Fresh off my trip to CBC and… expansion season is here!
Wow, it’s really happening. AS IT SHOULD.
- 2nd, 3rd, and 4th locations
- Kitchen build-outs
- Food partnerships
Here’s the deal.
As a business, all of your vulnerabilities have been exposed…
And you’ve survived.
The past 2 years have given you time to reflect on your business as a whole. The past 2 years have also re-calibrated your ass back into grind mode.
And, you’re sitting on a pile of cash.
You are about to embark on a journey that will push your sanity (and bank account) to the limit.
Coordinating buildout, negotiating lease terms and equipment deposits are a few of the things to expect all while maintaining your day to day responsibilities.
The #1 concern of a brewery owner during expansion is maintaining daily cash flow. The cash requirements of an expansion are demanding.
Let’s expose some cash flow bottlenecks that most likely will appear during expansion.
What the hell happened to our cash?
If you are in expansion mode, you must be doing something right.
Delicious beer, great marketing, successful distribution are a few indications you are on the right path.
Couple this momentum with low interest rates and all the relief cash you have stockpiled, and you are sitting on a nice cash reserve.
My definition of a cash reserve is: if you did not sell another drop of beer you have enough cash in the bank to pay the bills for the next three months.
So why is it when you start an expansion, cash begins to vanish?
Growth disrupts the groove.
Because as much as we like to plan for the expansion and equipment purchases, plans change.
Some typical examples of disruptive plans changing:
- Bank could not close the loan quick enough and you had to pony up 20 percent of the equipment cost from your reserves.
- Local inspectors determine that the expansion will require a larger water supply hitting you with an impact fee that was not budgeted.
- Equipment delivery is pushed back 90 days because of delays in the supply chain.
These are just some bottlenecks that can occur during expansion.
So, how do you keep that cash balance rosy?
While there is no perfect way to avoid landmines during expansion, here are my five tips on how to minimize them.
#1: Expansion plan
Document an expansion plan.
Include the following:
- Detailed timeline as to start and end dates
- A budget
- A vendor listing (who will perform what)
Seek feedback from your advisors, distributors, investors on whether this is a realistic plan.
This will act as a rough guide through the process, and remember, plans change.
You’re 16 to 24 months old, you should have some reliable financials to share with banks to seek traditional financing.
Given all the circumstances, a bank should lend you money. If they won’t, contact me, I know many banks lending to qualified breweries.
One more heads up: This conversation should begin 16 to 24 months before expansion.
Some banks move fast and others move very slow.
#3: Accounts Receivable
Your distributor should be the biggest advocate for this expansion project. They should be kept up to speed on the progress and they should also offer assistance.
One easy way they can assist is to shorten payment terms during this process.
Request shorter receivable terms during the expansion.
This will get cash into your bank quicker, alleviating the cash flow issue.
#4: Manage Profit Margins
This is easiest understood with a bike illustration.
Your existing brewery operation is the front wheel of a bike and it spins true. The expansion is your back wheel.
Don’t let the bumps from the expansion mis-align your front wheel.
If anything your front wheel should be operating with precision due to the amount of additional responsibilities the expansion will bring.
Don’t lose focus.
While I understand there is never a perfect time for expansion, timing of the project should be considered.
This expansion will bring dust and loud heavy machinery to the brewery.
You should have some metric which will reveal the best time of the year for your brewery to host these distractions.
You wouldn’t want to disrupt the holiday season gatherings at the brewery nor would you want to miss out on the highest sales months.
Examine your data and pick the least painful time.
There you have it.
Let me know if you have any questions about this. Expansions can be intimidating, but don’t have to be.