How to Start a Cidery | CiderScene | Opening a Hard Cider Business

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July 11, 2019

Get in the Right Mindset

Perhaps the most important, and least discussed, part of starting a cidery begins upstairs and involves straight up psychological warfare with yourself. Building up the confidence and mental fortitude to survive start-up land is real. Some people will refer to this as projecting. Projecting the life you want, the business you’ll run, understanding your strengths, but far more importantly, your weaknesses. I can’t understate this. If you don’t know whether you’re an ENPT or an ENTJ (I’m a combination of both) start by taking a personality test. You are about to get to know yourself deeper than you ever knew possible. Understanding how you best operate and work with others will help you through this next chapter of life.

This will make more sense when you’re approaching the finish line to launch. I’ll say this, everything you think you knew about your-self is probably true, both the good and bad. Time to embrace it and manage yourself carefully. This stage can be a lot of fun, and scary. In some ways it reminded me of being a kid again. You get to dream here. And dream big. Let no one tell you that your ideas are crazy or unrealistic. (That stage comes later). If that means keeping your idea quiet or only sharing it with one or two people who you know factually will be listeners and not critics then so be it. It is very important to understand your audience at this stage. Friends and family can be harmful here. Even if they mean well. This is your personal stage, no one else’s.

You feel like a roman soldier laden for battle. No? Actually, plan on being somewhat alarmed that you’re still considering following through with any of this. Normal.

This will make more sense when you’re approaching the finish line to launch. I’ll say this, everything you think you knew about your-self is probably true, both the good and bad. Time to embrace it and manage yourself carefully. This stage can be a lot of fun, and scary. In some ways it reminded me of being a kid again. You get to dream here. And dream big. Let no one tell you that your ideas are crazy or un-realistic. (That stage comes later). If that means keeping your idea quiet or only sharing it with one or two people who you know factually will be listeners and not critics then so be it. It is very important to understand your audience at this stage. Friends and family can be harmful here. Even if they mean well. This is your personal stage, no one else’s.

You feel like a roman soldier laden for battle. No? Actually, plan on being somewhat alarmed that you’re still considering following through with any of this. Normal.

Pre-planning

What’s preplanning? Putting your ideas and concepts on paper, fact checking these against your reality, your market, and building out a timeline of achievable goals for your business. This is where your big picture idea gets broken down into chapters and where you begin to map out how all of a concept becomes real.

This process leads to big questions. Location, how to make cider that people will pay you money for, suppliers, equipment needed, production volumes, financing etc…

These questions don’t all need to be answered, yet. The best place to start is to find people in the industry, ask questions, and get as much exposure to cider-land as possible. For me, it started by attending the Oregon State Cider Production class in Portland. That led to a stint at Cornell. And in between visiting literally every cidery that would allow me into their production space. There’s no substitution for observing an operation in real-life. Cider people have a motto, all boats rise. It’s an inviting community, get to know people. And ask questions. If you have a problem being humble I refer you back to the second paragraph above and get to know yourself better.

Computer Time

Once you have the basic outline of what kind of cidery you want to become it is time to get serious. Without a doubt you’ll need a business plan and a 5-year proforma. Live Plan is a good resource for creating a business plan and keeps things nicely organized. A quick google search will yield a plethora of mocked up proforma’s to choose from. Keep your spreadsheet honest. Overstating your distribution sales revenue will do nothing but cause you heartache down the road. As a reference my b-plan ended up at 42 pages and far too long for most ventures. I’ve seen great business plans under 20 pages. That said, if you’re planning on working with a bank the more detail you’re able to offer the better. I felt like my situation warranted the plan I wrote. Yours will be different.

A lot of folks struggle with the modeling aspect here. It is nearly impossible to accurately forecast sales numbers unless you have access to someone’s books so I recommend staying cautious and not being overly optimistic. If you built consulting into your budget, it wouldn’t be a bad time to call in a professional. Nick Gunn or Brent Miles are two good options. In my case I needed help determining what my real start-up costs truly looked like. That took the guessing game out of determining how much money I needed. And finally, led to a better understanding of what kind of sales model was necessary to support our operating cash flow requirements. This stage is critical to get right.

Now is also a good time to do a few other things. Get registered with the state and feds as a sole prop, LLC, S, or C corp. Contact the IRS for a TIN#. Check with the USPTO on your naming rights. Don’t waste your time on marketing and branding anything that you haven’t protected. The only winner there will be the attorney you pay to respond to the cease and desist letter you receive in the mail.

Licensing

It’s also time to start understanding the federal and state licensing requirements that your cidery must abide by. If your budget permits, I would hire a compliance firm to manage the applications for you. The applications themselves are easy enough to fill out and submit. Understanding the requirements that lead up a licensing request and that must be maintained through-out the life of your business is a different story.

However, if you don’t have $1,200 burning a hole in your pocket the TTB application is very straightforward and can be done online. Understanding the TTB’s requirements is a must so plan on taking a very deep dive into the guidelines to make sure you’ve met the pre- and post-submittal requirements. Also prepare to respond to any agent comments sent through the TTB portal.

In addition to your federal license you’ll also need a state license. In Virginia that is done through the Virginia Alcohol and Beverage Authority (ABC). State and federal laws are not the same and both contain landmines if not followed correctly.

Note that both of these licenses require a location, signed lease, or deed. As a recognized farm winery in my state, I needed to plant an orchard on my property and source at least 50% of my apples from land which I own or lease to be able to operate a tasting room. Landmines. Make sure you understand your states requirements before leasing or purchasing space. The requirement for a planting area largely limited where my cidery could operate.

Money, You Need Some

At this point you need access to capital. For the sake of argument let’s assume that you need more money than you have in your bank account. You’ve got options, like private investor funding, a traditional bank loan, SBA financing, or leveraging a state sponsored ag or development grant. There are other, much less enticing options like hard money lenders or credit cards but I won’t go into these details as they’re not viable options for a long term successful operation and usually only relied on in desperate situations.

Private financing is usually referred to as FF&F (friends, family and fools) money. These folks still see you as a fun-loving and passionate kid and are willing to kick you a couple bucks in the form of a short term loan or a small portion of ownership in your cidery. This option may work for smaller capital needs.

Next up is “true” private investor money. These are essentially strangers and professional investors looking for a return on their money. They take a larger equity stake in the cidery and have voting rights on company decisions. Your business plan and a condensed version of the bplan called an investor prospectus can go a long way here. Be careful though. Private investors can become an anchor around your neck for a multitude of different reasons. It is very important to level set agreeable expectations prior to any deal to avoid conflict in the future. Even so, private investment money is a slippery, albeit, sometimes necessary slope.

Traditional or SBA financing provides you the most flexibility and allows you to retain the most amount of equity in your business. Both have advantages and disadvantages. To name a few, and not all, let’s start with traditional financing. Starting a relationship with a locally owned bank that will grow with you is always a good idea. Flexible loan terms like fixed interest rates, interest only draw periods, and a reasonably low loan fee are some benefits. A traditional loan is usually a 3, 5, 7, or 10 year term with a fixed interest rate and upfront draw period from which you “draw” on loan proceeds as you need them. This feature is useful as you only pay interest on the current loan balance in any given month. Example, you borrow $300,000. You don’t need $300,000 in month one. You take $50,000 in month 1, $100,000 in month 2, and the remaining $150,000 in the final draw period month. During those 3 months you only paid the interest on the loan balance as it increases. Once you have fully drawn on the loan you begin to make fixed principal and interest payments (P&I). Just like on a residential mortgage.

The SBA gets my “second-best” vote for financing. The loan fee is higher at 3.5%, the interest rate is not fixed, if your married you need to convince your spouse to “sign here”, and if you have more than 20% equity in your home it goes on the chomping block as collateral. That said, the SBA in most cases, is the only way to get a local bank to agree to financing a start-up cidery (which they’ve probably never even heard of). One upside, there’s no prepayment penalty. This works because the SBA effectively reduces your local banks risk exposure by agreeing to insure 50% of the money said local bank lends to you. Here’s an example: You need $1,000,000. Any bank will require at least 20% cash into the deal. That leaves $800,000 in financing required. Your local bank lends you the $800,000 and the SBA signs an agreement that they’ll repay $400,000 of the funds if you forfeit on the loan. So, effectively while your bank has technically lent you $800,000 their maximum loss potential is only $400,000. (note, SBA guarantees can go up to 75% of a loan amount). The bank will also get your house, equipment, and business assets to further repay any remaining money. Good deal right!?

One last comment on financing.

Half of all start-up businesses close in their first 36 months of operating due to lack of working capital. It is imperative that you have additional cash to cover your soft costs at launch. This is sometimes referred to as runway money. Six months of operating cash is a good bench mark to follow. This pays for things like salaries, rent, utilities, and any other soft costs that will cover you while the revenue model you constructed in your proforma takes shape. The bank loan, unless you also apply and are qualified for, a line of credit, will only cover your hard and soft start-up costs. This is a very important point to understand. Cash is king, you’ll want as much of it as you can get access to.

Professional Services, What?

It is my opinion that anyone starting their own business possesses the “i got this” gene. Ever heard of an MEP, know a reliable structural engineer or legitimate general contractor, or what concrete mixture ratios your tank loads require? No? You literally can’t open a cidery by yourself. Or maybe you can. I couldn’t. It is strongly advised that you hire a good MEP, architect, land attorney, trademark attorney, and an alcohol attorney. These people will all play integral roles in getting you licensed, protecting you from a bad lease or distributor, working with your city on building permits, and handling things that you will not have time to smarten up on and open the business in a timely manner. These soft costs, in my opinion, are simply worth it. Applying for city permits can be very time consuming and frustrating among the million other things you’ll be tasked with. Asking for and getting help is not a shot on your capabilities. It’s a good idea. Again, I refer you back to paragraph two about knowing yourself.

There won’t be any surprises, right?

Put your seatbelt on. Oh, and grab an extra pair of underwear. Bureaucracy at the city level cannot be underestimated. In my case, a surprise special use hearing became necessary after I had signed a lease. This ultimately cost me nearly 3 months of lost time and I could not start construction while we waited for our hearing vote. Fortunately, I had structured a “kick out” clause in my lease which the land lord had agreed to as they completed tenant improvements on my behalf. In the event my use was not approved by city council my only loss would be several months’ rent versus 10 years of payments.

My advice, look for a space in a “by right” area of your town and avoid the special use process. If you own the land and building, you’ll be operating from you could still run into issues so getting in front of your city/township/or overseeing body early is a good idea. They’re all friendly people, the ordinances are the real issue.

Is it go time yet?

Sort of! The only thing left to do is to find and hire the right folks, double check that you are compliant, build the place, create safety protocols, set up an accounting system and payroll, order your equipment and supplies, find a supplier for your apples (or plant them yourself and wait 5 years), build out new sales accounts, find a distributor, and learn how to make cider. So, there you have it. Easy!