DenverDistiller

Critique my business plan - ready to lease space in Denver

37 posts in this topic

We have $100k in the bank ready to dedicate to a distillery in Denver. (Brother & I)

I currently own a business that is successful, and my brother has a good full time job. We plan on keeping them for the time being, and are willing to invest more but ideally won't have to. We won't take any money out of the business unless we begin working full time.

We have been pre-approved for additional loans and lines of credit, but haven't taken any out. We have quite a few people who are interested in investing but for now we've said no thanks.

The hardest thing about this industry is that the more I learn, the more I realize I don't know. We're at the point where we feel like we just need to jump in and stop endlessly planning, we've been working on our business since November 2014.

We both can brew beer and neither have run a still so there will be a learning curve with that. Our plan is to buy whiskey/vodka in bulk for our tasting room to sell while we perfect our recipe.

We expect to spend:

Equipment - 15k

Bottles/Bottling - 3k

Tasting Room - 10k

Build Out - 20k (includes lic, architect)

Initial run & NGS - 7k

Total - 55k

Operating Capital - 45k

Here's the punchline/big question. We have the opportunity to get a prime location in Denver - 2000 sq feet (20 ft ceilings) with high foot traffic and what is becoming a big drinking location.

The rent would be $4000/month, which if our start-up is anything like most distillers experience, we will likely have much less than 45k in operating capital by the time we get our doors open.

I'm of the opinion that because we can sell booze day 1 and will have walk-in customers day 1, I think generating the sales # won't be out of the ballpark to achieve.

Am I nuts?

The other option is to open in a garage / warehouse and get our products in line, then make the leap in a few years.

Thanks

Share this post


Link to post
Share on other sites

I have a much more detailed analysis available, but am trying to give you all the bullet points... feel free to ask questions or poke holes.

Share this post


Link to post
Share on other sites

One thing I think of reading that is, 4k a month????!!!!, holy shi-t, that's a lot of money to pay for rent unless you are so super sure that you have it dialed from day one and are certain there won't be a single delay. Which isn't realistic, unless you have previously built out and ran a distillery. You need your address to file for your permits, so you better get your permit perfect the first time or you could easily bleed that 45k dry in rent alone, while waiting for permits. Next thought is 15k for equip is not very much at all. You could make booze from 15k worth of equip in a 1k a month space. Maybe your a fabricator yourself so I'm not seeing the full picture? Biggest thing to me is that rent. I'd run far away from that. What's your output gonna be with that small of an equip budget? Gonna be givin it all to the landlord. You could probably pull it off though!!! People are always doing amazing things!

Share this post


Link to post
Share on other sites

Negotiate the lease so you're not paying until you open your doors for business. That's common enough. Landlord would likely want some kind of penalty sum if you never do open though, to cover their risk.

Share this post


Link to post
Share on other sites

Your rent alone is more than our loan, rent, insurance and utilities combined.

I'm not saying "Don't do it" but give it some thought. That location might be the best decision you ever made, or one of the worst.

Share this post


Link to post
Share on other sites

The building we would lease is being built out, so we've already negotiated that from the day we sign the lease we have 4 months until our rent is due, so we have time for TTB, buildout, firecode etc.

We are planning on buying a 100gallon dragon still - a very basic model.

Thank you for your comments so far....

Share this post


Link to post
Share on other sites

So you're 100% redistilling NGS? No aged spirits?

Share this post


Link to post
Share on other sites

The building we would lease is being built out, so we've already negotiated that from the day we sign the lease we have 4 months until our rent is due, so we have time for TTB, buildout, firecode etc.

So are you rent free during those 4 months or are 4 months rent due at that time? If you're rent free, that's a good thing. $4,000 per month in rent is not. Especially if you have to pay $16,000 in deferred rent. Then think about how much you would have to sell just to cover the rent. Producing that amount of product would mean that small still running almost 24 hours a day, which you guys obviously dont have considering you're keeping your full time jobs.

Sounds like I'm bursting your bubble. Sorry if I am...

Share this post


Link to post
Share on other sites

we are rent free the first four months, so the rent will not accrual.

Don't worry about bursting my bubble - that's why I mentioned we had access to more money in 3 ways, ours,investors, and loans.

Do you think we should tap immediately or try and bootstrap?

Share this post


Link to post
Share on other sites

We're buying bourbon and vodka to infuse & serve while we work on our recipes to bottle.

We will do Grain to bottle after the initial purchase.

Share this post


Link to post
Share on other sites

You need a bigger still just to make the landlord his booze. Crunch the numbers! I think your flirting with disaster. Which could be a lot of fun! You are going to have to many assumptions with not enough room for error, with that high of overhead. I think the days of assumed success with a distillery are in the past. Is that still direct electric heat? So no grain in? Pretty limited in what you can make then. Or are you going Bain Marie? Where's the mash tun and fermenters? Your 100k is a lot of $ to loose. Not trying to burst the bubble either, but if I had a stake in that plan, I would want some revisions. But then again, you could probably pull it off!!!!! I'm very cautious in new business planning. I prefer plenty of room for error, and to be pleasantly surprised when some things don't require that room. Good Luck! For real.

Share this post


Link to post
Share on other sites

I didn't see any cost outlays for barrels for all that bourbon you're going to want to make.

Share this post


Link to post
Share on other sites

Just comparing your costs above with my business plan, I don't see any up front costs for the following items that I've accounted for in my business plan:



Legal Fees


License and various application fees (depending on your state, these can be in the thousands of dollars)


Incidentals (surely you'll need a desk, a computer, etc)



I'm not sure what you mean by "Tasting Room" and how that differs from your build out cost?



Also does your $15k equipment budget include your mash tun, your heat source (boiler?), your fermenter(s), a hammer or roller mill, transfer pump and hoses, transfer tanks, bottler, filter, chiller, hydrometers, thermometers, etc?

Share this post


Link to post
Share on other sites

Computer 1 600 600 Printer 1 250 250 Phone 1 250 250 Office Supplies Generic 500 500 Website 1 $1,000 $1,000 Internet / tv 12 $100 $1,200 Book Keeping 12 50 600 State Lic 1 2075 2075 Fed Lic 1 0 0 Bond 1 240 240 Building Approval Generic $10,000 $10,000 Software 1 $2,400 $2,400

this is the 20k buildout/approval

Share this post


Link to post
Share on other sites

Here's my NRC, as it presently stands if you'd like to compare. I'm building so obviously a lot of $$ is tied up in land and construction. Will be producing whiskies and rums, all on-grain. Initially I'll use the still as my cooker.

rkLdqmr.png

Share this post


Link to post
Share on other sites

Branding

Photography

Graphic Design: sell sheets, POS etc.

Website

Depending on your number of SKUs

$5k to $500k (if you're Diageo)

With this aspect of marketing being the most important part of your business.

Also, operating capital looks limited. Bottles, labels, corrugated boxes, grain, botanicals?... you'll want to hold at least one quarter's worth of stock (but will be tempted to buy 1 year's worth!! given the economies of scale in everything). And remember you sell on credit. And you don't get any credit.

Wages aside. I would want a larger cash buffer, unless your overheads are non-existent.

Playing devil's advocate... Perhaps you're quite late to the party of craft distilling... I imagine in Denver it's a zero-sum game with most wholesalers, retailers and the on-trade. Selling might be tough. With this in mind, would a Distillery Pub might be the best business model? Sell at a higher GP and build a cult brand following - loyal customers. Open the bar. And build your wholesale operation as a secondary aspect of the business. At that price per square foot you're paying retail rent, not industrial rent... So a bar might make sense.

Just some ideas.

1 person likes this

Share this post


Link to post
Share on other sites

dont forget to budget for a visit from mr muprhy, you can count on him showing up to your distilllery a few time

Share this post


Link to post
Share on other sites

I saved it as an image.

tl5612's suggestion about using the new Colorado Distillery Pub license is a very possibly a good one in your situation.

Share this post


Link to post
Share on other sites

With this in mind, would a Distillery Pub might be the best business model? Sell at a higher GP and build a cult brand following - loyal customers. Open the bar. And build your wholesale operation as a secondary aspect of the business. At that price per square foot you're paying retail rent, not industrial rent... So a bar might make sense.

This.

Do you want to make whiskey or do you want to make money? You need to know what you're in it for.

Share this post


Link to post
Share on other sites

1. I'm not in the business. I consult. As a consultant I see a lot of different business plans.

2. I may have missed it, but it seems no one has mentioned local permitting. Talk with others in Denver who have had to deal with building department and fire marshal. You do not want a location that cannot pass muster. That may be an obvious and unnecessary warning, but it is still worth saying just in case.

3. You also plan on tasting and selling spirits. Make sure that you can create a separate area in which to taste and from which to sell. TTB will not allow sales or tasting on "distillery premises." That said, distillery premises is the area you decide to call the distillery, so you get to draw the lines on the floor where you will build the separation - wall or chain link and eight foot high suffices, that you must have between the DSP and the retail area. Also consider public access to the tasting/sales area. It can't be across DSP premises.

4. As to time lines, TTB's average time to approval now is 123 days. This varies month to month. That means that from the time you submit to the time TTB approves, it was almost four months for application approved in April, the last month for which TTB has published figures. But the wait does not end there.

5. Since you will be making an infused vodka, you will need to get formula approval before you make application for label approval. You may not put a label that has not bee approved on a bottle. The average time to approval of the formula and label are 57 days and 28 days respectively. You must add this time to the four months average for permit approval because TTB will not accept formula or label applications from persons whose basic permit has not been approved. We are now talking, in averages, six and a half months before you can sell your peach infused vodka.

6. That's TTB . Ask existing distillers in Colorado how long the state is taking.

7. Next, the money angle. I don't have the background to comment on the financial aspects of the business plan. I know of one distillery that succeed on $45,000, but they fabricated the still and had members with marketing backgrounds that allowed them to get press coverage etc. They did it without a tasting room or direct sales, but they were in a control state that supports local products, so that got initial distribution in state stores. I've had other clients who invest $1M plus. There are a lot of avenues to success - and failure. I'm just not the one to provide sound advice on that.

8. Re saturation - I've always been suspect of bubbles. But I live in Washington. I was around the wine industry when there were about eight wineries in the state and there was not a great prospect for any one of them. Then something changed. Ste. Michelle bought in and began varietal wine production. Using the money available to it from its large corporate owner, it began producing and promoting Washington wine. When the number of wineries got to 100, I said, there has to be a limit and we must be approaching it. Ditto at 200, 400, etc. There are now over 800. Where is the limit? Are we on a bubble that will burst?

9. A lot of people who could have said the risk of market saturation at 100 wineries is too great, but did not, have successful wineries today because they took the risk that 100 was not a bubble.

10. In terms of bubbles, I'd feel more comfortable investing on a stock market dollar-cost averaging sort of model than I would buying in all at once, only to find that I did so at the peak. But here's the thing, that's me and it ain't my money we are talking about. A financial consultant should ask you about your tolerance for risk before advising you on how to invest. Before taking advice from anyone, ask yourself the same question.

1 person likes this

Share this post


Link to post
Share on other sites

I appreciate all the feedback so far - I think you guys are probably right about having the distillery-pub business model if we go with the higher overhead.

To answer someone's question, our goal it to make whiskey and unique liquor's. We are both relatively financially secure so this is more of a let's see how cool we can make a tasting room, and how good/unique we can make a Colorado whiskey.

To dhdunbar

2) we've retained a architecture firm that specialized in distillerys to do a site visit and do local permitting.

5) Wow, i didn't know that - I thought we could submit recipes & labels before TTB approval...

Share this post


Link to post
Share on other sites

Correct. Formula and labels come after TTB approval. Plan on 35 to 45 days for label alone. Also, the way they work is that they find one thing they don't like and send it back to you. A few days later they find another thing and send it back to you (instead of reviewing the entire label).

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now