Key Questions to Ask When Ordering micro brewery

As the craft brewery market continues to grow, there is an increased opportunity for those interested in entering or exiting the industry to do so. 

View Details

The craft industry has been steadily growing its consumer base over the past ten years, with the millennial population spearheading this positive forecast for the future of craft beer.  

Despite these optimistic predictions, there are still some considerations that must be taken into account namely the different preferences Gen Z will bring to the market paired with supply chain issues as a long-term consequence of the pandemic. 

But deciding to buy or sell a brewery is a delicate balancing act that requires more than just a love of beer. Theres no exact instructions to follow for such a large decision, but there are a few very important considerations you will need to be aware of before hitting the ground running. Here are a few questions to ask as you weigh the pros and cons of each scenario. 

Is there a right time to buy or sell a craft brewery?

Brewers Association data showing the explosion of craft breweries over the last several decades

First, its important to understand market conditions before deciding to buy or sell a brewery. Do some research into current and future predictions for the market, and pay close attention to what others in the industry are saying.

For those looking to sell an existing business, take a look at the numbers to see if your brewery is considered profitable at this time. Businesses are always harder to sell if they start to show a decline in profits. Timing is everything when it comes to selling a brewery especially if the local market is already established and competitive. 

For potential buyers, leveraging your connections in the craft industry is also going to be crucial because there are a lot of unknowns that come with owning and operating a brewery, no matter the size! Listening to other brewery owners experiences is imperative. They might tell you about the importance of thinking ahead or how to prepare for the costs and time required to run a craft beer business. Chances are, those responsibilities might be more than youre planning for.

Whats the brewery worth in the market? 

Potential sellers, be sure to review your local markets competition and demographics to see if theres a good amount of market share and future growth predicted or if this market is already a little too saturated to begin with. Also consider the economic impact of the craft beer industry on your state. Depending on whether or not its sizable, it can help determine a fair asking price. Regardless of the size and age of your business, youll likely want to work with a professional to perform a comprehensive business valuation and analysis to come up with a final number. 

As a potential buyer, youll need to do your own homework to make sure you understand not just the initial asking price but also the other costs associated with owning and running a brewery. Most breweries can range anywhere from $500K to $1 million in start-up costs alone, and while youre going to be purchasing an already established brewery, there can still be hidden fees and expenses you werent initially prepared for. Find out where youll receive financing from and be sure to go through the pre-approval process before making an offer. 

What exactly am I buying or selling?

Does the sale include anything besides the brewhouse?

Yes, youre looking to buy or sell a brewery, but what exactly is included in this exchange? There are two ways a purchase can be structured: buyer purchases the assets or buyer purchases the business.

The asset buying process means you as the buyer are purchasing more than just the physical brewing equipment. You may also be buying the trademarks, the existing businesss reputation and market share, its digital assets and accounts, and customer information. Buying a brewerys assets means you are buying all of the things that make a business a business without including any potential liability or risks that came with the business while it was in the original owners hands.

As a seller, youre likely going to want to sell the brewery as a business, which in many cases would mean you proverbially wash your hands of the entire situation once the paperwork has been signed. 

Regardless of the scenario, as both the buyer or the seller, youll want a business lawyer to take a look at the agreement and help you to understand what is and isnt included in the purchase agreement. Its crucial to know what youre buying or selling and negotiate accordingly!

How does the location of the brewery affect its future?

Taprooms and brew gardens draw in the local community, creating a space for residents to enjoy a beverage and good conversation beyond traditional bars and restaurants. The most successful breweries move beyond those economic and geographical benefits, and become a draw for craft-beer tourism, a growing sector itself. 

In fact, a recent Brewers Association survey found that 1.6% of craft beer drinkers will take 10 or more trips a year to visit breweries more than two hours from home. Understanding the location and demographics of the area youre looking to buy or sell a brewery within will help to form a more complete valuation of the business both now and in the future.

As a brewer, youll also need to tap into your local population to understand the types of beers that will best suit its consumer demands. Do locals prefer lighter, domestic-inspired beers such as lagers and pilsners, or are they adventurous and open to trying new, unfamiliar things? Do you have a hoppy-forward crowd for IPAs and other variations or does the geographic location lend itself to dark porters and stouts during the colder months? These considerations play a large part in building a sustainable business plan for a brewery. 

Whats unique about this particular brewery?

A brewerys branding is almost as important as the beer it serves.

A brewerys branding is almost as important (if not more) than the beer it produces and serves. Thats because theres been such an increase in competition within the craft brewery space, so youre going to need a cohesive and memorable brand to stand out. 

YME Product Page

This is another thing to weigh when deciding to purchase an existing business. How successful has this business been in attracting and retaining a customer base? Is there something unique about it whether that be its taproom, location, types of beer its known for serving, etc.? If you cant easily identify something that makes this brewery special already, it will be another thing to add to your to-do list once it changes ownership. 

From a sellers point of view, anything youve done previously to make this business stand out amongst its competitors should be calculated into the business valuation. 

Ask yourself:

• Is there a strong brewer/business model and plan already developed? 
• Is there a flagship beer recipe thats included in the sale of the business? 
• Have we already established a strong ecommerce presence or canning/bottling business?

Each of these items will contribute to the overall profitability of your brewery sale.  

Are there any regulatory or legislative requirements I need to be aware of?

Talk to your business partner(s), other brewery owners, a lawyer, and financial professionals before making any binding decisions.

Due to the nature of the business (a direct connection to alcohol production and sales), there are quite a few state regulations and laws that you need to be aware of when purchasing or selling this type of business. In the U.S., both the federal and state governments heavily oversee the alcohol industry, and requirements will differ depending on location and situation.

Educate yourself about the types of legal documentation and permits youll need to obtain prior to the sale. Ask questions of other brewery owners in your state to learn first-hand how the permitting process works. Work with a professional to outline property, casualty, and liability insurance options, as well as other permits and licenses required for brewery operation.

How do I get started?

Once you are ready to start the buying a brewery process, youll want to work with a legal representative to create a purchase agreement for both parties. This document must make it very clear what the conditions are of the brewery sale and what the expectations will be during this closing period. 

Be sure to carefully read the fine print before signing any contracts or legally binding documentation. There are a lot of moving parts during the sales process, so be sure to really understand what is being agreed upon before signing anything.  

Like all major decisions, buying a brewery or selling is not something that should be decided quickly or without the proper background research. Possessing a deep love for craft beer is only the first step the rest of the plan will require a little more work but will be worth it in the end. 

*Note: This article does not contain legal advice and should only be used as a reference and starting point for determining what legal documentation is needed to open and operate a brewery. Refer to your local and state laws for specific information, and consult legal counsel when reviewing binding contractual agreements.  

After I got a number of questions around how to get information about the money side of starting a brewery and doing the financial section of a business plan, I hope that this step-by-step guide can help out the aspiring brewer.  Truth be told, you can use the same process for a number of different businesses but in this guide, well focus on the beer side of things.

While you can do all of the financial planning in the world, the quickest way to get the information you need to start a brewery is finding someone else whos already gone through the process themselves.  As seen in our post 61 Brewers Speak Out: What I Wish I Would Have Known Before Starting a Brewery, these guys and gals who are now running their own breweries are a wealth of information.  When youre in the phase of looking for investments in business, showing that youve done your homework and having real life examples of start-up costs, sales and operating expenses will help to give you a leg up and add credibility to your financial section.

So How Do I Find A Brewer To Talk To and Will They Actually Help Me?

In the craft beer industry, we are very lucky to have a supportive community of brewers, many of whom are happy to share their experiences.  Odds are, they just went through the same process youre about to embark on and they got help from others.  Like everything else in life, it feels great to many brewers to give back to the community that got them started.  That being said, just randomly sending them an asking for detailed financial information probably isnt going to get too many responses.  Heres my advice to getting the best chance of finding people who are willing to help you out:

First, do a search in your local area of breweries that match the type of brewery that youd like to start.  If you want to start a distribution brewery based out of an old industrial building, find other distribution breweries like that in your surrounding area.  If you want to start a brew pub in a strip mall, see if you can find ones like it.  While it would be great to find other breweries that are just like the one youd like to start, you also have to be flexible if the number of breweries in your area is limited.  Since some people might not want to share their information with you if youre planning on opening a new brewery across the street, take a look at other breweries in the surrounding areas that you can take a weekend road trip to visit.  Once youve found a few that seem to fit the bill of what youre looking to start, you can usually find their contact information on their website.

Now heres the trick.  Anyone starting a brewery is going to be super busy with all aspects of running their new business.  If you simply send them a long asking for a bunch of info, your odds of getting a response back are very slim.  If you help out the brewery youre looking to get info from and can demonstrate that youre serious, you are going to have much better chance of them wanting to help you back.  Finding time to take a brewery tour or buying a couple of growlers for your friends will set the tone.  Tweet or share on Facebook different events that their brewery is having or how much you love the beer from their brewery (make sure to tag them so they can see it).  Volunteer to help them out with an upcoming event or say youll come in at bar close to help them clean up the place.  Anything that you can do to create a personal connection with the brewery owner and show that youre serious will really help you out in the long run.  After youve established that personal connection, then you can contact them to see if they can take 15 minutes of their time to walk through the 12 key questions listed below.  I highly recommend doing this face to face or at least by since typing up an takes longer for the brewery owner (and they are very busy!).

Now Youve Got Your Connections, Here Are the 12 Key Questions to Ask

In this section, Ill list out the 12 key questions that you need to ask another brewery owner to get a good idea about the financials of their brewery, and ultimately find out how much does it cost to start a brewery. Going along with the 12 questions, Ive created a free Excel spreadsheet that you can use to put in the answers to all of these questions (the link is at the bottom of this post).  I know that Excel can be a little intimidating so Ive done all of the calculations for you.  All youll need to do is enter in the numbers, select a couple of drop down boxes and youre good to go.

1. What was your original brewing capacity in barrels or gallons per batch? In the spreadsheet Ive attached, Ill do all the tough work for you to convert these values.
2. How many batches of beer do you make in a typical month or year?
3. How much money did it cost you to start the brewery? Make sure to get all of the costs included in the process to get the doors open for the brewery.
4. What is the typical price you are able to sell the kegs and cans for?  Youll just want to get an average of how much the brewery gets for each of the kegs it sells.  If the brewery sells beer in the tap room, count this as selling a keg (really youre selling it to yourself) and incorporate this into the average price you get by selling a keg.  If the brewery sells cans or bottles to distributors, youll want to get the price that the brewery gets from the distributor.  This can get a little tricky so if you have any troubles with this, let me know and Ill help you out on it.
5. How many kegs do you sell and how many bottles or cans?  You can either get this as a percent of total sales (% of keg sales versus % of bottles/cans sales) or actual sales of bottles and kegs over a typical month or year.
6. Whats the typical cost of brewing ingredients?  You can get this in the average cost of ingredients per batch, the average ingredient costs per month or the cost per year.
7. How much does it typically cost to bottle your beer (including packaging, labeling, etc.)?  In this, youll want to include the cost of buying the bottles, labeling, packaging and any shipping to get it to the distributor.
8. What is your typical rent or mortgage payment?  You can get this either as the payments per month or per year.
9. How much do you do you have to pay per month or per year for salaries and benefits for brewers, bartenders, servers, etc?  Youll want to get the average labor costs per month or per year and I would include any benefit payments since this will give you a better picture of the full costs of employing everyone.
10. How much are utilities typically per month or per year?  I know this can vary throughout the year but youll want to get an estimation of a typical months utilities costs including water, sewer, heat, cooling, electricity and any other usual costs.
11. How much do you have to pay for taxes on each beer that you sell?  This one can get a little tricky but youll want to find out how much the brewery has to pay on taxes for a keg that it sells and how much for each bottle (you can also get taxes per each 6-pack or case of beer).
12. Are there any other costs or expenses that I should know about?

And thats it!  In 12 questions, you can get all of the key information that you need to know to be able to get a good perspective of their business (and your prospective brewery).  Now all you need to do is go into the spreadsheet that I have linked at the bottom of the post and put in the numbers into the boxes that I have highlighted.

To start off, this template should work well if youre looking at starting up a distribution brewery.  You can still get a lot of good information if youre looking at starting up a brewpub but the costs and sales of the food can complicate the matter a bit.  If youd like me to create a second version for brewpubs, let me know and I can incorporate these items and expand on this guide.  If you get this information and need some help figuring out what all the rest of the numbers mean, feel free to send me an with the spreadsheet and Ill help you out.

Disclaimer:  I have to put this in to protect myself and my family against a few bad apples.  This template was put together to give an approximation of the financials of a brewery while in the research state of a business plan.  While I will do all I can to make sure the information and calculations are correct, it is the responsibility of the user to verify these values and MicroBrewr is not liable for any use or decisions made from this template.

Download the MicroBrewr Brewery Financial Planning Excel Worksheet

Like what youve read and want to get updates on upcoming articles and podcasts?  Click the button below to sign up for the mailing list. As my thank you for joining the Microbrewr community, Ill send you a free copy of our e-book 6 Free Social Media Tools To Get Your Beer in the Hands of More People. 

 

Sign up for the list:   Sign me up!   

The company is the world’s best micro brewery supplier. We are your one-stop shop for all needs. Our staff are highly-specialized and will help you find the product you need.