Operating at a Loss

[Alchemy17]

I have a question regarding the first year or two of opening a brewery.

I have been told by several different sources that breweries tend to operate at a loss for 12-24 months after opening, considering that the estimated salaries are about 10% of revenue.

For a small taproom, how does the ownership even get past that 12-24 period and begin to take profits, considering that you need to hire a small staff to keep everything running? Does it inevitably mean that you have to go to distribution at some point?

I know there should be a cash reserve in place, which should be substantial to pad the losses, so is that a matter of saving your own cash? Or has someone ever baked cash reserves into a loan of sorts? I know that's not an ideal situation, but curious to see what some have done in this scenario.

[briangaylor]

I have a question regarding the first year or two of opening a brewery.

I have been told by several different sources that breweries tend to operate at a loss for 12-24 months after opening, considering that the estimated salaries are about 10% of revenue.

For a small taproom, how does the ownership even get past that 12-24 period and begin to take profits, considering that you need to hire a small staff to keep everything running? Does it inevitably mean that you have to go to distribution at some point?

I know there should be a cash reserve in place, which should be substantial to pad the losses, so is that a matter of saving your own cash? Or has someone ever baked cash reserves into a loan of sorts? I know that's not an ideal situation, but curious to see what some have done in this scenario.

We have never operated at a loss. We broke even the first month we were open (despite only being open for a week that month). If you have a taproom and operate at a loss for any extended period of time there is a larger issue at hand.

When I say we don't operate at a loss I mean in that month, more money came in than went out. I am not saying we paid back the entire investment required to open the brewery. I think these 2 metrics may have been confused into one statistic.

[Gometz]

Going purely from a financial standpoint, not specific to breweries at all (as I don't have my own yet). You need to have the cash on hand. Some loans will allow you to do something along the lines of 80-90% secured, which means you can get extra cash over what your capital expenditures are. Otherwise the main thing there is using your own savings or cash investments. I think you should plan for at least one year of losses, that way you aren't scrambling for cash at month 10 if you aren't cash positive yet. But in reality if you plan right, you would hope to be cash positive in six months (of course this is all completely dependent on a lot of details in your business plan, from size to location, to target market, etc.).

[Alchemy17]

We have never operated at a loss. We broke even the first month we were open (despite only being open for a week that month). If you have a taproom and operate at a loss for any extended period of time there is a larger issue at hand.

When I say we don't operate at a loss I mean in that month, more money came in than went out. I am not saying we paid back the entire investment required to open the brewery. I think these 2 metrics may have been confused into one statistic.

That's good to hear! And I assume you're still able to pay yourself a salary? I'm just having a tough time getting a reasonable salary out of these income statement estimates, since it's saying 10% as a guideline for salaries and officer comp. Given that, the calculations would suggest that a significant bbl production would have to occur in order to be profitable and pay yourself and others. Does the 10% seem right for a small taproom?

[Alchemy17]

Going purely from a financial standpoint, not specific to breweries at all (as I don't have my own yet). You need to have the cash on hand. Some loans will allow you to do something along the lines of 80-90% secured, which means you can get extra cash over what your capital expenditures are. Otherwise the main thing there is using your own savings or cash investments. I think you should plan for at least one year of losses, that way you aren't scrambling for cash at month 10 if you aren't cash positive yet. But in reality if you plan right, you would hope to be cash positive in six months (of course this is all completely dependent on a lot of details in your business plan, from size to location, to target market, etc.).

I think that's a safe bet, to keep a reserve. So perhaps most of that can be sourced from my savings and other investors. With a return, of course.

[BeerBred]

I think you are confusing a tap room with a production brewery. Tap room should cash flow positive quickly.

[Alchemy17]

I think you are confusing a tap room with a production brewery. Tap room should cash flow positive quickly.

I believe you're right. The stats that were provided could very well be for production breweries. Given that, does anyone have any insight on estimated income statement %s for a taproom only? I think it would help us in getting correct estimates. I'm having a hard time convincing my partners that this is a worthwhile venture.

[BrewerJake]

A few things:

-10% labor costs are a lot lower than what we've been paying, closer to 25-30% seems reasonable from my experience. If we paid the minimum tipped worker wage that would be a lot lower, but you get what you pay for.

-You mentioned a reasonable salary, what does that mean to you? For me, a reasonable salary for an officer is as little as possible for the first few years. My wife and I are the only two owners of our brewery, we pay ourselves less than some of our part-time employees. We make just enough to pay the bills at home. You should expect to make sacrifices if you want to own a brewery.

-The question of whether or not you're operating at a loss totally depends on the business model. Did you take out a $7 million loan and build a huge production facility? Yea, you might have to eat some money until you ramp up to capacity. Did you squeek by opening a 5 bbl brewpub for $100,000? Then you might be in trouble if you're losing money after a few months.

-It's also important to look at the type of expenses that lead to the loss. If our chiller went down beyond repair and had to be replaced, then yea, we'd probably be in the red that month.

[Alchemy17]

A few things:

-10% labor costs are a lot lower than what we've been paying, closer to 25-30% seems reasonable from my experience. If we paid the minimum tipped worker wage that would be a lot lower, but you get what you pay for.

-You mentioned a reasonable salary, what does that mean to you? For me, a reasonable salary for an officer is as little as possible for the first few years. My wife and I are the only two owners of our brewery, we pay ourselves less than some of our part-time employees. We make just enough to pay the bills at home. You should expect to make sacrifices if you want to own a brewery.

-The question of whether or not you're operating at a loss totally depends on the business model. Did you take out a $7 million loan and build a huge production facility? Yea, you might have to eat some money until you ramp up to capacity. Did you squeek by opening a 5 bbl brewpub for $100,000? Then you might be in trouble if you're losing money after a few months.

-It's also important to look at the type of expenses that lead to the loss. If our chiller went down beyond repair and had to be replaced, then yea, we'd probably be in the red that month.

Out of curiosity, are you a production brewery, or taproom only? I agree with the notion of you get what you pay for!

A reasonable expectation as far as salary for me would be to pay the bills and have just a tad of play money for incidentals, since my wife works a separate job so we have another source of income. I don't expect to make what I do now working my normal job, but I would hope down the road I would surpass what I am making at the moment. We have a new baby on the way, as well as a 3 year old, so my family's well-being is of utmost importance to me. Mainly why I'm asking this question

Our plan is to open with a 5bbl setup and sell directly out of taproom with a small canning line for to-go sales. It sounds like that may be a cash positive venture earlier than a production setup.

[BrewerJake]

Out of curiosity, are you a production brewery, or taproom only? I agree with the notion of you get what you pay for!

A reasonable expectation as far as salary for me would be to pay the bills and have just a tad of play money for incidentals, since my wife works a separate job so we have another source of income. I don't expect to make what I do now working my normal job, but I would hope down the road I would surpass what I am making at the moment. We have a new baby on the way, as well as a 3 year old, so my family's well-being is of utmost importance to me. Mainly why I'm asking this question

Our plan is to open with a 5bbl setup and sell directly out of taproom with a small canning line for to-go sales. It sounds like that may be a cash positive venture earlier than a production setup.

We're taproom only, 7 bbl brewhouse making less than 500 bbls a year right now. We've been about a year and a half, we're trying to decide if we want to continue to push growth in the taproom or start distributing. Our capacity is about 728 bbls a year without adding any fermenters, but be doubled relatively easily by adding a few double fermenters.

I wish you the best of luck, but starting your own business isn't something that screams financial stability. You've gotta take a chance on something in life though.

[saltyturtlebeer]

We have never operated at a loss. We broke even the first month we were open (despite only being open for a week that month). If you have a taproom and operate at a loss for any extended period of time there is a larger issue at hand.

When I say we don't operate at a loss I mean in that month, more money came in than went out. I am not saying we paid back the entire investment required to open the brewery. I think these 2 metrics may have been confused into one statistic.

Perfectly stated. For our instance we currently have 8 paid employees. 1 of the 8 is a Co-Owner who takes a small percentage just to keep the bills paid (production manager/head brewer). The other 2 owners (3 in total) still work full time jobs and do not take any money from the business.

We hope within a year we (other 2 owners) will be able to take some earnings from the business and continue to grow from there. We've been open for almost 4 months and have already reached capacity, as in we cant keep our beer on tap. We are a 3BBL brewhouse that only sells via the taproom. We are on track to pushing over 400BBLs for the year.