Timeline of Distillery Startup

[dbotsfor]

Good morning Everyone!

When you come up with an idea and want to proceed with developing it into fruition, all sorts of tasks need to be completed. I'm really interested in people's thoughts/comments who've started a small business. The TTB / location / equipment seems to have a delicate balance in order to streamline the process.

Can anyone share a timeline to complete? I'd love some feedback.. here are my thoughts:

Location/Equipment -> TTB permit --> State permit --> labeling / distilling --> bottling --> tasting room/ sales

I get hung up on the process with regard to regulations. You can't get a TTB permit until you have a location and equipment. You can't do that without investors (if that's your mode of income start up). When do you start reaching out to investors? before your permits are complete?

 

 

Thank you!

 

 

[glisade]

TTB will ask for OOI, Owner/Officer Information. Basically they want to know who owns the distillery along with bank records and some other information. For us, investor/owners comes first but also in parallel to securing a location, local zoning approval and creating and signing an operating agreement based on how your business will be run. The TTB will ask you to submit owner information, location/lease and who and how your business is to be run along with supporting documents. And all of those things need money, i.e. potential investors.

 

So to answer your question: When do you start reaching out to investors? Once you feel confident in your business plan and your knowledge of the next steps to take.

 

Good luck!

[Patio29Dadio]

You have asked a question that I have thought about writing a book to answer.  Having started a few small businesses in my life, this has proven to be the most complex.  There are endless details and problems to solve, and there is a very small community available to help (although most in the community are very generous in giving advice, etc.).

Investor capture work is worth a chapter of two.  Start very early in your business plan process and you will spend a lot of time with little results... but those results are generally more valuable as initial capital is the hardest to come by.  However, it will also be more costly capital as you will need to give away more ownership to attract the investor at that point (all you have are ideas on paper without any proof you can actually execute on a plan). 

There are three types of investors: 1 - those that know you and like you and want to help you.   2 - Those that want to play a role in the business.  3 - Those that will only invest based on anticipated probability of a certain level of ROI. 

#1 should be your first target early.  One idea there is to come up with an offering but include a convertible shareholder note vehicle.  Let's say Uncle Joe likes you and wants to help.  He has a bit of savings he isn't afraid of losing, and more that he would invest if he has some security behind it.  One idea is to have Uncle Joe buy-in with some, and then maybe does a convertible note for some of the equipment where he holds title to the equipment.  The payments for the equipment can be deferred, but interests accumulates.  At some date in the future the principle and interest would be payable to Joe, or he can chose to convert some or all of it to shares in the business.  If the business is not doing well, then Joe can take his equipment and sell it to at least partially recover his losses.   However if the business is doing well, it can secure a loan to pay off what Joe is owned, and use the equipment for collateral, or Joe can convert all or some of what he is owed into ownership shares. 

#2 is a partner.  Be careful.  It is like getting married without the benefit of sleeping together.

#3 is the hard one.  Be careful here too.  Read about Balcones.  Better to push this off into the future when you are open and have some proof of concept that you can pour and sell. 

Note that if you are not an attorney, and you will have investors, you will need to hire an attorney.  I will not tell you how much I have spent on attorneys because it makes me cry. 

The sequencing of steps will look like a mess, and there are many irreconcilable conflicts that you just have to deal with.  For example, my building official wanted county health department sign off before he issued the C of O and the county health department wanted the C of O before they would do any inspection.   You just have to negotiate your way to some successful conclusion.   You will need an address and floor-plan and list of equipment before you can get TTB approval and state approval.   I know of one distillery where the owner leased a very small facility to store all his equipment and supplies he was going to use for his final address, and used that smaller address to get his TTB and state approval for his DSP, and then did some DSP-to-DSP transfers of spirit in barrels that aged in this small warehouse space while he worked on finding and building his final space.  He submitted and was approved for the changes, and when he finally opened he had 4-year old whiskey to sell on day one.   Very smart!  That was not me.

The very first thing you need is a fully fleshed out business plan.  This is very important as it contains all the big picture thinking that answers a lot of the questions for what steps are needed and in what sequence.   You need to put a number of hours into just sitting down and thinking and writing it down.  You need to think about how big of an operation and how much you think you can sell, and capture all the money in and money out flows in projected financial reports.  I have a 6-year cash flow spreadsheet backed by all the assumptions about costs of good sold and sales that updates everything when I make a change.  That way I can play with the assumptions as I develop a better confidence and understanding in how the business will operate.  Frankly, you should never talk to any investor without having done this first.  

I will open this next month.  It has been over 4 years since I first sat down to start writing the plan, and three years since I started paying for things related to this business.  I will have my first sales revenue in July 2019.

My last bit of advice.... making beer is a lot easier and quicker. 

[Golden Beaver Distillery]

2 hours ago, Patio29Dadio said:

My last bit of advise.... making beer is a lot easier and quicker. 

Brewers quit halfway. I'm no quitter.   

[Patio29Dadio]

I need to quit typing advise instead of advice!

[FijiSpirits]

On business plan.

I used to do business consulting for startups here in Fiji. I had a client who wanted to grow things and everyone was telling her to “do a business plan”. She wasn’t sure why so she paid a firm in the USA $2000 to generate a business plan for her.  Of course it was less than useless as it had almost zero useable data and wasn’t even founded on numbers she wanted to work off of.  Of course she ignored the consulting advice as well. Yada yada yada...   Flash forward three years and the opportunity has passed and she’s spent hundreds of thousands chasing some unguided dream in a tropical paradise and it’s no farther towards profitability  

 

The whole point of a business plan is to MAKE YOU go thru the data and process and market research so YOU will have an intimate and better understanding of the business you intend to pursue.  

 

Ive used growthink ultimate business plan template and it’s easy and well supported and worth paying for  they also have a marketing plan template as well as other resources   I’m not affiliated with them but it was helpful to guide me thru that process and had videos to help

me grasp what I was doing and why    Paying for their package with the videos and stuff is worth it in time saved 100x over  

 

https://www.growthink.com/products/business-plan-template

Hope that helps  

 

[Thatch]

On 6/27/2019 at 3:15 PM, glisade said:

When do you start reaching out to investors? Once you feel confident in your business plan and your knowledge of the next steps to take.

I agree and make sure your investors know that this is a long haul. If they are looking for a quick ROI or a sure thing, they will be disappointed.  

[Glenlyon]

5 hours ago, Thatch said:

When do you start reaching out to investors?

Unless you have had (extensive) experience with investors and running an investment grade business - you never start reaching out. Put the investors on the shelf and go to the bank. Way harder to get the money from a bank, but cheaper and easier in the long run with no 'partner' hassles.

No one ever wants to hear this advice and they often ignore it, but outside of the big boys, most investor relationships I've witnessed, end in tears.

[Naked Spirits Distillery]

With us just opening and going through everything in the last 12 months. Without being pessimistic for you, plan everything out to the dollar and week then double both. We planned for many contingencies that we thought would come up and we passed those in both dollars and time. If you plan absolute worst case then come under your financials will survive. 

Luckily, for us, we do not have investors to answer to. We are a small business group that have known each other for a long time and can work through delays and cost overruns. 

[Silk City Distillers]

Consider buying a Porsche or Ferrari instead, the resale is better.

[starcat]

Aside from the intel that can be found on this forum, one of the absolute best things you can do is to visit and tour in detail as many working operations as possible.

IN doing this you will gain very valuable insights as to what you want and do not want to do. What works and what does not, and so forth. The next thing is to have at least one  Crackerjack Mechanic involved to oversee the entire build out if possible unless you yourself have this skill set. Someone with Heavy Commercial to Industrial Level, Electrical and Mechanical Service and Commisioning experience. What I have noted in the craft brewing industry is people come in without any real mechanical skills or understanding and always attempt to reinvent the wheel. So inculde visits, questions, and note taking into your timeline.  Try to give yourself time to fully integrate each subsection of technical matters and be sure you understand it. This will affect your system layout and all the parts, equipment, and services you are going to buy.The informational resources available now are better than ever.

[Glenlyon]

23 hours ago, Silk City Distillers said:

Consider buying a Porsche or Ferrari instead, the resale is better.

Sort of  -  one of the best moves you can make is to make sure to own the building you plan to operate in. While I'm happy my place is doing well, if I had to I could just sell the building and all the costs associated with the business are easily covered. If I sell the distillery as a going concern, even better. But, in the end, owning your own real estate makes all the difference in the long run.

[LuckyGuy]

On 7/1/2019 at 7:45 AM, Glenlyon said:

Sort of  -  one of the best moves you can make is to make sure to own the building you plan to operate in. While I'm happy my place is doing well, if I had to I could just sell the building and all the costs associated with the business are easily covered. If I sell the distillery as a going concern, even better. But, in the end, owning your own real estate makes all the difference in the long run.

Of course, if you can afford to buy the building, why would you need investors?    Owning is great, if everything you need is there and it’s a great location.  Leasing can work too. 

[Glenlyon]

Your distillery corporation will always 'lease' - simply because it's much better tax position. However, you do (if possible) want to be the landlord. That way if the distillery corporation does have investors, they have no part of the property ownership.

Realistically, though - if you are opening in the downtown core of any mid to large size city - ownership is likely not going to be an option. I understand that - but my advice tends towards smaller farm/small town family ventures.  

 

 

[davdear]

I have a 2 person operation and we are considering starting small by agreeing to a 5 year lease for a tiny 800sq ft space where we will make whiskey, gin, vodka and hopefully be able to move around 600 cases per year by the 2nd year. We found a space (leasing is the only option) and it's basically a 1 story garage/box with 11' ceilings, city water, gas, sewer and electric. Question is how do you know a space is viable before signing the lease? How do you know that it will meet all the federal, state and city requirements when it's difficult to find out now exactly what those requirements are??? I don't even know where to start!

I realize this question is really too big to answer but I apreciate you folks taking the time to read it. So many knowledgeable and helpful people here.

[glisade]

You have to go to whomever controls your jurisdiction: county/city/state or all three to figure out if the space will meet code. For example: is it zoned to be a distillery, what will the fire marshal (if you have one) require in the space, will the different building inspectors be ok with your planned equipment and how it's heated/cooled, etc.. Most of the federal requirements are based on not having your distillery in a residence or connected to one. Your bigger concern about the space should be local requirements.

Do NOT sign a lease without a contingency that says if you can't become legal on local or federal levels, you can leave the space.

If you have another local distillery (or brewery) ask their advice on how they got started.

 

 

[davdear]

Thanks glisade all good advice

[Glenlyon]

800 sf is pretty small. Our place is a self standing 1000 sf and we are jammed to the rafters after 2.5 years. In fact, our distillery's need for storage has expanded to overwhelm our house (3000 sf), which - we now call the warehouse as we hide out in the last remaining bedroom. We are seriously considering converting the house to 100% distillery use AND and doubling the size of the original distillery building. (All of which will cause nothing but angst at the local planning office.) Assuming some modicum of success, make sure you have room to grow! Such small digs, again assuming any success, will never allow enough production to do whisky well. You'll be too busy just keeping up with basic demand. Even in the pandemic we are growing relentlessly at around 30% a year and we are perpetually short of alcohol. Something to keep in mind as you create your business plan.

[Glenlyon]

Also, another note on building a distillery now. When the pandemic ends - and, it will end. Business will boom. The distilleries that are going to thrive are the ones that can provide the best visitor experiences. Gone are the days you can open in an old industrial bay and impress people. A quick scan of the happening distilleries that are operating today will show you that you must have: A great product, a great environment and a great customer experience to even get into the race. And then, you'll need to compete!

[Glenlyon]

Also, the customers have been at home making cocktail for the last 10 months. So, the people we are seeing now are way more tuned in and educated. They want quality and will pay for it.

[davdear]

Wow- Congratulations on your success!!! You must be making something delicious. 30% growth a year is fantastic and who really needs a house?!?! Your point regarding space is well taken and not the first time I've heard it. I going to have to think on this. Meanwhile I've talked to Planning & Zoning, State Liquor Control, The fire marshal and the the conversation always ends with "The person you really need to call is..." 

[Glenlyon]

It's been an adventure! That's for sure. It took us eighteen months to go through the re-zoning and licensing. Then we built the building and eventually opened. I remember our first six months. We opened in June with three 120 L fermentation tanks and a 140 L still from Affordable Distillery. We were completely un-prepared for what happened next - which, was the interior of our province went up in flames. That forced all of the tourism normally bound for the forests and lakes to come to our secluded seaside village. We were swamped! We only had vodka and we could barely pull off a mash - our alcohol take was pathetic and every bacterial problem dogged us worse than covid. But as luck would have it, people liked our vodka, we added some gin and then hung on through the winter. The next spring, all those people who had discovered our part of the world came back and they took word of our great experience back to Vancouver. Then, one day we decided to attend a Vancouver based distillery tasting fest and we won the audience choice for one of our cream liqueurs. That was a very surreal experience. When the event opened we were up against 39 other distilleries, most with excellent reputations. The first ten minutes we could hardly get somebody to try our stuff including a new vanilla cream liqueur I had made. But once they started to taste it, word quickly got out about our great creamy beverage and for the next three hours we couldn't pour fast enough - all of our product sold out of the on site store in minutes. Ever since then, our vanilla cream liqueur been our best selling beverage. The next season opened with us way behind and we struggled all summer just to keep up. Our tasting room was packed right through December. In January we were, trying to recover when we started to hear about the covid virus. What a stroke of luck! We quickly started making hand sanitizer (possibly the first in Canada) and we had it on the market in early February - so when the March shutdown happened - we were the only game in town. Happiness is a distillery owner in the middle of a social catastrophe! Then, as soon as the market became saturated with all the other distiller's sanitizer in April, we promptly switched back to beverage alcohol and scooped up all of the vacant spots in the licensed retail market that other distillers lost. I'm telling ya, this next year is going to be a fucking corker!! Best of all, we now charge a premium for our products and our margins are astronomical - our accountant squirms with joy whenever she's talking about them - so, we love the distillery business!!