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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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