The Business Plan
Is it really necessary? Everyone that has considered starting a business has heard from at least one person (and probably more) that you can’t do it without a business plan. It’s the “great equalizer.” “It separates the men from the boys.” You aren’t “serious” unless you’ve started and finished a comprehensive business plan. At least, that’s what we’ve been told by traditional business folks.
Is all that true? I don’t know – check back with me and Kip in two years, and we’ll have a better answer. A couple years ago, as we pondered our vision of the brewery and how we’d go about making that vision a reality, one thing did become clear. For us, at this time, a comprehensive business plan made sense. Perhaps the end result was overly lengthy with overly crunched numbers – but we looked at our lack of industry experience and decided one way to help overcome that was to have a great business plan. After all, as the old adage goes, the business plan is more for you than for any potential investors anyway. It forces you to think through nearly all (though you’ll never quite capture them all) aspects of your prospective business and develop coherent answers to the questions that will inevitably be raised. In that sense, the business plan is truly irreplaceable.
Yes, future potential investors, banks, and partners may ask to see the business plan, and many of them will look at it. Don’t mistake this possible perfunctory interest as anything more than it is; when it comes down to it, especially in our industry, people that give you money are supporting you and your abilities to run a business. The business plan is a data point for them to consider, it gets you in the door, it’s a box that gets checked, it shows that you can string a sentence together – but it is not what makes people believe in you. Passionately selling your vision, your capabilities, your contingency plans, and articulating it all concisely is what will convert skeptics into believers of your business.
The business plan then becomes a reference document. It’s your market research guide, it’s your baseline financial plan, and it’s your measuring stick for year 1 production. It becomes less a tool to sell your brand to outsiders and more an internal guide for where you’ve been and where you’re headed.
At the end of the day, my current 2 cents regarding business plans can be summed up with this: Yes, you need one; yes, it will benefit you greatly but perhaps not in ways you initially though.
What is in a business plan? A business plan consists of five core sections, plus an executive summary, and lots of fluff.
What you must have:
Executive Summary – concisely bring all the major points from other sections here
Company Overview – the who, what, where, when, and why of the business idea and company
Products – take time to sell readers on your products and get them excited about why they will be great
Market Data – research the national, regional, and local markets; learn the state of your industry
Marketing Plan – how you will get people to buy your products and understand why your company is great
Financial Plan – the quantitative support to all the qualitative information that has preceded this part
Going into the details of each section is too much for this post, and frankly you can get a much better explanation from the experts than from me; please go to amazon and research business and financial plan books. The quintessential business planning book for brewers is the Ray Daniels classic, Starting Your Own Brewery. Best of all, it’s a pretty affordable book.
I will focus a little bit on the Financial Plan, since I have a decent excel/financial background – although if you ask around it’s just enough to make me more dangerous than helpful.
The Financial Plan
Financial Plans have one major similarity to business plans. No one likes to make them, and no one likes to read them (no offense to anyone that actually likes financial modeling). Yet they exist because they must. I wish I had an awesome analogy here.
At its highest level the financial plan contains two parts: 1) the assumptions that you’ve made about the business, including sales, operating expenses, inventory costs, rent, construction, equipment costs, and more, and 2) the financial statements that project company profit, cash flow, investor returns, assets, and liabilities.
There are several methods available to build a financial plan.
1. You can hire someone to make it.
2. You can buy software.
3. You can create what you need from scratch.
Hiring third party help typically involves someone like a financial planner/business evaluation consultant to walk you through the process and produce results. From a cash on hand point-of-view, this is by far the most expensive approach. On the other hand It will save you lots of time; so weigh the pros and cons for your situation carefully.
There are a variety of software solutions that each specialize in various parts of the financial plan. For the first part of the plan that deals with your specific business operating assumptions there are many software packages (and books) that point you in the right direction but, most likely, to tailor the assumptions to your business, you’ll have to crunch some numbers from scratch. The Business Plan Pro software featured in the picture (it links to their website) is great software to take you through the second part of the plan – preparing the company’s projected financial statements. In addition, it provides good insight into the assumptions you’ll need to know for part one, and it even comes with some business plan templates that it will build around the output of our financial plan. Highly recommended.
From scratch usually means opening up Excel and making a lot of formulas. Although there are some really good, freely available, excel models that gracious brewers have made available online, they aren’t necessarily the best starting point. If you aren’t already familiar with Excel these will probably be slightly overwhelming (heck, forget that – if you are familiar with Excel they will still be overwhelming) – financial minded brewers have spent some serious time making these sheets quite complex.
You don’t need to create an excel based assumption model worthy of an investment banking firm. Use the basic power of excel – an amazing data organization and manipulation tool – to plot out things like keg sales per month, brewing production volume, projected salaries over three years, and utility costs based on BBL’s produced. These calculations can all be done with basic arithmetic formulas within excel. If you aren’t familiar with those functions, a quick google search will be a tremendous help.
There will be some back of the napkin calculations regardless of what method you chose to draft your plan; neither consultant nor software knows all the ins and outs of your business or your assumptions.
Kip and I took the path of using software and homemade excel models to complete our financial plan. We considered paying someone, but with our limited funds and my financial background it seemed worth doing ourselves. The pros of this method: we have intimate knowledge of where all our numbers come from; the cons of this method: it takes an ass-long time. All of 2012, more or less, was spent noodling in and out of Excel trying to fully vet our assumptions, market research, and methodology.
Having no idea how to construct a brewery-specific financial plan, we started by reviewing the Excel files provided be those that came before us (see the previous link above). There was a ton of great info contained in those files, but we never quite got comfortable with the complexity and inner workings of those files and decided to make our own. We borrowed some concepts from those Excel files, and yet ours are completely our own.
We researched the assumptions that went into our production and expense models by talking with local brewers, scouring the internet for industry averages, and reading trade publications. Nothing groundbreaking about it or earth-shattering tips unfortunately, and the research takes time – lots of time – but it is well worth it. Regardless of whether you are financial minded or not, you ought to be feverishly looking for this data as it is the core of your plan and the foundation of your future business. As a professional in the industry you will want to know this data – craft beer is your career, it will take up a huge amount of your waking hours, being informed only helps. Having this knowledge to fall back on can help, to a degree, overcome lack of industry experience in the eyes of outside investors and lenders. Or so we hope.
Here are a few links to some other breweries that have inspired us with their business plan development stories:
To those of you that made it to the end, thanks for reading and good luck!