Small craft breweries have been up against some big challenges, with recent years bringing rising operating and material costs along with increased competition and staffing challenges. There have also been shifts in consumer preferences: Americans are buying less beer, opting instead for canned cocktails, or refraining from alcohol altogether, according to a recent New York Times report that also explored how craft breweries are simplifying their menus.
Despite these setbacks, the category is still growing. Craft beer’s overall market share by volume grew to 13.3% in 2023, up from 13.2% the year prior, according to the Brewers Association. The number of operating craft breweries also continued to climb in 2023, reaching an all-time high of 9,761.
With both challenges on the horizon for the craft beer industry and a clear demand for local brews, it’s common for breweries to go back and forth on the idea of expansion—so common that Perkins presented a seminar at last year’s Craft Brewers Conference called “Lessons Learned from Opening a Second Location: How to Set Up Your Growing Business for Financial Success.” During the event, we covered topics such as business and legal considerations, pricing strategy, and setting up bookkeeping services. Our biggest takeaway: Be prepared, overprepare, and give yourself plenty of time.
If you’re wondering what it takes to be successful in a second location, we’ve compiled a list of ten financial to-dos for craft breweries to tackle before opening a satellite location.
Your eyes are on the future.
High-margin taprooms kept breweries afloat during the pandemic, but now that in-person activities have resumed, they face higher competition. If you’re opening a second location, make sure it’s a strategic move for your business. Where does it fall within your overall company strategy? What are you hoping to get out of opening an additional location? Put your financial goals down on paper and make sure they are attainable.
Your attorney is ready to talk ownership and entity structure.
If you’re running a successful brewery, chances are you already have an attorney who’s experienced in beverage alcohol manufacturing. They should be ready to assist you with your ownership structure—will you be introducing new owners to your current entity structure or setting up a new legal entity with new owners? You can also work with your attorney to explore alternative business opportunities, like creating a new company that owns the building that houses your second location. Finally, your attorney can help update your operating agreement and other business documents relevant to your second location.
You’re crystal clear on licenses, permits, and other compliance for craft breweries.
This one’s big, so bring your attorney along for the ride. Ensure that you’re considering both state and federal requirements, such as business licensing, TTB requirements, state manufacturing licensing, certificate of occupancy, liquor licensing, sales tax, excise tax, and food service compliance. Also, take note of limits on transferring beer as well as reporting requirements for each location.
You have your CPA’s support.
Meet with your tax accountant or CPA to discuss the tax impacts of operating in a second location, along with tax strategies for your satellite location. This is especially important if you’ll be operating in a new city or state, where state and local tax considerations will likely differ from your current location.
Your books are in the best shape of their lives.
Dedicate time or enlist the help of a professional (like those at Perkins & Co) to ensure bookkeeping is clean and all Balance Sheet accounts have been reconciled. Once things are buttoned up, integrate your second location into your bookkeeping. For each location, segregate and track both revenue and costs by category: draft sales, package sales, food sales, and merch sales. This way, you’ll be able to easily analyze financial results by location.
You’ve performed cash flow forecasting.
This part of opening a second location is often overlooked. Make sure your business plan includes short-term projections (a detailed, invoice-by-invoice 13-week forecast) and long-term projections (a less detailed forecast for your first 3-5 years in a new location).
Your pricing strategy is on point.
Above all else, prioritize profitability. It’s key for any thriving business. Consider your geographic location and the business strategy you have for the physical space. Then, estimate your production and operating costs. Know your margin and allow that to drive your prices.
You’ve budgeted for necessary tech.
Today, businesses grow through data-driven decisions. Explore brewery management and POS platforms that can help you drive production, staffing, and programming decisions based on consumption data. Also, evaluate the cost of technology against the value it can bring to your business. Think about upfront, recurring, and even credit card processing costs. Consider technology that helps you create incredible experiences for your guests and employees. Finally, build your tech stack with platforms that will play nice with each other.
You have a plan B (and probably a plan C, too).
Just because customers flock to your current location for their favorite IPAs doesn’t mean clientele will do the same at your second location—preferences can vary by geography, and craft breweries are no exception. To protect your business, have a plan and additional human and financial resources available if plan A doesn’t work out. For example, maybe your second location will attract more families, and food service will be a bigger hit than you expected. In that case, you may consider expanding your menu, adding programming and special events, and growing your kitchen staff.
You know who to call when you’re stumped.
Do you anticipate smooth-sailing financial operations most of the time but want a skilled accounting team nearby just in case? It can be cost-effective to hire a bookkeeper and supplement your existing accounting structure with Perkins’ services. We’re here to help with industry-specific matters and higher-level work—when you need it.
Did you score a perfect 10 or realize you need to do some more homework before scoping out space for a second location? Wherever you are in the process, we’re only an email or phone call away. Reach out to the Perkins team for help laying a strong financial foundation for your growing business. Cheers to your new adventure!
This article was originally written by Mel Smith, CPA, and published in May 2023. The content of this article has been updated in May 2024 to reflect current industry data.