Unlike working capital, which is used for bills and basic, cyclical expenses, growth capital isn’t tied to any particular business cycle. Instead, growth capital is designed to provide long-term health for your Craft Brewery, Brewpub, Microbrewery, or Taproom. It builds up over time, and can ensure the business’s well-being. Once a business decides that it is going to make a major change, like an expansion, adding another location, or 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 business 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 small business.
Are you a startup (under 2 years in business) or a seasoned business? Many find themselves in a catch-22. They don't have deep cash reserves for capital investments, but also face challenges securing credit because they lack a track record of profitability for their business. In this instance, the most prudent action may be a hybrid approach in which cash is supplemented by funds available through a modest line of credit, revenue based loan, or cash flow loan. This approach creates discipline while also allowing for the flexibility of accessing capital when the opportunity is right.
There are three primary sources of growth capital for a Craft Brewery, Brewpub, Microbrewery, or Taproom:
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.
3. 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.
How Does Growth Capital Help Your Craft Brewery, Brewpub, Microbrewery, or Taproom?
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 business loan to fuel your craft brewery, brewpub, microbrewery, or taproom, 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 capital, the possibilities are literally limitless, offering the assets you need to promote a positive trajectory and inspire healthy growth.
Ultimately, how you finance the growth of your craft brewery, brewpub, microbrewery, or taproom, will come down to a range of factors, and will likely change as your business evolves. Yet by taking a thoughtful and methodical approach, you can improve your opportunity to take the most efficient and cost effective path to growth.