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What part of the Business Plan did you struggle with?

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TL;DR: I'm in the beginning throws of creating a business plan. What part of your business plan did you struggle with the most and how did (or didn't) you overcome it? 
 

After enough research, I've come to terms that I won't be a distillery owner for at least 18 months, if not longer. I still need money coming in. I need to save. I need to figure out what the f$%* I'm doing. So here we are, at the beginning. I'm locked in with a blank document and in a staring contest its title; Business Plan. 

Sort of.

I've broke it down into four major themes I need to flesh out:

  • Production/Operations
  • Marketing/Sales
  • Financial
  • Legal

My plan is to start one page vision of the distillery/product (to get my head straight) and then go after legal (local zoning board/politicians) and marketing (distillers, retailers, bars and potential customers). I'll see what the reaction is to my vision and tweak as I go.

Why this approach? Because talking doesn't cost money. Truth be told though, I'll be winging it for a while. So I'm wondering if anyone has comments or critiques to this approach? And maybe you'd like to shed some light on the areas you struggled with regarding your own business plan in the beginning.

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That's a start - figure out what it's going to cost you on a per bottle/case basis - hard fixed costs - estimate your  variable cost which will come down on volume - Cost of fixed assets and all that other fun capital budgeting stuff - Once you work all the numbers  out the biggest challenge will be distribution - Getting your product to the shelf and how?  Seems to be the area that chokes most of us out of business.  Research your state laws and systems, what you can do and what you can't.  More than likely as a small guy you'll be in competition with your distributor or liquor chain.  Zoning and permitting are the easy parts.  It would be wise to visit with the local fire inspector - a few guys have been up and running for years when the fire marshall paid a visit and required substantial improvements.

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Writing a good business plan takes a lot of work. Expect to take several months to get through the process. A good plan will first address it's intended audience. Is it a plan for a bank or for some other purpose? Our first plan was for re zoning. Now we're on to the next part of the plan (construction and start-up), which is under continual review. All in all a good plans should cover seven areas:

Executive Summery - Clearly sum up the plan, the players and the money on one page.

The Company - Business numbers, permits, incorporation status, brief history. Perhaps a vision or mission statement, etc.

What you sell - What are your products. What makes them worthy of someone's hard earned money.

Your Market - To whom do you plan to sell the aforementioned products.

Your Strategy and Implementation - How are you going to get/manage - the location, the product, the staff, etc.

Management Team - Who is in charge and what gives them the right to be there.

Financial Projections - Avoid the plunge of death. Pay careful attention to your first three year cash flow projections. Not sure about a number? Do more research! Until every last question is answered. This document will reveal the flaws in your plan as laid out above and will allow you to spot the real problems before they bite you.

When I was young and sexy, I didn't bother with plans. Now, I don't deviate from the plan without very careful consideration and consultation.

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One thing you will want to build into your business plan is a sensitivity analysis to cover SOME of the "what-ifs". It will likely cross into the first 3 of the categories you listed above. As your business launches, this will help you understand how your business is operating relative to your initial plan and what you may need to do to course-correct if you have a problem. 

At some point in time, we all think "I am going to make the best hooch out there and it is going to fly off the shelves!" In almost every case, that is not true. What if your sales are 1/3 of what you project, it has taken you twice as long to get there and it costs you 25% more than you thought it was going to? Can your business model stand up to that? If not, you may want to tweak a few things to make it hold up in a near worst case scenario. If you don't plan for any downside, you are building significant risk into your model and may have some "oh $h#T" moments more often than you would like. On the flip side, what if your stuff sells so good and so many people want it that you have distributors knocking down your doors to sign deals? Can your team and your equipment keep up with it? If not, is it worth growing that quickly? How much will it cost to bump your production from 5k to say 25k cases per year and where does that money come from; equity, debt?

A lot of what-ifs...way to many to really consider. I would just suggest planning for an upside and a downside and make sure you have a contingency plan in place for those.

Cheers!

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You'll notice after writing your plan for a few days that you have lots of information, but a lack of direction. This can be very frustrating to get past. A clever way to get over this hurdle is to print out your pages and give them to someone who has not as familiar with the material. Give them a pair of scissors. Tell them to read through the material and cut up the plan and place the various bits under the appropriate heading. Company, Products, etc.

By letting someone else do this, it helps to de-personalize the work giving you a chance for renewal. Now you can grab a collection of bits from a heading and focus on that idea. You'll find this strategy helps a lot when it come to streamlining the direction of your document.

Numbers are really important. More important that the written material. Take your time with the numbers. Even though, I have been relentless about numbers - I can always find areas, I failed to consider. Also numbers can tell you a lot. For example...

My contractors give me a bill the other day - it summed up the weeks work with a simple phrase: Labour and materials, $27,000. Not helpful from a management information point of view. Hmmm, I thought and I asked the contractor for a more detailed breakdown. Begrudgingly, two days later he produced the desired document. Even though it was basic, I could instantly see that the contractor was not going to be able to meet the previously agreed upon construction estimates. Yet, he didn't think he was over budget, because he didn't monitor his own numbers. So, you can learn a lot from numbers. Manage them carefully.

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The hardest part for us has been making realistic financial assumptions. I am a PhD in finance...but man...finding sales data for micro-distillers is non-existent. So we have had to back into all kinds of SWAGS (super wild ass guesses). 

I mean everything drives off your assumed production levels which will be driven by demand.

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Sales projections are going to be nothing but a shot in the dark.  I have seen distilleries open after 5 years of planing and spending millions of dollars with less than 50 cases of sales per month after a year and distilleries opening in less than a year of planning under 60k and selling a hundred cases after the first 6 months.   Not saying its a crap shoot but there is a lot more that goes into a successful distillery than a well written business plan and a bunch of money.   

Plan yes but don't let the business plan hold you back.  

 

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I agree, don't let the plan hold you back - but - do use the plan to help find the path to righteousness.

Our plan is a work in progress. Although, we work at it carefully - everyday, what happens in real life does not reflect what we wrote. Sometimes we update it, sometimes we don't, It depends.

For example we planned extensively around construction (our current phase). As far as we were concerned, we had it covered. However, the realities of dealing with contractors and their own ideas - has largely rendered the plan - and associated budget/schedule useless.

They say 'nobody can tell you how to start a distillery' - and that statement so far, has rung true for us. There is tons of great info to be had, but until you are standing at the permit desk arguing with the stubborn permit guy - your plan is just a written fantasy to motivate you to quit writing the plan and to get on with it... With your plan, of course.

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If I might:. One thing you have all no doubt seen is the success of companies like High West, Angels Envy, etc... I believe those type of companies point out the  market potential of "Craft perception" associated with decent products. And no I don't want to get into the argument about if any of them actually produce their products (grain to glass).  Let's for a second pretend that they do because regardless, they sell good spirits. Therein lies the rub: can you get by with a great facility and plan, if your products are not close to perfect ?

I would argue that the answer is no. That you can plan all you want, and make your facility look great, but if  your end products are not as good or better then the thousands of like products on the market, as well as cost competitive, you will struggle or fail. 

Alternatively one way to keep going while your products mature (or you get better at the craft) is to run a tasting room/Distill Pub environment (which may be all you ever need to do). However I strongly feel that the saturation that is occuring in the "Real Craft"and "Fake Craft" market is rapidly deteriorating the get rich quick market that so many people think exists.   

Another help is if you are in an area where there are no other producers and you have a sufficent population to help float the "local" aspect of your products. However they still better be very good and price competitive, and you need to hope that someone else doesn't open up around the corner. 

You need to take the long view, and have the initial capital or tasting room cash flow to wait out the 5-10 years that it will take for your brands and products to mature. Or as mentioned, you can run a cool Distill Pub, if your State allows it. 

My suggestion is to not need to be a distiller, but to want to be a distiller, and if you must, have at least 1 X the burn fund of your entire infrastructure budget. This will allow you to both operate day to day, as well to stock/mature sufficient product for potential future sales. 

Then consider that like most business, it may fail anyway, and you need to be able to absorb that loss. 

Its a great industry, but it is just that, an industry. Most industries have more companies fail than succeed, and most fail due to lack of operating capital while waiting for potential break even sales. 

Also keep in mind that there seems to be a push for distributors to lock up craft producers with promises of sales, and once signed, essentially do nothing. I wouldn't be surprised to see that as being encouraged by the big producers.   

prost

 

 

 

 

 

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I'm a newbie too. However, my plan for creating my business plan is to get assistance from a nearby state university. If you are near a state university find out if they have a college in their university system where either the school of business or the school of finance creates business plans. It helps with the hard stuff and at the university I'm using, they do it at no cost. 

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We've gotten a LOT of mileage out of our business plan, so its worth struggling through the exercise. Numbers are not that bad if you come at it systematically. After all, you already know quite a bit of information by virtue of the development of the idea. You know what the taxes are and that's key. After that, look at what you think it going to cost you to a) build the business and b) run the business. Now figure out  how much production your planned equipment will give you and the amount of money you need to keep the doors open. Now you know how big of a market you'll need to develop and how many cases you'll need to/can actually produce. You don't need to be precise. The real objective of projections is to get you thinking about the reality of the balance sheet. The bigger the business you plan to start the more difficult the task is. However, if you are smaller, much of this can be done in a couple of hours with a calculator and a map.

In the end though, no matter how detailed the plan is, it can in no way prepare you for the tsunami of work actually running a distillery is. Like for example, the amount of time you'll spend just keeping the work space clean both for your own sanity, but also for any visitors/customers who will inevitably show up, just when you don't want them.

 

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On 11/5/2017 at 9:15 AM, Roger said:

 

Also keep in mind that there seems to be a push for distributors to lock up craft producers with promises of sales, and once signed, essentially do nothing. I wouldn't be surprised to see that as being encouraged by the big producers.   

prost

 

 

 

 

 

I'm in a state were I can hold a wholesale (distributors license) and I automatically get a by the drink and carry out license,  with my state distiller's licence.  I plan on hiring a salesman who will also do my deliveries to bars and liquor stores etc.  I have already spoken to several bars and liquor stores in my area who are very interested in the products that I am going to sell and we have even talked about placement on the shelf with several of them.  We will also be selling bottles out of our distillery tasting room and we will also be doing tours.  We are way out in the boonies along a highway that a lot of tourists use.  The state will be putting up a couple of signs along the highway for us.  We will also be doing hands on distilling classes, so we willl have people paying us to make some of our spirits.  Mainly the students will be making our white dog for the Tennessee style Whiskey and Bourbon that will be going into our rackhouses.  We will have traditional rackhouses built here on our 40 acre property, so that will give us an advantage over competitors who are aging in distilleries in cities and towns.  We will be aging 4 years, 6 years, 10 years and 16 years. We will be doing a very broad range of spirits. Is there anyone else out there that self distributes and sells bottles out of their distillery?

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36 minutes ago, Southernhighlander said:

Is there anyone else out there that self distributes and sells bottles out of their distillery?

That's the BC way for craft distilleries!

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4 minutes ago, Glenlyon said:

That's the BC way for craft distilleries!

So you can sell directly to liquor stores and bars as well as bottles out of your tasting room?

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Yep. And, further we don't pay the province any mark up fees. Only the Federal excise. So, the only revenue the province gets is the 10% sales tax charged when the customer actually buys the product. We can sell via Public Liquor Store, private stores, rural agencies, bars and restaurants, online and through the tasting room. The only thing some smaller distilleries can't do is sell mixed beverages by the glass. Although, some can. It all depends on the license you apply for.

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2 hours ago, Southernhighlander said:

Is there anyone else out there that self distributes and sells bottles out of their distillery?

Ohio allows us to sell two 750ml bottles per person per day from the tasting room.  We can also sell directly to restaurants and bars.  But, we cannot sell directly to retailers that sell bottles, this must come from a state warehouse to the retailer.

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Glenlyon,

 

That's cool.  I have some questions.  If you don't want to answer them I understand and that is no problem.  Do you do your own whole selling or do you have a sales person that does it for you?  Do you deliver with a truck or van or something or how does that work?  Do you find that most liquor stores and bars are interested in your product? 

Also, I have been thinking about having some spirits that I would sell as well brands and the bars could return my bottles when we deliver so that they can be refilled.   This would save my customers some money.  Just one of my outside the box ideas.  Have you ever heard of anyone doing that? 

What about tasting room sales.  What percentage of your sales are tasting room sales.  We are down a gravel road 30 minutes away from the nearest very small town but a lot of people use that highway to go to Branson MO.  Also it is a very long winding hill country highway that bikers love.  By bikers I'm mainly talking about RUBs and not 1%ers.  They usually come down this highway in large groups. The distillery will be 1/2 mile down our gravel driveway.

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Hi Paul,

We too are tucked away in the country side. Our local village houses about 1200 people and the surrounding countryside hosts another 20k or so. Our market is very geographically constrained. Only a few errant bikers wander by occasionally. We cater heavily to the locals.

We deliver, simply by loading up the 'ol SUV and heading out. For liquor Store sales, we have to go through their central warehouse, but for everything else, its us or the mail.

We're not allowed to re-use bottles. Technically. The brew industry uses growlers up here, but I don't see that catching on with spirits customers.

Most all of our sales are through the tasting room. We have several restaurants who are really interested but so far, we're too small to deliver a regular product. Hopefully later on this summer we'll be able to do that as well as start on-line sales.

So far, the vast majority of our business is word of mouth, eventually though we'll have to start advertising.

Its remarkable how close what we are actually doing matches the business plan we wrote over a year ago.

 

 

 

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Glenlyon,

  It sounds like a really nice little set up that you have up there. Thank you so much for the info.

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Thank you Paul for the compliment.

We're distilling with one of your 45G tun/stills. Works like a charm. :)

The mistake we made is - we should have bought a bigger still to start with. But, live and learn!

 

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19 hours ago, Thatch said:

Ohio allows us to sell two 750ml bottles per person per day from the tasting room.

Boy, that's a real limitation. A good customer can easily drop $200+ each visit which equates to about four bottles. If you have debit you can increase those sales even higher.

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1 hour ago, Glenlyon said:

Boy, that's a real limitation. A good customer can easily drop $200+ each visit which equates to about four bottles. If you have debit you can increase those sales even higher.

Stopped at a distillery in North Carolina last year and was told they could sell 1 750ml bottle per customer per YEAR.  I don't believe they can sell direct to restaurants and bars.  So, I am happy that we have a bit more leeway. 

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Here in MO we can sell as many bottles as we want right out of the distillery tasting room.  We can also sell directly to bars restaurants and liquor stores.  We can also sell by the drink out of the tasting room, or we can have a bar at the distillery.  Copper Run has a 2 story building.  The distillery is on the first floor and the bar is on the 2nd floor.  They have a blue grass band and the bar only serves there spirits produced there and the bar is always packed and they are out on a gravel road. 

Also MO is one of the only states where it is not against the law to be drunk in public.  Also we are the only state where it is perfectly legal to home distill.  Our state law enforcement including our state Alcohol Tobacco Control enforces state law, not federal law,  when it comes to home distilling.  In Mo you can produce up to 100 gallons per year per individual and 200 gallons per year per family of distilled spirits.  Our state law states that a person 21 years or older shall not be required to have a permit to distill for their on personal or family use.  

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