Planning a successful start-up brewery may seem like a quite the feat, but getting through your first brew day probably felt that way too. Like most things, it helps to break the project down into smaller steps (and RDWHAHB). In this Brewery Start-up Series, I’m covering some items and questions every future brewery owner will want to consider when planning a brewing business. The list will be by no means exhaustive, but should help get the process rolling—and, as always, Doug and I at Reiser Legal are here as a resource when you’re ready to take that next step or have questions along the way. Today’s topic:
How Will You Handle Brewery Start-up Costs?
Hate to lead with cold hard cash, but the reality of opening a business is that it takes some seed money to get things going. Just how much money you’ll need depends on the kind of brewery you want to open.
Creative Ways to Open a Brewery With Low Start-up Costs.
Are you okay with starting small and growing from there? If so, you might consider getting started without sinking cash into equipment by ordering contract brews, or getting licensed up and becoming a tenant brewer at an existing brewery. More on contract brewing and alternating proprietorships here.
Start as a Nanobrewery.
If you want to dive in and get your own equipment, but are reluctant to amass debt or take on too many investors, opening a nanobrewery is also a viable route that’s proven successful for a number of breweries. You can start with a small system, build a fanbase, and grow at your own rate. What’s more, as you generate interest in the community, you might find that you can generate an even more substantial fundraise for a bigger facility down the line, versus had you raised funds before ever proving yourself as a brewery and business owner. We’ll note that if you have some funds, but need a bit more to build out at the level you want, light fundraises through outlets like Kickstarter have also proven quite successful, and are a great way to garner attention in your community.
Dive in and Open a Packaging or Production Brewery.
So long as you have the funds, aren’t afraid of going big from the start, or don’t mind giving a piece of your future business away, a start-up brewery can go from 0-60 quite quickly. The key to a successful fundraise is a rock-solid business plan. It’s your pitch.
In the end, start-up costs are unavoidable, but through some basic business planning and sometimes creative choices, a start-up brewery need not feel daunted.
Next time, we’ll walk through some business planning strategies, including items you’ll want to address in your brewery’s Operating Agreement.
This post is for the dreamers—those who want to open a brewery, without giving up their primary careers just yet. I’m here to say it’s possible—promising, even. So, here are my thoughts on how you can invest in yourself. You can open up a brewery the easy and affordable way, without sinking cash into mega start-up costs. Here’s how.
Before fully digging in, I’ll note that it’s the holiday season. Time with family, especially over some special brews and beverages, can refocus us all, and for anyone with an entrepreneurial streak, that refocusing can resurface dreams of a family-owned business—something to support those closest to you now, and well into the future. And, for many of us homebrewers, that dream usually involves a homegrown brewery, cidery, meadery, or distillery.
If you’re just exploring the idea, or you’ve been batting it around for a bit and don’t know where to start, it’s worth noting that a brewery start-up can take so many different kinds of forms. But, for many of us, the prospect of leaving one career to jump into a less-certain other can make the dream seem too risky. For others, the start-up costs or investment obstacles alone can make the dream seem too impossible. Today, though, this post is all about the possible.
One of the most affordable, least risky, and easiest ways to open a brewery is to open a brewery…without opening a brewery. Rather than invest in a massive system, long-term lease, and take on full-time brewing from the get-go, clever potential brewery owners can get some brews on the market without too much skin in the game. We’ve covered these sorts of contract brewing and alternating proprietorship arrangements in the past, back in 2011. But, it’s worth revisiting now, as it’s an underutilized option to get brewing. These arrangements are legal from TTB’s perspective, and in a number of states, including Washington. It’s the real deal. For those in Washington, there’s more background on contract brewing here, here, and here, and helpful information on alternating proprietorships here.
The gist of an alternating proprietorship is, you’d be getting licensed up, but rather than outfitting your own start-up brewery, you’d be opening a brewery as a “tenant” brewer from time to time at another commercial brewery. You’d bottle into your own bottles or keg into your own kegs, with your own label approvals, and you’d be completely in control of your inventory. You just wouldn’t have to invest in the space from the start. It’s sort of like a tool lending library, on the massive brewing scale. In contrast, contract brewing arrangements allow you to contract with an existing brewery and have them responsible for making the beer for you. You can craft the recipe, but they’d be the licensed parties brewing it up.
So, for those of you wanting to get your feet wet in the brewing business, without getting underwater, alternating proprietorships and contract brewing arrangements are real possibilities, and Reiser Legal or your local beer attorney is available to help new brewery owners open a brewery, test out the market, get their goods out there, and make cash to reinvest into the future brewery, without putting your primary career on hold. Of course, having said all of that, it costs a lot less than you’d think to start up a nano brewery, and there are many investors eager to be a part of the fun. See our post on brewery start-up costs here. But, if you’re not sure about the “wheres” of your commercial facility, and don’t want to plant deep roots just yet, contract brewing or alternating proprietorships are a viable option, and we’re here to help you get started.
Arguably the least exciting of those regulations are a brewery’s constant record-keeping requirements. In addition to meeting any record-keeping obligations at the state level, a brewery must follow all the federal regulations imposed by the Alcohol and Tobacco Tax and Trade Bureau (TTB), and right now, TTB requires that breweries keep detailed daily records of the following sorts of information:
-Material received and used in producing beer.
-Beer removed for consumption or sale, including quantities and dates, and for certain purchases the name of the person receiving the beer.
-Packaged beer used for “laboratory samples” at the brewery. (Which reminds me, I’ll gladly volunteer to be a laboratory sampler. Standing offer!)
-Beer consumed at the brewery or returned to the brewery.
-Beer reconditioned, used as material, or destroyed.
-Beer lost due to breakage/theft/etc.
None of these requirements is too surprising, but it’s worth noting—especially because, as a brewery’s retail and distribution plans get more complicated, it can be easy to overlook this basic compliance stuff. You can find a full list of federal brewery record-keeping obligations here, and your local beer attorney can help you wade through details at the state level.
Today, I’m really honored to introduce a guest poster on the Brewery Law Blog. Just as Doug and I at Reiser Legal have poured our energy into developing a craft-brewery-focused law practice, Chris Farmand over at Small Batch Standard has devoted his accounting know-how to mastering the tax intricacies and smart savings strategies available to craft breweries. He’s the real deal, and we’ve been glad to connect with someone who shares our passion for helping brewing businesses. Enjoy this helpful information straight from the source. Thanks, Chris!
As year end approaches, certain tax planning strategies should be in-motion for craft breweries. Proper planning could result in major tax savings for the business and owner. There are four tax saving provisions which apply to the beer manufacturing industry. My goal is to make you aware of these benefits, while understanding the actual calculations are complex and should performed by a CPA. It is important that your CPA understand these strategies so they can best advise on how to maximize them. The following provisions consist of three tax credits and one tax deduction:
- FICA Tip Credit
- Domestic Production Activity Deduction
- Research and Development Credit
- State credit and incentives
FICA Tip Credit – For this credit to apply you must have tipped employees. Brewpubs and Microbreweries with taprooms, listen up. The easiest way to explain this is, reported tips are subject to FICA. You as the employer must match this FICA amount. Some tipped employees make a lot of money. What the credit does is, recapture some FICA paid for wages that exceed minimum wage. The calculation is quite complicated so just understand if you have tipped employees on a throughout the year, you probably qualify.
Domestic Production Activity Deduction – Unlike a credit, this one has some limitations. This deduction says since you are manufacturing something on US soil and are paying wages, we will give you an additional deduction. How much? Up to 9% of qualified production activities. Qualified production activities include wages for production workers (brewhouse staff) and Cost of Good Sold to name a few. This deduction has a “use it or lose it” clause and is limited by net income. This one takes careful planning to maximize and depending on your size can return some serious dollars to the owners.
Research and Development Credit – This credit applies to any research and development you perform on premise. Research and development in a brewery? R&D can happen in most industries as long as you are trying to improve an existing process. Think test batches or designing new method to handle waste water. The R&D credit must meet a four part test to be valid:
- Permitted Purpose – New or help existing process
- Elimination of Uncertainty – purpose is to eliminate uncertainty
- Process of Experimentation –Systematic process to evaluate one or more alternatives
- Technological in Nature – principles of physical, biological, engineering, or computer science.
State Credits and Incentives - Most states have a list of business tax credits and incentives. The goal of these are to attract new business or expand existing business within the state. Some examples are: Economic empowerment zones, hiring a veteran, manufacturing & technology focused businesses, to name a few. Most businesses fail to act on them simply because it takes effort to see what programs are available and apply to them. A listing of recent incentives can be researched at your specific states department of revenue website.
My advice on maximizing these opportunities is to not be complacent and ask the right questions. Most CPA’s should be familiar with calculating or researching these credits. Be proactive about these benefits. Investors love to see these credit help them too, they increase the credibility of their investment. Empower an assistant to take 30 minutes a month to research or make a call to see what is available. I can tell you from personal experience these provisions have translated to significant tax saving among fellow brewers.
Chris Farmand is the founder of Small Batch Standard, a CPA firm helping craft breweries across North America. Chris has more than 12 years of tax and accounting experience, with the last four years dedicated to the craft brewing industry. Small Batch Standard believes brewery owners should have reliable financials while focusing on what they do best, making beer. He can be reached at email@example.com.
Coppertail Brewing Co., LLC v. Copper Top Brewery, LLC is the latest brewery v. brewery trademark dispute to spill over into federal court. This brewery trademark matter is happening in Florida district court, the Tampa division. According to the complaint, plaintiff Coppertail is a Tampa-based brewery and defendant Coppertop is also a Florida brewery based in Wellington, FL which is on the Atlantic side, aiming to open in Boynton Beach. The complaint was filed on 10/29/2014 and, for those watching on the sidelines, you can find the documents and follow it at Docket No. 8:14-cv-02727 (M.D. Fla.).
We don’t have to spell out the concerns here. But, we will paint the timeline, for those curious about the ins and outs of the dispute. Plaintiff Coppertail filed a trademark on October 23, 2012 and obtained a registration. Per the complaint, Defendant Coppertop is a brewery under construction. It’s a straightforward complaint, alleging trademark infringement and unfair competition under the Lanham Act, while also including a count of trademark infringement under Florida common law. Further, as we always like to report, the complaint does state that the plaintiff Coppertail tried to resolve this matter privately with the defendant start-up brewery.
Also, we’ll note for the detail-oriented that although the defendant is “Copper Top Brewery, LLC” in the caption, the complaint refers the defendant as Coppertop throughout. Indeed, based on the brewery’s own promotional materials and recent articles, including a feature article today (10/31/2014) in the New Times Broward-Palm Beach, the defendant does appear to be using the “Coppertop” mark and not “Copper Top” as it appears in their LLC, Copper Top Brewery, LLC. Notably, too, take a look at the logo materials, with the emphasis on the “C” with quite similar lettering—with the defendant’s C almost giving the same fish tail like appearance that makes up the Coppertail mark.
The key takeaway for us, as always, is the importance of filing an intent-to-use trademark before getting too far along in building out the brewery, getting notoriety in featured articles, and investing too much—financially and emotionally—on a branding direction you may lose. No one wants to be in court, especially not at this early stage of opening a brewery, and taking proper steps to clear and then file a trademark well before launch will go a long way in giving a fledgling brewery brand confidence moving forward. See our notes on trademark clearance here, and here.
As always, we’ll let you know of any notable developments pertinent to the case.