Capital is so important to growing a craft brewery. If you don’t have what you need for your brewery’s development, all you’re doing is paying your bills and just getting by. Having enough working capital to pay those bills on time every month is important, but to take your brewery further, it’s growth capital you should be paying close attention to. To do that, you have to understand how growth capital works, what it does, and how it helps your brewery thrive, prosper and grow.
There are three primary sources of growth capital for a craft brewery:
1. Equity capital from the founder(s) and/or outside investor(s).
2. A combination of operating cash flow and profits left in the brewery, aka, retained earnings.
. Borrowed funds, typically from a lender or bank.
It can take time to see a brewery develop, but with the right amount of growth capital, that development is certainly possible. Too many brewery owners fail to understand the difference between working capital and growth capital, which can mean that they don’t spend enough time developing their growth capital the way they should. When it comes time to expand the brewery, there isn’t any money available for that expansion, so the brewery can’t develop the way it needs to in order to keep up with the competition. That can have devastating effects on a brewery that would otherwise be very successful, and it’s something any brewery needs to avoid.
What Is Growth Capital?
Unlike working capital, which is used for bills and basic, cyclical expenses, growth capital isn’t tied to any particular brewery cycle. Instead, growth capital is designed to provide long-term health for the brewery. It builds up over time, and can ensure the brewery’s well-being. Once a brewery decides that it is going to make a major change, like an expansion, adding another location, purchasing additional brewery equipment, building a taproom or a even a merger with another brewery; growth capital will come into play and be used. These kinds of changes are very expensive, but they are not recurring expenses that are going to be seen every month. Since they aren’t recurring, they don’t come out of working capital.
Without a growth capital fund to pull from, however, a brewery can’t really accomplish anything beyond its day to day operations. There will not be any expansion when there isn’t any growth capital to use, this generally comes about from poor financial planning and can be profoundly damaging to a craft brewery.
Probably the single most common method for funding brewery growth is by obtaining a brewery loan or other form of brewery financing. However, there are a number of different options that come with craft brewery loans, and in order to choose the right one, you need to understand which loans work best with what type of enterprise. You should take into consideration the type of operation, size of the brewery in terms of staff and assets, and overall monthly or yearly return. Exploring options for brewery loans can even clue you into other brewery finance options that are specifically designed for your type of enterprise. Brewery loans can be either long-term or short-term, and each have their particular uses. You can put a brewery loan to work immediately for your brewery, whether it means meeting payroll for a few months, negotiating a great deal on inventory for paying in cash or hiring and training those new employees you need.
Many craft brewery owners are hesitant to issue equity or take out loans to fuel brewery growth. However, breweries may find that operations stagnate without an extra capital injection.
When your competitors continue to expand and develop and your brewery can’t do the same, you can quickly end up without enough customers to keep your doors open. A lack of growth capital can translate into a lack of working capital, because the brewery is not able to keep up with the kinds of things it should be doing in order to compete in its highly competitive craft brewery market.
As a brewery continues to gain a higher level of working capital, it should take that money and invest it back into the brewery. This is done on a long-term basis, so the investment becomes growth capital and is stored (earning interest) until the brewery decides that the capital needs to be used for a specific thing. If there isn’t enough money available, the brewery can wait until it has more, but sound investment strategies shorten that wait considerably. Remodeling the brewery’s building, adding new equipment, and other large expenses are a big part of a brewery’s development, and growth capital is the heart of that development. Keeping it separate from working capital is also important, to ensure that it isn’t used for brewery cycle expenses that could deplete its reserves.
How Does Growth Capital Help Your brewery?
When people begin to operate a brewery, they may not be clear on the major differences between working capital and growth capital. If they don’t begin planning for both types of capital right from the beginning, they may not get what they really need from their brewery. They also have to be careful that they don’t try to expand too fast, because that can deplete all of their growth capital at once. If it is used up and then more is needed, it can leave a brewery in a precarious position and stop them from continuing their expansion. If that happens in the middle of growth, it can be highly detrimental and could even spell the end of the brewery.
In some cases, access to capital is a great way to take advantage of new opportunities. In others, however, it can be a good way to pull a struggling brewery out of a pit of poor circumstances. Despite the potential for risk, capital can be the saving grace when trouble comes to call, providing the means to bridge the gap between failure and success. A few extra dollars today may mean an empire tomorrow, and can be the necessary protection against closing up for good.
A brewery loan or any of the funding options mentioned above, whether for a few thousand dollars or a few million, can make previously unavailable opportunities obtainable, providing a customized solution in a time of need and keeping the lights on even when the going gets rough. With ready access to brewery capital, the possibilities are literally limitless, offering the assets you need to promote a positive trajectory and inspire healthy growth.
Getting into a cash-poor position should always be avoided, because it’s difficult to recover from. It makes sense that companies want to grow as fast as possible, but those companies must be very careful that they avoid the pitfalls of burning up their entire growth capital fund. Instead, it is better to focus on slower growth, so the fund stays strong and the brewery builds strength at a more sustainable rate.
Companies such as LVRG specialize in providing growth capital to brewery owners across the country, doing so quickly and efficiently. For a craft brewery, large commercial brewery or microbrewery looking at growth, LVRG is definitely a good place to start. Call toll free (855) 998-5874 or click below.