As the saying goes, it takes money to make money. Access to capital is the lifeblood of turning a brewery, winery, or cidery into a profitable business.
Whether you’re just starting out or your business is taking off, it is common for every small business to conduct multiple rounds of fundraising. Raising money and allocating capital are opportunities for business owners to think strategically and make connections. Here are some tips for securing investment for the next phase of your business.
Table of Contents
Focus on the Long Term
At every stage of growth, a business is grappling with some form of limitation preventing it from leveling up. Perhaps your sales volume exceeds the production capacity of your equipment, and you need more space or a new bottling line to keep up. You usually need to make investments to address these constraints. Cash flow can be the biggest bottleneck of all, no pun intended.
Before you start raising money, you need to have a solid idea of where the money will go. In each case, it’s important to look beyond your most immediate need and plot out a few steps ahead, sometimes months or years. Manufacturing is a capital-intensive business with numerous moving parts. As soon as you transcend your current hurdle, you can be certain another one will soon arise, and you don’t necessarily want to have to raise capital every time you make a major purchase.
Above all, prioritize capital expenditures that generate the most return for your investment, such as equipment acquisitions, real estate, and new hires. Save more discretionary expenses, like repaving the parking lot, for later if you can. Give yourself as much runway as possible, so cash flow can catch up.
Run the Numbers
For the most part, small craft businesses secure financing through debt, equity stake, or a combination of the two such as a convertible note. Each financing method comes with a tradeoff. Debt puts pressure on your cash flow. Equity reduces your control and the ultimate payoff of owning the business. Both have their time and place.
Self-funding is always a convenient option for investment, so long as you have the reserves to cover it. If you can fund the business yourself, weigh the risks anyway. Staking both your income and your savings on the same investment is a riskier bet. Many owners prefer to seek outside investment for this reason.
If you decide to raise money from investors, be sure to come to the table with financial backup. As a part of their cost-benefit analysis, investors will want to know about your revenue streams, accounting, and credit history. Business management software comes in handy in situations like this because they enable you to assemble custom financial reports, a must-have for every investment proposal.
Come prepared with hard data and welcome any questions. Investors notice confidence, and confidence comes with preparation.
Give Traditional Financing a Shot (But Don’t Bank on It)
When raising money, it’s generally smart to go where the money is. Banks and financial institutions are age-old resources for raising capital and should be considered. So long as you and your business are solvent, they can usually provide debt options with tremendous flexibility, such as credit cards, personal loans, and lines of credit.
Banks invest in countless small businesses, but keep in mind they are incredibly risk-averse. They would much prefer to invest in opportunities that are sure things, and small businesses, especially new ones, can’t always provide them with the assurances they want. If a bank turns you down, don’t take it personally — it’s the nature of entrepreneurship. Keep pounding the pavement.
One way to increase your chances at traditional financing is to provide banks with accurate, up-to-date financial information. Many craft businesses utilize a tool, like business management software, to keep all of their data in one place. Live Oak Bank, a bank focused on loans for small businesses said, “We have found that breweries using a business management system tend to report higher, more consistent operating margins…and have much better data to lean on when preparing their forecast and understanding and managing their costs.”
Leverage and Grow Your Network
To pitch your investment, first you need to get in front of somebody. It can be hard to make inroads with strangers, so business owners sometimes begin their fundraising efforts within their circle of friends and relatives. Today, about 10% of small businesses receive funding from friends and family, according to a survey from Guidant Financial. Friends and loved ones often want to see entrepreneurs succeed, but it is worth noting that money can complicate personal relationships. Your mileage may vary.
Your city or community can also be another powerful resource to lean on. Make the rounds at a local chamber of commerce or community pitch breakfast. Members of these organizations often feel a strong connection with investing local and can offer helpful advice if nothing else. Pitch events, in particular, are an amazing arena for practicing your presentation before a live audience.
Fundraising can also be a good time to give the people what they want. If you’ve already built a cult following, it’s an asset you can leverage. Crowdfunding is a relatively new and regulated fundraising option used by craft producers and made possible through numerous small investments from true believers. Crowdfunding campaigns often have a major impact. For instance, Copperworks Distilling Company in Seattle raised more than $750,000 in 2020 through crowdfunding.
While exploring these avenues, don’t be afraid to think outside the box. Investors come from all sorts of places, so have your elevator pitch ready to go.
Apply for an SBA Loan
Innovation and entrepreneurship are a big part of the American Dream and a major contributor to the U.S. economy. Small businesses create jobs for millions of Americans every year.
And the government is here to help. Financial assistance is available for entrepreneurs founding or expanding a business through the U.S. Small Business Administration. The SBA works with lenders to provide guaranteed loans and education resources for entrepreneurs. Subject to eligibility, loans can range anywhere from $500 to upwards of $5 million. These programs can provide meaningful support to craft producers who can’t secure financing elsewhere. If you’re in need of capital, give Uncle Sam a try.
Trust the Process
The prospect of fundraising can be a daunting process, but it doesn’t have to be. Raising money is an opportunity to meet people and personally grow as a business owner. After all, investors are searching for opportunities to put their capital to work. They may be cautious at times — and rightfully so — but people love the prospect of earning returns and making great products.
As long as you have a sound plan, an organized approach, and can pitch the opportunity well, someone will hear you out. And it only takes one yes to be a success.