nateo

It's the 14-16th of Feb. Tons of presenters last year. I'm not familiar with most of them. Any recommendations on must-trys? http://www.finest-spirits.com/festival/Aussteller/

The typical way to evaluate business plan projections is to do a sensitivity analysis. That is, how much does a change in sales change the net profit. You can do a monte carlo simulation, but that's overkill in most cases. Doing a pessimistic, optimistic, and most likely scenario is probably good enough. You'll need to tie it all back into pro forma balance sheet and income statements. As sales go up, so does your net working capital requirements. That means you'll need lots more cash, and you'll have to get it from somewhere. It's typically not possible to sustain high growth without external financing. About 60% of bankrupt companies had positive net incomes. So it's pretty easy to "grow yourself to death" if your product is popular.

I assume fldme was talking about craft beer in the 90's. Lots of people were making bad beer, then the market collapsed. I think something similar will happen with craft beer today, but I suspect it will have more to do with nanos being unable to scale up, due to competition for investment funds and customers. It's basic economics, if someone is making a good profit, other people will try to compete with them, driving overall profit down, until some companies go under, then profits go back up. The only defense is a high barrier to entry, so the liquor laws and capital requirements are probably the only thing keeping the craft beer industry profitable right now. I'd say craft beer is somewhere between the "greed" and "delusion" stage right now: I do agree with Nick's overall point that marketing, sales, and luck are usually more important to business success than humble craftsmanship. You know those old razors everyone used to shave with before WW1? They were so nice, and lasted so long, all the companies that made them went out of business, because people only bought one their whole life. Gillette and Schick started making disposable razors that wear out quickly, and they're still around.

If they were completely different products (say Popcorn Sutton was vinegar) then I think you'd be right. Copyright infringement hinges on "likelihood of consumer confusion." When the two products are direct competitors, the court applies a tougher standard. Actual proof of confusion is not necessary. You need to show that it's "reasonable" to expect that consumers might be think the two products share the same parent company. Few people have lost money betting against the intelligence of American consumers. . .

It's tough, because too much debt is bad, but it's hard to say how much is "too much." It's good you guys made it work out with just equity. You have to balance the risks (and costs) of avoiding bankruptcy against the return you'd get via leverage. You also have to evaluate your personal risks, especially if your investors want 70% of the company, and they decide to get rid of you after 3 years of putting in 100 hour weeks for less than minimum wage. I've been there, and it sucks. Raising equity via friends and family isn't risk-free. If you lose all their money, there's a good chance you'll lose your relationships with them too. They're the people whose couch you'll need to crash on after you lose everything!

I agree. Trying to sell that much common equity for that much money is crazy. If you form a C corp, buy common stock with your $100k, and sell preferred cumulative stock for $700k, convertible to 40% of all outstanding common equity after 7 or 10 years, then it gets less crazy, especially if you offer a good return (10%+) in the meantime. That would give the investors a higher claim than you on assets if the company goes under, reducing their risk and the return they'd demand. After 10 years, the business might actually be worth $1.75m, but you'll have to compensate them for the time and risk, in the meantime. I'm sure it's obvious by this point that equity is a lot more expensive than debt. If you can take on debt instead of, or in addition to raising capital, that's a better way to go.

There are a couple ways to look at this. Let's look at just the opportunity cost for the investor. The annualized return of the S&P 500 was 5.35% trailing 10 years, 13.68% trailing 5 years, and 28% over the last year. A 10-year T-bill is currently 2.76%. If we buy the S&P 500, and it grows at the most conservative rate (5.35%), we'd have 1,178,809 (a gain of 478,809) after 10 years, but that's fairly risky. Let's assume we buy $700k in t-bills (risk-free) for 2.76%, and take the most conservative S&P rate. y0 = -700000 y1-9 = 19,320 y10 = 719320 discount 5.35% NPV = -137,645 We'd lose 138k, so not great, but that's a risk-free loss. Let's assume we buy 40% of the distillery for $700k. y0 = -700,000 y1-4 = 0 y5 = 50,000 y6 = 50,000 y7 = 75000 y8 = 75000 y9 = 100000 y10 = 100000 NPV @ 5.35% = -401,453 That calculation assumes you're making $250k net profit by year 10. If we expand it out to 15 years, and assume the investor will get $150k per year for the next 5 years, the NPV would only be -19,516. So we haven't even broken even yet, and we're assuming we'll be netting $375k per year in years 10+ Meanwhile, the whole time you'd be making a profit almost immediately, since you'd get 60% of the net on your initial investment of $100k. y0 = -100,000 y1-4 = 0 y5 = 75,000 y6 = 75,000 y7 = 112,500 y8 = 112,500 y9 = 150000 y10 = 150000 NPV @ 5.35% = 347,821 So under that arrangement, you'll triple your money in 10 years, and your investors will lose half their money. If you end up making a lot more net profit, the investors might see a positive return sooner, but if you adjust for risk, it's probably not worth it. Any way you slice it, you'll end up making a lot more money than your investors will, if you can get them to buy 40% equity for 87.5% of the costs. Plus if the business goes under before year 5, you've got a lot less to lose than they do.

Hi folks, I'm from Colorado (born and raised), currently living in Missouri. I'm moving to Germany in February. I'm currently working on some business plans for a brewery and/or a distillery. I'd like to start something within the next 5 years. I ran a small business for a few years, but so I know all about working 100+ hours a week for peanuts. I now work as an internal accountant for a big company, and I'll have my MBA (finance) done by August. I don't know much about distilling, but I'm excited to learn. I know a bit about business, but there's always more to learn. -Nate