Going Semi-Pro?

Going Pro
1

Hey all,

I’m interested in the experience of those who have started small, to look for pointers on doing the same. Haven’t quite seen what I’m looking for in the articles and posts so far, so apologies if I’ve missed something.

I’ve been making mead for the last five years, and would like to pass the threshold to sell legally. The business goal is to be able to operate roughly around revenue neutral wrt gross expenses after some one time expenses.

It appears that the biggest recurring expense bottleneck is whether or not zoning will permit production of any type on my property. I need to find out my options are with the county, but thought it would be worthwhile to check here if there was anything to take advantage of by being a small-production facility.

If there are other financial gotchas (I am aware of at least some of the one-time expenses), I’d be happy to hear that as well.

2

I started a very small brewery, worked for years for free and grew it into a brewery with state wide distribution with large, successful tasting room that employees many people. While I am still an owner I am not employed by the brewery any longer - but that is another story (and a cautionary one - be careful who you get into business with. People suck.)

If you are small there is no way to make any money without a tasting room and it’s really hard to say it is worth it unless you have plans for long term growth. If you don’t mind sacrificing years of hard work for little or no pay and plan to build an actual business that not only employees you but at least a few other people, then go for it. Otherwise, ask yourself why you are doing it? Is it simply a vanity project or are you seriously trying to make a profitable business. Because if it is the former you should definitely not do it.

If you have aspirations to do it part time as a side hustle, forget about it completely. It will take up all your spare time, you will make almost no money and you will end up hating and regretting it.

3

It sounds like you are trying to basically pay for your hobby. One thing to keep in mind is that the IRS will only let you claim a loss for three years before classifying it as a hobby and not allowing expenses against your taxes.
I know in my state if you wanted to do it at your house you would have to put in a special commercial septic system (or treatment system before it hits the municipal system) and probably a separate building. That’s your biggest hurdle.
I think your best chance is to see if you can rent a place cheap. I am actually wondering if with restaurants closing due to covid if there will be a lot of cheap spaces with this infrastructure that could be converted fairly easily.
I completely agree with Keith’s assessment of the challenges for brewing beer but I think mead is quite a bit different. It takes maybe a tenth of the hands on time and the retail price per unit is higher. The market is smaller but so is the competition.

4

There are federal, state and municipal hurdles to having a meadery in a home.  I doubt you could clear them all.  I think you might be able to clear some of the hurdles if you have a separate building for the meadery even if it is on residential property.

5

The rules vary by state/county/city and the differences are huge. 
Here in Iowa, you might have a chance if you live on a rural acreage with a separate building and contract for all utilities as a commercial business.
In my house, in a suburb of Des Moines, no chance.

Paul

6

Thanks, I appreciate the insights. What were the key cost considerations that drove your decisions as a startup? I can see how a lease (plus whatever startup loans) at a given price would force a certain volume to be sold, which impacts the size of equipment, which impacts the time and effort needed. This is a guess, but it would be interesting to get an understanding of the rough cost breakdown from someone like you who has gone through the process.

To answer your question: Long term, a profitable business is the goal. Short term, the goal is to be revenue neutral (i.e., “make almost no money”), particularly if there are any advantages or opportunities to be had by virtue of being small. The legalities of alcohol are more unfamiliar to me than anything. Just looking for a scenarios that meet the threshold.

7

What I’ve been gleaning so far is that any alcohol production for a business that has been allowed at home needs to be a separate facility that doesn’t share functions with anything else, and must be approved by the FDA. Or something like that. Plus the discussion with the township on whether zoning or zoning variances will allow. Just looking to see if anyone here went through that process. Bureaucracies being what they are, I’m looking to see if there was a particular path that was successful.

8

Partly true. I’ve done a fair amount of experimentation and tweaking while learning what makes a good mead. I’ve given a lot of it away in the process of development and discovery of different palettes that a customer base may have. There are some recipes that are worth going to the next level. You get much more honest feedback from people who are paying for your product than those who get it for free.

9

I would imagine having something other than your alcoholic product available for consumption on your premise or other types of activities would help push revenue a little bit.

Where I live there is a serious lack of any “good BBQ” joints or really any outstanding places to dine besides the big chain restaurants. Now there are plenty of breweries in the state of PA but most are an hour to two hours away.

I have been looking into the same thing as you. I’m fortunate that my better half is a successful doctor and I have time to tinker and also have a set of skills to fall back on if Beer and BBQ doesn’t work. Talking to a lot of these brew pub owners in the area they say things like can releases, special events with acoustical music etc etc and dinner specials keep people coming back and the booze is kind of just an added bonus. Which they thought before they opened that the beer would be a driving force behind their business. They basically relayed the message that the experience their customers get while consuming their product is the end game.

Definitely jumping through state federal and local hurdles is gonna be your best bet. Also it wouldn’t hurt to find a local technical school that may have a brewing certification course that covers a few subjects like start up costs and other entry level business information. We have one in town here and it runs about 5k for the year and offers you an internship with a few breweries that are all within two hours away.

I know mead is different and your start up costs I would imagine have to be lower than say a small craft brewery for sure.just my two cents as I’ve been treading down this path

10

I don’t recall seeing this in the thread )sorry if it is a repeat).

It would be helpful to you to pose this question on the BA forum where the Pros are.  They have experience with opening breweries and can very likely offer more guidance.

Paul

11

Without going into too much detail I will say our goal from the beginning was to make a profitable business, but since we started with a very small amount of inside investment (we each put money in and raised about 100K equally split between 4 of us) our intention was to attract outside investors and to establish ourselves long enough to attract good business loans loans. Our business plan was put together so that we sold enough beer to pay rent and over head and not much else (I worked for free full time - stupid, I know) and everyone volunteered labor.At that point in time when we started there were no legal tasting rooms allowed in our state but we knew it was coming so we figured that once we had tasting rooms we would be in the black. Kind of worked that way, in fact we build a brand new facility to house a brand new brew house, distillery and canning line within 5 years of opening the doors. If it weren’t for our tasting room we would have never survived let alone grown. I think last year we sold out 1 millionth can in under 2 or 2.5 years (we were bottling long before the canner.)

I know that doesn’t answer your direct questions but that’s what I am able to share. Hope it helps.

12

First-time poster, so…ignore me?

I guess I’m questioning the “anti-vanity project” aspect of “don’t do it”.  Because that’s exactly what I’m in the process of doing, and I’m curious as to what response you guys/gals have.  I guess I should also qualify that I am within 5 years of retiring, and don’t need to depend on an income from my prospective brewing activities.  The first couple of years is basically just having a “ridiculously unnecessary bar” for friends and family to spend time at.

I own a brick building built in the mid 1800’s in a small town of 200 people.  Square footage available to my brewing activities is approximately 2,500 sq ft.  1,000 for brewery activities and 1500 for taproom. County population is about 50,000 people.  The town has two festivals during the year, that each bring in a few thousand attendees.  One is geared towards adult motorcyclists, the other towards families.  The town is also along a very popular cross-state bicycle path, with hundreds of travelers passing per day during the spring/summer/fall seasons.

“City” and County zoning are a non-issue.  I will literally just pay them for a business license and liquor license.  The state is slightly more interested, but they have seemed very helpful and agreeable to my plan.  Total license fees for all entities are going to run under $1,000/year.

The building is mine, there is no payment for it, it was just something I wanted to own, so I bought it.  Yes, some infrastructure changes are required, but again, I can afford them.

I am looking at having a 1-bbl system that I would brew one or two days per week.  Yes, that’s only 50-100 bbls per year production. But with limited overhead like that, why can’t I just serve ~1bbl per weekend while hanging out with locals/travelers “reminiscing about the old times” and making a few thousand bucks a year?

Is all the “anti-vanity” stuff because you’re not going to make enough to justify the hours put in, so the cost vs. rewards for someone younger isn’t there?
Also, let’s just say that I’m “uncomfortably close” to 200 gallons per year just inside the house…FWIW…

13

The last sentence pretty much sums it up.  Most people look at it as a business and need to justify the effort. You have a different point of view.

14

I think it’s pretty much that. I think they’re saying not to try a pro brewing as a side-hustle. It’s too much work to make it break even.

With your situation, it sounds like the business would only have to make enough to keep the lights on, as it were.

That’s a different proposition than someone who needs to live off the brewery or is thinking of jumping through all the zoning, regulatory, licensing, and tax hurdles to make their hobby a business.

15

Sounds like my dream “job”!

In general, the IRS likes to see an honest profit motive behind any business, but I think this applies only if you claim business losses on your tax return to offset other income sources.

You’ll definitely want to consult an accountant to determine where a casual, “profit isn’t really important” business stands in the eyes of the IRS.

16

I’m neither a lawyer nor an accountant but…

You’d definitely want to incorporate properly and follow proper accounting practice.  The IRS and TTB aren’t going to care how “casual” your business is.

17

That is excellent advice.

18

I’ve always thought it would be nice if homebrewers (or pros) could sell singles or six packs at the local farmer’s market. I have seen other small businesses (like bakeries) start that way and build a following. But the fees to be a pro brewer are too high to make it viable.

19

+1.

20

I can’t pay you, but you’d be welcome to come hang out and drink beer!

Well, I don’t plan on actually losing money.  I just don’t plan on making more than $5,000-$10,000 per year as a retirement “job”.

In the experience gained from my former career as a payroll accountant, the IRS doesn’t care about “how important profit is”, as long as you actually show profit under the 5 or 7 year rule.  I don’t plan on actually showing any losses, other than possibly the first couple of years of setting up the place.