Choosing and financing startup brewery equipment
When starting or expanding a craft brewery, a major consideration should be your equipment. Brewery equipment is expensive and can dramatically impact the operations of your business. A startup brewery should pay close attention to initial equipment choices, as production and sales projections should align with the production capabilities of any equipment. Once you know what types of equipment you’ll need, you’ll have a good starting point of expected costs, allowing you to pursue financing options.
Choosing a Brewhouse Size
This one might require a bit of math- but luckily, we’ve got you covered. To determine brewhouse size, you first need to determine the amount of beer you want to produce per year. This is a function of (1) the amount of beer your customers will consume on premises and (2) any off-premises sales you may have. A good rule of thumb for a typical brewpub or taproom is that 75% of beer produced will be consumed on-premises (this varies widely depending on a multitude of factors). To calculate the volume of beer to brew, you may start with the following formulas:
On premises sales = [Average Daily Customers X 12 OZ Drinks Per Customers X Days Open Per year] / 330 * *We use 330 since there are 330 twelve ounce drinks per barrel
Then calculate:
Total Annual Barrels produced = On-Premises sales / (1 - percent of sales sold off-premises)
For example: a brewery that will cater to 385 daily customers, who each drink 3 beers, for 360 days per year, and will sell 25% of beer off-premises will require an annual brewing capacity of 1,050 barrels per year.
Once you know the annual brewing capacity, you can then easily back into the brewhouse size that is required.
Required Brewhouse Size = Annual Brewing Capacity / Brews Per Week / Work Weeks per Year
So in the prior example, if you brew 3 times per week for 50 weeks a year, then you will require a 7BBL brewhouse in order to brew 1,050 barrels per year.
Another factor to consider is how many vessels your brewhouse system will have. Most systems have two vessels, however, many are either 3 or 4 vessels. A brewhouse system with more vessels may allow you to either increase the number of brews per week or increase the quality of your brew.
Once you have established the annual production capacity of your brewery along with the size of your brewhouse, you’ll need to figure out the amount of beer fermenters that you will need. This largely depends on the type of beer you plan to produce. Ales take roughly two weeks to ferment whereas lagers take approximately four. This can also be thought of in terms of fermentation cycle:
Ales have a fermentation cycle of 25 cycles per year.
Lagers have a fermentation cycle of 12.5 cycles per year.
So to calculate the amount of fermenters required:
Fermentation capacity (BBL) = Annual Brewing of Ales /25+ Annual Brewing of Lagers /12.5
In the prior example, if your brewery produced 75% Ales and 25% Lagers, then you would require fermentation capacity of 53 BBL.
Determining the Equipment You’ll Need
Once you establish the size/type of your brewhouse and fermentors there are a number of other types of equipment that you will want to consider including (but certainly not limited to):
Raw Ingredients
When planning out the cost of a new brewery, don’t forget to account for raw ingredients you will want on hand prior to an opening. Based on our research, you can expect raw ingredients per BBL of beer to cost in the $30-$60, depending on quality, economies of scale, and price fluctuations. You will want to budget in for an adequate amount of raw materials for both R&D and pre-opening production. Necessities include- and this should be no surprise- hops, barley, yeast, and water!
Water Filtration System
Great brewers understand the value in using the purest ingredients to make consistent, high quality brews. And this doesn’t stop with water! Beer is made up mostly of water, so it’s important to dial in your supply by using a high quality filtration system. These will help balance water hardness, pH levels, sodium content, chlorine and unwanted sediments.
Another important thing to note here is that different beers require different water qualities. While pilsners are a result of very soft water, hoppy beers are a result of hard water with high concentrations of calcium, as hops cling to calcium.
Grain Auger
Think of a grain auger as the piping or conveyer belt that gets your grain from the mill to the brewhouse. It is essentially a cork-like system that pushes grain through pipes and routes it to the next phase. There are alternatives, such as pneumatic systems, but for a typical brewpub, an auger is cost-effective and appropriate.
Grain Mill
The grain mill is an important part of a brewery, which is responsible for processing malt grains prior to brewing. Some smaller breweries do not immediately need a grain mill, since you can always buy pre-milled grain. However, if your operation is 3+ BBL, you will most likely want your own grain mill. The cost of the grain mill varies depending on sizing, speed, and quality of milled grain that it processes. Generally speaking a commercial grain mill starts at around $2,000 for a 5-10 BBL brewery and increases with production needs.
Heating System
We all know you need good mash to make a great brew so a top-notch heating system is a necessity. During the mashing process, water and milled grain are heated up, activating enzymes in the malt that then break down starches in the grain to create sugar. There are generally three options for heat sources: direct fire, steam, and electric.
Ventilation Hood
As you boil down wort, a good amount of moisture will be released. This means that, unless you want a mold problem, you’ll need a good ventilation system usually in the form of a ventilation hood. While you may be tempted to purchase an inexpensive kitchen ventilation hood, the fans in these won’t be strong enough for any large scale operation. A professional ventilation system complete with ducting will ensure no moisture stays inside!
Glycol Chiller
Any good brewer knows that beer flavor and taste is heavily dependent on temperature control. The most effective way of maintaining consistent temperatures throughout the entire brewing process is a glycol chiller. Utilizing a heat exchanger system, glycol chillers can be used to cool things like wort, brite tanks, and fermenters.
Brite Tanks
Brite tanks are the last stop that beer makes prior to being kegged, canned, or bottled. Depending on the distribution plan for your brewery, you may require more or less brite tank capacity. If your brewery has no canning or bottling, then you can decrease the amount of brite tank capacity required and rely more heavily on keg storage.
Kegs
If you’re reading this article, you probably already know what a keg is. However, it is important to make sure your operation has a sufficient number of kegs on hand for storage, distribution, and on-site usage. You can estimate the price of new kegs to be about $140 per keg. Some kegs can be found used.
Keg Washer
Now that we have established that you’ll be using a lot of kegs, you’ll want to make sure you can clean them. The cost of a keg washer is mainly driven by its level of automation. A semi-automatic keg washer is generally going to start at around $12,000 and increase from there.
Walk in Cooler
To regulate temperature and keep that flavor consistent, a walk-in cooler is a must, especially for small breweries. Fermentation requires specific temperatures depending on the type of beer you are brewing. Once that process is over, your beer should go directly into a cooler because it reduces oxidation time. In addition, as a small brewery, you probably won’t be pasteurizing your beer, so keeping it refrigerated will increase shelf life.
Piping
In order to decrease your reliance on manual labor, you will want a good piping system to connect functions of your brewery together. Also, your glycol chiller will generally require unique piping depending on your system.
The cost of piping varies significantly depending on a few factors: (1) materials used, (2) length needed, and (3) reliance on contractors and specialists. If you can do a lot of the piping on your own, then this will save significantly on the budget.
Applying for Financing
Financing in the brewery space can be challenging. Luckily, there are a number of options, including some new alternative options that lower the barrier to entry.
Lease your equipment
Many equipment companies offer financing options, which can be a straightforward way to get the equipment you need and space out payments. There are entire lenders dedicated to equipment financing, and if you qualify, you’re able to pay clear monthly payments to have your equipment. Bear in mind that since you’re leasing this equipment, you don’t actually own it, and there may be an end date to your lease when you’ll have to re-apply for financing. However, by leasing your equipment, you’re not tied to it, so as technology improves, so can your equipment.
Get a loan
Financial institutions offer a variety of loans that can get your small business up and running. Small businesses typically rely heavily on external debt sources (like bank financing) during the first year. A business loan can be helpful because you can work with reputable lenders and access a large sum of money upfront with minimal effort. However, depending on your financial situation, it can be extremely difficult to qualify for a small business loan.
Financial institutions most commonly offer the following products for small businesses:
Commercial Loans
Credit Cards
Credit Lines
Personal Loans
SBA Loans
SBA loan guarantee programs are another source of capital. The programs include 7(a) loans and CDC/504 loans. 7(a) loans provide small businesses with financing guarantees for a variety of general business purposes through participating lending institutions. CDC/504 loans are made available through certified development companies, or “CDCs,” typically structured with the SBA providing 40%, a lender covering up to 50%, and the borrower contributing 10% of the total project costs.
Bank Loans
When approaching a bank for a loan, here are a few tips:
Create solid, thoughtful, and detailed projections.
Financial projections are the best estimate of how much money your business will make and spend over the next three to five years. A good set of projections can show lenders that you have done your homework and that you will manage their investment wisely.
Build a detailed, attractive, and intelligent business plan.
Lenders want to know what they’re getting into, and the more professional and polished your business plan, the more seriously a lender will take you. This goes for the overall layout, but also for the content itself. Make sure that you’ve covered all of your bases: explain your marketing and sales strategy, justify your projections, provide details on your proposed location, and share details about your operations. This tool may help!
Consider multiple lenders. Different lenders may offer different perks, products, and rates. It’s very important to have a good relationship with whichever bank you go with, because if you ever need to go back for an additional line of credit, look to open additional accounts, or have issues, it’s much easier to resolve obstacles when you trust and work well with your bank.
As of July 2021, the US government alongside SBA is offering grant funding to businesses through the Restaurant Revitalization Fund. You can read more about this on our blog.
Unfortunately, bank lending to small businesses is less available than it has been historically. A 2020 survey indicated that 70% of loan officers reported a tightening of standards for small business loan applications in 2020.
To make matters worse, financial institutions and the SBA generally require a borrower to provide collateral and/or a personal guarantee for the loan. Because small businesses are seen as risky ventures, banks tend to require collateral and a great credit score. Securitization generally means that the founders’ personal assets are at risk, and dramatically raises the stakes on many promising companies. That could mean putting your family home or car on the line in order to secure the capital needed for your business venture. Many entrepreneurs are rejected outright, or fail to access a loan of the amount needed, leading to undercapitalization, which is a risky way to start a business.
Obtain working capital through flexible fundraising
Donation-based crowdfunding
Donation-based crowdfunding refers to the ability for a business, cause, or organization to raise money through donations from multiple individuals. In exchange for a donation, most for-profit businesses will offer a perk such as free beer, swag, or mug club memberships. The pro of using donation crowdfunding is that the money is free from donors, requires no collateral and no payback. The cons of using crowdfunding are first, that it can be easy to overextend on rewards, and people are beginning to question the decision of donating to for-profit businesses.
Equity and Investment Crowdfunding
Prior to 2016, only accredited investors could invest in privately held companies. This is why non-accredited investors (everyday people) can invest in publicly traded companies, through vehicles like retirement accounts or apps like Robinhood, but only super-rich VCs and angel investors have access to invest in startups. The JOBS Act, Title III, changed these rules, so that through regulated portals, both accredited and non-accredited investors can invest in privately held companies. This vastly expands the available capital from which businesses can seek funding.
Investment crowdfunding can take a variety of forms. Some breweries use equity crowdfunding, in which they share a percentage of the business in exchange for investment capital from investors. Other breweries may crowdfund loans or use other forms of crowdsourced debt. Mainvest is a RegCF portal registered with FINRA and the SEC, and we work with breweries who raise capital using an innovative new investment vehicle called the revenue sharing note. A revenue sharing note (RSN) is a debt-based investment vehicle, in which a company borrows money from investors and agrees to pay back a certain Revenue Share Percent of any revenue it may generate every quarter until all principal and interest is repaid.
Written by Lauren Murdock
Lauren is Mainvest's Content Marketing Manager. She is an expert in marketing strategy and leads content generation for Mainvest.