CBB // What are some of the basic mistakes breweries make when taking on debt?
KS // Breweries don’t do a great job of planning out what they’re going to need, what they’re going to use it for, and how they’re going to pay it back. One of the first things I recommend, whether it’s a startup brewery, a brewery looking to expand, or a mature brewery looking to borrow money for any purpose, is to do a sources and uses schedule. It’s a simple exercise, but it’s not commonly done. It can make a really big difference in avoiding some of the pitfalls in getting over your head with debt and not being able to pay it back.
“Sources” are where you are going to get the money, and “uses” are what you’re going to use it for. It’s a very basic starting point to make sure the two add up because sometimes they don’t. Often, brewers will say, “I need a million dollars for my expansion,” and they’ll list out what they want to buy, but they forget that a bank isn’t going to give you 100 percent. It’s going to give you 70–80 percent. So you’re going to have to come up with the difference. The first step toward avoiding that surprise at the beginning is to ask, “Do I have enough money?” and “Where am I going to use it?”