The Business Plan: Part II - Cash Flow Analysis

It's like free money! If you've never written or even seen a business plan before, the whole concept might seem daunting. I had only seen one, maybe two business plans before I started writing my own, so I barely had any idea what the hell I was getting into. But fret not! It's very easy to do but you have to put the the time into the research, analysis, and writing. Probably the biggest discovery I made while writing mine is the incredible amount of insight I gained into the business. I'm a guy who absolutely despised the accounting class I took during my freshman year in college. I was an engineering student and 2+2 always equaled 4. In accounting, 2+2 could equal 4 depending on whether or not you depreciated it over 7 years. But after writing this business plan, I feel like I have a real grasp on these numbers and how important they are to the health of the business. So if you're dreading writing a business plan, I would propose that you'll get a lot out of it beyond just the pro forma documents banks and investors require from you. You'll gain a very healthy understanding of just how much money you're going to need to get started, how long it will take to break even, and how much beer you're going to have to sell to grow the brewery. Let's dive in.

The most crucial component of the business plan is the financial section. My financial section is comprised of: cash flow analysis for years 1-3 and startup, profit and loss for years 1-3, break even analysis, start up expenses, and personal financial statement. You can also include an opening day balance sheet and an end of year one balance sheet, but I did not. No real reason why I didn't and I still might if a banker or investors want to see one. See the “Business Plan for a Start Up” template located at the SCORE website, which I relied upon greatly. Obviously this is all done with spreadsheets, so when I write "analysis" I'm referring to spreadsheets that are created with all relevant numbers plugged in. Here again, the SCORE website has spreadsheet templates for all of the financial analysis. They're a great place to start and I relied on them heavily but customized them greatly. I'll talk about the cash flow analysis in this post and discuss the other financial analyses in the next posts.

The cash flow analysis is absolutely critical in a business plan. It is often said that the number one reason small businesses fail is negative cash flow. You can sell a million barrels of beer a year, but you won't survive if you can't pay your monthly bills while waiting for your accounts receivables. Cash flow analysis lays this out very, very nicely. It's a fantastic visualization of the health of your business month by month and will prove vitally important once your business is up and running. You have to know if your cash outlays are outpacing your inlays so you can take corrective action before you run out of capital. So yes, it's one of the most important parts of a business plan, but it's even more important once you're up and running.

One of the costs I paid particularly close attention to in my cash flow analysis was packaging supplies, meaning cans, lids, etc. Because the minimum can quantities are quite large (10 pallets = 81,690 cans) PER can design, plus lids (1 pallet = 318,181 lids), cash outlays will initially be quite volatile and very large (10 pallets of cans = $7500 + freight). I modeled my cash flow analysis to automagically add the cash outlays for cans, lids, 6-pack holders (PakTech handles with 13,000 min. per order), and mother case boxes (the box a case of beer is packaged in) based on bbl production. I looked at the next month's production volume to determine when supplies would need to be ordered so they would be available when needed, subtracted out how many items required (which is based on what percentage of beer will be kegged vs canned, which is guesswork at this point) from the current inventory, and if I was going to run out of an item, the cash outlay was added to the month. It took me a while to get all that figured out, but I'm pretty happy with the final results. I used the same methodology for ingredients as well. My point with that long description is that I think it very wise to try to capture as much detail as you can in your cash outlays if at all possible, especially the big stuff.

Other line items in my cash flow analysis are the basic business plan 101 items such as labor, insurance, rent, utilities, etc. Because this is a brewery, you have to include the always lovely federal and state excise taxes. Federal excise tax is $7/bbl, IL state excise tax is $0.231/gallon. Yes, that is not a typo, 23 cents per gallon, not barrel. Federal excise tax is based on bbl's sold, whereas IL state excise tax is based on bbl's produced. I calculated this distinction of sold vs. produced by adding back in the 15% fermenter loss (which is typical) when calculating the state excise tax. I BELIEVE this is correct per my conversations with my favorite local craft brewery, but worse case scenario, I've overestimated some monthly costs, which isn't necessarily a bad thing.

Another important item to include in any cash flow analysis is payroll tax. You have to pay state and federal payroll tax for all employees. In IL, I have that total number as 7.65%, which is multiplied by monthly payroll, of course.

Finally, don't forget waste removal (spent grains) and CO2 costs. In addition to its obvious use for forced carbonation in a bright tank, CO2 is also used during packaging for purging the container just prior to filling among other uses.  I modeled my CO2 costs at $3.13/bbl. This was extrapolated by using actual data from a brewery, so I think this is a pretty solid number.

So I think that covers cash flow analysis. You'll spend a lot of time on this part of the business plan and you'll go back to it again and again to tweak, correct, and add costs you hadn't thought of, at least that's what I did. Sweat the details as much as you can.



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? ;-)