How to Create Your Distillery Business Plan
As you’re probably aware, it takes more than “a love of the art” to run a successful distillery. But more often than not, as our passion drives us to continue to learn and develop our skill sets, our primary focus tends to fall on perfecting the craft; by consequence, we tend to neglect the equally important responsibility of refining the business. Luckily, there’s a solution for that.
One clear-cut way distillery owners and operators can stay on track with their business is by creating a strong business plan. As a financial advisor with Raymond James, it has been my experience that many craft distillers have never written a business plan, and may not know where to start. To make it a little easier for you, I’ve created this quick guide.
WHAT IS A BUSINESS PLAN?
Simply put, a business plan is a written description of your business’s future: what you plan to do and how you plan to do it. You might also think of it as a roadmap with benchmarks or metrics you set for yourself to meet as you begin scaling up.
As your distillery continues to develop as a business, the targets you outline in your plan should thoughtfully reflect your growth strategy, as well as projected abilities and resources. There are lots of different ways you will show this in your plan, but we’ll lightly touch upon those core elements a little later.
Why is Having a Business Plan Important?
Planning is the key to any viable business. Essentially, a business plan helps you more concretely envision the direction of your business and then take action to get there by reaching smaller, attainable goals.
It can be extremely rewarding to achieve or even exceed your plan’s forecasts but falling short of your projections is just as valuable: it provides a learning experience and motivator for the future. So while your business plan can be as barebones or specific as you like, creating a plan that’s as clear and concise as possible will be more beneficial to you.
It’s likely that you’ll also find it imperative to successfully launching and sustaining your business – and your distillery – because in addition to serving as a guide internally, your business plan will act as a first impression to potential investors and future partners.
DRAFTING YOUR BUSINESS PLAN
Alright, now we’re ready to begin drafting. Writing a business plan can feel like a daunting task, but I find that breaking it down into five core elements can make it more manageable:
1. Presentation Deck
This component tells the story of your business, typically through an Executive Summary, Product Descriptions, and a section on the Total Addressable Market (TAM). A quick Google search can more concretely define what each of these terms mean, but generally, this part of the document serves the purpose of providing context and introducing your business to potential investors.
Usually, that means this section is also full of graphics, pictures, and branding meant to endear the reader and spark investor interest. A distillery business plan might include your brand story with pictures of the grains you plan to use, your property – tasting rooms, gift shops, production and storage facilities – and other visuals related to your anticipated Cost of Goods Sold (COGS).
2. Profit & Loss Statement
This is where we begin to delve into the numbers. Your profit and loss statement should show your projected revenues and expenses for the first five years of operation. For a distillery owner, cash flow will be determined by any type of profit you receive from your distillery – anything from the distilled spirt itself to tour tickets and merchandise. A distillery loss statement would include any costs associated with spoilage of your products, damage to your facilities, etc.
Typically, this involves establishing a sales projection, setting up a production schedule, calculating any additional expenses, and determining your expected profit. Using your sales projection as a starting point, you’d reference your production schedule to calculate the Cost of Goods Sold (COGS) for your products – in this case, that will likely be your distilled spirit. For services, like tours or guided tastings, then you’ll need to place a value on your service and then substitute that value for COGS. Other expenses that you subtract from sales might include general and administrative expenses, taxes, dividends, and/or interest expenses.
Whatever this might look like for your distillery, your profit and loss statement is how investors will determine if you have a viable business.
3. Cash Flow Statement
This statement will disclose the inflows and outflows of cash for the purposes of determining the capital required for your distillery business. Again, this is going to be closely tied to the previous statement, in that it outlines any profits and losses of your distillery.
Think of it this way: cash is coming in from customers buying products and services at your distillery – including the distilled spirit itself and any merchandise, tastings or tour tickets, etc. At the same time, cash will be flowing out of your business through payments for expenses like raw materials for products, as well as administrative and logistics costs, like rent/mortgage, monthly loan payments, and taxes.
Your cash flow statement allows you and your investors to quickly look at the cash flow from different business operations-related activities, including increases or decreases in other areas of the business balance sheet.
4. Balance Sheet
A balance sheet is a statement of the financial position of your business. It should list your assets and liabilities, and illustrate the net worth of your operation. Generally, it will serve as a summary of your previous line items, including your profits/loss and cash flow statements, but with a focus on balancing your distillery’s assets with liabilities.
Simply put, assets can be classified as liquid or non-liquid, depending on whether they can be converted into cash relatively fast. For example, your distillery property, facilities, and equipment would be considered non-liquid since they cannot be quickly converted into cash. Meanwhile, liabilities are defined as any funds owed by the business, including wages, supplier invoices, debt, etc.
If this is your first-time running a business, it might be a good idea to hire an accountant or financial advisor to assist you with drafting your initial balance sheet. This can prevent you from running into any potential problems.
5. Sales Forecast
This section should outline the annual and monthly sales projected for your first five years of operation. In other words, you’re forecasting out the quantity of products and services from your distillery that you believe you can realistically sell over a period of time with consideration to your Cost of Goods Sold (COGS) and projected profits.
It helps to start by listing your products and services and estimating your sales quantities. Next, you should multiply your unit price by the estimated number of products/services you’re planning to sell, then determine the cost of each. Finally, you can multiply the cost of each product/service by the estimated amount you plan to sell, and subtract the total cost from your total sales.
While this may sound like an easy equation, economics can complicate things. You should consider the challenges of the distilled spirits industry: know who your competitors are, think about how regulatory changes can impact your business, and reflect on how you plan to market your brand. All these factors and more can have an impact on your sales forecast.
Overall, it might be a good idea to speak with someone with a comparable distillery operation and see what benchmarks from their business that you might be able to apply to yours.
There are additional metrics and analyses that will help support your projections by addressing specific areas of interest to investors. These will typically consist of numbers and graphs that address a variety of areas – Capital Investment/Pay-back Schedule, Fundraising, Gross & Net Margin Projections, Variance Analysis, Revenue Ramp, and more.
You can really get lost in the weeds, and while Google is helpful for deconstructing some of the terminology, it may be a worthwhile investment to go into your first business plan with the guidance and expertise of an accountant or financial advisor.
BEFORE YOU GO… DON’T FORGET TO BE REALISTIC!
It is important to know that adhering to a realistic and well written plan is one of your best chances for success. It’s also key to recognize that passion, expertise, and a great product don’t guarantee retail success.
It may sound like a cliché, but the phrase, “Numbers don’t lie,” is relevant here: you should understand that your business plan is all about making educated numerical projections and working toward meeting and exceeding those projections. Many a talented distiller have failed to execute their business plan without seeing the success they dreamed of – you don’t have to be one of them.
You can have the best of both worlds – crafting a delicious spirit and managing a business. But understand that on the business side, you need to be prepared with a well-written, realistic plan; and then appropriately and effectively execute that plan in order to be successful.
There are free online services that can steer you through the basics of constructing a Business Plan. The Balance Small Business, US Small Business Administration, and Entrepreneur each provide excellent guides for this endeavor, while PlanBuildr offers an easy-to-use template. And if you’re still feeling overwhelmed, you can contact George Rinderspacher, Financial Advisor, to learn more about how Raymond James can help.