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Raising a glass to the Microbrewery Boom

Published on 17th January 2019 - Last update on 7th October 2019

The growth of craft beer drinking has meant plenty of opportunities for brewers – but how do you make the step from shed – or even kitchen table – to an industrial unit?

Being able to create a great beer is, of course, the most vital skill for any brewer. But even if you can guaranteed quality with every batch, there is a great deal more to running a microbrewery business than creating a fantastic brew.

Knowledge

Many of us might claim that a greater brewer is born, not made and that the ability to turn a bag of grain into an appealing pint is an innate skill. But while it may be true that we need an aptitude and an abiding love of the craft of brewing, the truth is that it is a skill which must be learned.

Some small breweries, such as New Bristol Brewery, recognise this fact and now offer formal courses in brewing. Their Bristol Brewery School provides an extensive portfolio of brewing, tasting and business-focused programmes offered on campus, from one-day crash sessions to paced programmes of tuition.

The ability to know what to do, and specifically what to do when things go wrong, can spell the difference between a steady, dependable production run and costly disasters.

But even after you have honed your skills, you are still a long way from becoming a brewer. You will need equipment and premises, and a distribution network to put those skills to work.

Microbrewery Equipment

Many brewers often start brewing in their kitchen but, although it may be technically possible to produce beer with ordinary domestic equipment, in practice a mash tank, lauter tun and fermentation tank, plus some pumps and heaters, will be required to brew beer.

It can be simple enough to set up a microbrewery producing small batches for as little as £5,000, using a combination of new and secondhand equipment.

However, costs will rise as the size of vessels and consequent production volumes grow. A £10,000 installation might produce around 400 litres of beer on each production run.

A 12-barrel brewery, producing 2,000 litres or more, could set you back between £50,000 to £80,000. Funding solutions do exist for this type of investment when you are ready to make the leap into real volume production and include both Secured Loans and Asset Finance solutions.

Looking to set up or grow a microbrewery? Unsure which type of finance is most appropriate for your business needs? Find out your options or apply today

Premises for your microbrewery

The biggest financial commitment, however, may not be in your brewing equipment but in finding somewhere to install it. If you have an outhouse or barn standing empty, this may not be a problem but, in many cases, you will need to find other suitable premises.

From there, switching to a commercial basis may be possible with minimum investment in brewing and bottling equipment, and suitable premises. Obviously, you will need running water, electricity and drainage. You should also think about the future, and ideally find somewhere with room for expansion, with open floors capable of carrying substantial loads, and with good roof height.

Cleanliness is essential. Washable walls and seamless, impact-resistant, anti-slip flooring will be essential, although you may be able to install polyurethane resin flooring to an existing floor.

A small 2.5-barrel brewery, which may be around the smallest viable for a business, could be housed in as little as 250-500 square feet but you may need additional space for storage. If you’re looking at a 15 barrel brewery, you would need 1400-1600 square feet.  

Properties such as diaries which have all the necessary facilities already in place could be ideal, but you may need to find an industrial unit. Many farm businesses now offer suitable units in surplus agricultural buildings. A Short-term Loan might be useful if you are considering taking on a leased unit but a Commercial Mortgage might be more suitable for the long term, allowing you to build up a valuable asset for your business by buying the premises it works from.

Setting up and operating costs

The cost of equipment and premises will vary with the scale of your operation, but many experienced microbrewery operators report that these costs are only part of what you will need to find to set up a microbrewery that is really a business, rather than a hobby. Dealing with all the expenses - from wages and business rates to distribution - until it becomes profitable may be as much again.

Many businesses use a combination of funding types to raise the necessary capital. A Secured Loan, often with the funding secured on your home, can, in theory, provide almost any level of funding - if you can put together a business case justifying how it will be used and offer suitable security.

Operating costs can also be an issue once the business is established. Quality ingredients such as hops and barley may not be high-cost items, but they will still need paying for, as will all the usual overheads.

Cash flow may turn out to be the biggest barrier to your success as a commercial microbrewer.

When you are still at the kitchen table stage, cash flow will probably be positive. Getting paid for the beer you produce will happen sooner or later and the costs involved will be small. If you run into the red from time to time, you may be able to cover the shortfalls from your own resources.

Once you have regular outgoings, even if your operation is selling in sufficient quantities to generate a profit, cash flow can become an issue.

Selling small orders may let you operate on a cash on delivery basis, but this will become impossible as your business scales. Customers may be very keen to buy your beer but large retailers, in particular, may have long payment arrangements which are standard. This may be fine for the larger brewers, but when you are a small operator, they could mean being short of the funds you need to operate your business and to fund the next production batch.

This had become a major problem for a craft brewery that we recently worked with. Working out of a converted farm outbuilding in Sussex, they had a growing following for their beers, but the move from cash on delivery to invoicing was causing problems. 

“The local bars we were already supplying were not really a problem, because they knew us and settled our invoices fairly quickly. But when we started providing dozens to bars as a guest beer, we had to start working on the same basis as big brewers.”

Our client was waiting for up to a month to get paid, and simply did not have the necessary cash reserves to cope with this delay.

“The overheads keep on coming in even when payments didn’t.” 

Cashflow is a major challenge for every small business and having to wait weeks for invoices to be paid can trigger a cashflow crisis – but there are ways to help. Making sure your invoices include the necessary information is a good starting point, but may not be enough in its own.

We saw that the solution could actually lie with an Invoice Finance arrangement which would provide cash advances based on the value of invoices issued, but are yet to be paid by the customer.

The help you need for your microbrewery business

At Rangewell, we can help you find the finance required for all types of business costs, whether you are still in the kitchen - or already in your industrial premises and ready to grow your production.

Whatever the size of your brewery - and however exciting your plans - at Rangewell, we can provide the scale of funding you need. Simply call us to find out more.


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Richard Mitchell

Richard Mitchell

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