business plan and financial forecast - · pdf file3 final version october 2015 business plan...

1 Final Version October 2015

Business Plan and

Financial Forecast

Drone Valley Brewery Limited

Drone Valley Brewery Limited is a Community Benefit Society registered with the

Financial Conduct Authority (Reg No 7162)


Contents

Section Page

1 Executive Summary

3

2 Drone Valley Brewery Limited

4

3 Proposed Scheme

5

4 Work to date

6

5 Strategy Implementation

8

6 Management Summary

9

7 Financial Plan

11

8 Legal requirements

14

9 Risks

15


Business Plan and Financial Forecast

1. Executive Summary Drone Valley Brewery is a Community Benefit Society with a difference. We are not simply interested in brewing (and drinking) beers of the highest quality; we also want to make a significant and enduring contribution in helping our local community to thrive. We aim to start up a brewery from scratch. It will be based at premises located in the Drone Valley or the immediate surrounding district and initially funded through a membership share offer. Our products will be marketed to licensed premises in the locality. As a community benefit society we are owned by our shareholders and run through an elected and accountable Management Committee. The brewery will be run as a commercially sound enterprise, using an award winning brewer’s experience and expertise. Community benefit will be delivered initially through financial support to local groups and charities on an annual basis. When the brewery is well established and can demonstrate a successful track record of trading, we will extend our community benefit to provide work experience, brewing skills and small business management opportunities. We have made considerable progress toward meeting our objectives. The number of shareholders now exceeds one hundred. We have tested the market by producing and selling two successful trial brews using the equipment of a local brewery. We may produce a third. Our financial projections assume a starting point of 12 x 9 gallon casks per week building up to 37 casks per week by Year 2. This business plan has been independently reviewed by Bill Truin, a qualified accountant and a founder member of the River Bain Hydro Ltd, a Community Benefit Society in North Yorkshire. Andy Thackeray, a local accountant, with breweries as clients, has also reviewed our forecasts.


2. Drone Valley Brewery Limited The original idea The sale by David McLaren, of the Spire Brewery in September 2014 prompted a group of locals to find a way for the return of his championship beers behind local bars. The idea was born to start a “community brewery”, using his expertise. The vision After some considerable deliberation, a self-selected Steering Group captured what we wanted to achieve as:-

1) To run a brewery owned and managed by the local community (of the S18 post code area) that supplies traditional beers to local outlets.

2) To support local good causes by donating a portion of our profits to them. 3) To use the brewery business to support local people by way of improving

career prospects with skills training, work experience and employment opportunities.

Values We believe in the value of community enterprise as a way of producing beer in a manner that supports the local community. We are in this to build a commercially successful business and not to maximise shareholder value. Prospective investors should be motivated more by investing to support a community enterprise, than the value of the dividend they might receive.

The S18 post code area


Company Status “Drone Valley Brewery Limited” became a Community Benefit Society registered with the Financial Conduct Authority (FCA) on 8th July 2015 (Reg No7162). Under the Co-operative and Community Benefit Societies Act 2014 all community benefit societies are incorporated bodies with limited liability status, on a similar basis to companies registered under the Companies Acts. Limited liability status bestows both privileges and responsibilities upon the owner-members of such enterprises. We operate under Model Rules sponsored by the Plunkett Foundation. Membership The Society operates an open shareholder membership. Anyone aged 16 years or over and who supports our aims can become a shareholder. The Society is owned by its shareholder members who elect a Management Committee to run the Society on their behalf. Membership costs £10 – a £1 share and a £9 loan which is repaid at the discretion of the Management Committee. Withdrawable Shares Members will have the opportunity to hold a financial interest in the Company through the purchase of “investment shares” that provides the necessary working capital through a separate class of Withdrawable Shares that will help set up the business and support initial cash flow. Details of this share offer is contained in a separate Investment Prospectus. The total value of this share offer is estimated to be in the region of £49,000, rising to £70,000.

3. Proposed Scheme Objectives We propose to start up and operate a brewery located within the Dronfield and District (the S18 post code area). This will be a commercially viable brewery selling traditional beers (and ciders) to local outlets at competitive rates. Initially it will produce and sell 12 x 9 gallon casks per week, growing to 24 casks in the first year, and 37 in the second. We anticipate that a workforce of volunteer members will be needed to get us established. However we intend to employ 3 part time staff (brewery manager, salesperson and book-keeper). Outcomes and benefits Our objective is not to maximise shareholder value but to use both the business itself and its profits to benefit the local community in the following ways:

1. Produce beer for sale to pubs and other licensed outlets in the local vicinity at competitive prices.

2. Using our profits to provide financial support for local groups, charities and other societies


3. Build up links with the local secondary school the Dronfield Henry Fanshawe School by providing work experience placements for local students

4. Provide opportunities for voluntary work and learning new skills to members of the community.

5. Provide some paid employment 6. Provide a community resource where individuals or groups can brew their

own beer/cider to order 7. Act as an attraction for visitors to the area by offering tours of the brewery. 8. In its broadest terms the brewery will contribute to the community fabric of

the area alongside other societies and groups. The return on “investment” shares will be set at no more than 2% above bank base rate and be subject to the continuing financial viability of the brewery. The rationale for members investing will not be to maximise return on shareholder value but to demonstrate common cause and commitment to our objectives in setting up this enterprise in the first place.

4. Work to Date Steering Group A small informal group sounded out interest in forming a community brewery in November 2014 by holding a public meeting (see poster below). Over 80 people attended and expressions of interest received from 55 people who contributed £10 each to become members of the society and also to provide a “fighting fund” to help get it incorporated. The membership has now grown to over 100. In December 2014 we established a steering group which met on a regular basis. Since January 2015 we have done the following:-

Identified and visited all potential sites for premises and contacted all commercial landlords in the Dronfield and surrounding area to enquire about the availability of potential premises. We have found suitable, vacant, premises in Unstone. Alterations are being made by the landlord and a project

plan for refurbishment is being finalised.

Visited all the prospective public houses in the district to market test the notion of them taking our product.

Explored the potential for grant funding from Derbyshire County Council, North East Derbyshire District Council and the Co-operative movement through the Chesterfield branch of the Co-operative Party

Set up a membership directory, website and e mail contact address

Publicised our activities on Radio Sheffield, local CAMRA publications and posted flyers around the area.

http://www.dronfield.derbyshire.sch.uk/

http://www.dronfield.derbyshire.sch.uk/

http://dronevalleybrewery.com/


Established links with the work experience supervisor at the local school Produced and marketed our first brew to test the market - Drone Valley IPA -

in readiness for a local beer festival.

A second market testing brew – Gosforth Gold – was produced to gauge market interest for a different type of beer

We have done this using the brewing equipment of another local brewery (Barlow Brewery) until we establish our own premises and brewing kit.

Organised a launch nights at the Three Tuns for our IPA on 29th May 2015 and then Gosforth Gold at the Beerstop and the Miner’s at Hundall and publicised these via our mailing list, website, social media and by sending a press release to the local press.

We have become a member of the Plunkett Foundation and received the generous support of a Community Adviser and an organised site visit to Hesket Newmarket Brewery in Cumbria.

At a members’ meeting on 30th June, members of the Steering Group were elected to the Management Committee and official roles and responsibilities were subsequently allocated.

Customer Need There has been an increase in real ales as a share of the market and there is an emerging Craft beer industry. Both of these can be seen in the locality. 64% of an average pub’s wet sales is beer, and of that, cask beer is approaching 20%. Whilst pubs are declining at a rate of 29 each week, the number of breweries has increased by 10% for the third year running. Whilst pub visits are less frequent, they have become a more premium experience. Cask ale gives customers something that can’t be replicated at home. Real ale drinkers go to the pub twice as often, and spend £967 per annum, almost twice the national average. We have received strong indications of support from local people for a genuinely local brewery that provides local community benefits with both its business activities and its profits – this is our Unique Selling Point (USP) upon which we intend to nurture and capitalise. The strap line ‘Your Community Brewery’ is being employed. Our core customers will initially be the non-tied public houses in Dronfield and the immediate areas within Sheffield and North Derbyshire. They have already shown support for our venture by ordering casks of our market testing brews. Recent legislation has given greater freedom for ‘tied’ houses to purchase beer from third party sources. We will be exploring the potential to sell our products into some of the eleven tied houses in the coming months. The S18 postal area of Dronfield and surrounding district has:-

27 Public houses 5 Workingmen’s /private clubs

1 x independent craft ale shop (The Beer Stop) Several off-licences including 4 owned by the Co-op)

We will support Camra’s campaign and encourage local pubs to be registered as Assets of Community Value (ACVs)

http://www.plunkett.co.uk/


Marketing There is substantial competition from brewers of real and craft beer both locally and further afield with 13 breweries in the Sheffield and North Derbyshire Area. However, recent experience of trying to find ‘contract’ brewing opportunities, demonstrate that they are all running to near or full, capacity. We believe that we have three major advantages over our competitors which we will exploit as commercial opportunities:-

Unlike other local breweries our purpose is community based - providing local benefits and a membership scheme which we will draw upon to build up customer loyalty for our brand.

Our brews will be based around David McLaren’s championship winning recipes which sold well in the local area for more than eight years until the Spire Brewery was sold.

Our sales focus will be the S18 catchment, thus we will have slimmer distribution costs

We will invite local ‘home’ brewers to produce speciality beers under the Brand and offer training in commercial brewing

Wherever feasible, members can volunteer to work in the brewery and pick up new skills and experiences

We will have the capacity to contract brew, should the opportunity arise 5. Strategy Implementation We are not driven by profit that maximises shareholder value. Our financial plan assumes low overheads, employing three part-time staff and voluntary labour where practicable. As our running costs will be comparatively low, our products will therefore be competitively priced to encourage continuing sales interest from local outlets. Our marketing strategy is to introduce our products at local beer festivals. At first they will be produced at another local brewery until we can secure premises. To help build our number of shareholders, we market our venture through electronic and social media as well as through leaflets in the local pubs that support us. With the publication of this business plan, we can now move on to seeking investment from within that membership (up to £70,000) and at the same time build up brand loyalty and awareness in the S18 area. We aim to raise up to £49,000, initially, to get established and see us safely through the first 6 months of trading We have identified premises in Unstone, on a leasehold basis and will be fitting this out in preparation for the brew kit and related equipment. The brew kit has been acquired against a deposit and is locally stored. Work has begun and a refurbishment plan has been drawn up.


Our main source of income will be through sales of cask beer. Once we are firmly established, we plan to increase income through holding “Brew Days”, where people/groups pay to come and “do a brew” and then as part of the cost they get a case or cask of their brew. We will consider offering tours which, whilst not on the scale of those offered by the industry giants, could still be another source of income. Some revenue will be generated from related merchandise (T-shirts, polo shirts etc.) Running a brewery requires a broad range of skills and training. Where we provide this it will enable people to enter a wider job market with strong transferable skills. We will therefore focus on training people in traditional brewing methods, thereby keeping alive a long established skill. Our milestones will be to:-

become incorporated (July 2015) and sign up a total of 100 Members by September 2015 (achieved)

have raised the £49,000 Withdrawable Share Capital set up and start brewing in our own premises by December 2015 start our training programme and bring the first young people through by

Summer 2017 Sustainability We will aim to be as environmentally friendly as possible. This includes measures such as recycling spent hops and malt to local outlets and farmers (mulch and feed). Our distribution area will be kept small to minimise transportation. We are investigating sourcing local hops and barley. The use of heat exchangers will be maximised within the brewing process.

6. Management Summary Management Committee The Management Committee was elected at a Members Meeting on 30th June 2015, and consists of the following:-

Bill Best (Secretary) Pete Bishop (Vice Chair) Steve Capps Scott Ellis Pete Hithersay

John Horrocks Jez Horton (Chair) Allan Prosser Emma Thompson

Co-optees:- Consultant Brewer – David McLaren Invited observer – Roger Hepworth CAMRA liaison Financial advice – Andy Thackeray, Accountant


Key members for execution and completion of the project are:- Chair: Jez Horton Jez has extensive private and public sector experience of vocational education and

skills acquisition at all levels over the last 30 years. He has led on many projects

from diagnosis to design, delivery to development; across the UK (and internationally) in a range of industries and sectors, including hospitality and

food/drink manufacture.

He has worked in industry and held directorships of small and medium sized

companies and was previously Commercial Director of one of the largest UK Training

Organisations, which grew from just 10 employees to 350 in just eight years. He also grew an ICT division from start to a turnover of £5m. He has supported many

organisations/companies in developing their own business plans.

Jez is a CAMRA member, and was born next to Marston’s brewery in Burton upon

Trent. His first breath was flavoured with the aroma of malt and hops. Secretary: Bill Best Bill was formerly Head of Housing at NE Derbyshire District Council for 15 years. Unusually, he also has several years’ recent experience of senior management within the private sector through leading multi-disciplinary teams on major long term housing and regeneration projects. He is a former Board member on three Housing Associations and Area Board member for Sheffield Homes. He is currently a Company Director of a management consultancy specialising in financial planning and strategic asset management in the social housing sector. Areas of responsibility The following areas of responsibility have been allocated between all the members of the Management Committee:-

Governance Head Brewer

Legal Brew team leads

Insurance Lead Drayperson (incl cask collection)

Marketing/Promotion H&S (risk assessment/COSHH/PPE etc.)

Finances Premises (acquisition)

Grant Funding Maintenance (Premises & equipment)

Beer Sales co ordination Equipment (sourcing, siting)

Other sales/income (merchandising) Training (brewing)

Membership and Benefits HR

Shareholder Investment ICT support

Raw materials (stock/requirements) Wider community relations

Initially, we will need to establish small teams of volunteers to help execute the plan. They will help brew the beer, act as a sales team, provide admin support and deliver full casks and collect empties.


The Consultant Brewer, David McLaren will initially supervise beer production and train others up to succeed him. His role will also include setting up procedures for the cleaning, sanitation of the plant and general maintenance. Interim Arrangements Until we secure both finance and business premises, we will continue to brew at the Barlow brewery using their equipment as the opportunity arises. David McLaren will lead the process supported by volunteer members who will do the brewing under David’s supervision. We will use this period to draw up and test operating procedures, particularly Health and Safety and consistency of product. Administrative and financial management systems will be developed or purchased where necessary. External Accountants will be appointed to help set up accounting systems, prepare reporting templates and prepare annual accounts. Start Up (prior to Year1) We plan to acquire suitable leasehold premises; purchase brewing kit and related equipment, which is now available, and make the premises ready to receive it. When the brewing equipment is installed and the industrial unit is ready to occupy, the volunteer teams will draw upon their experience during the interim arrangements and be trained up by David McLaren to oversee the brewing process in the new premises. A sales led brewing rota will be produced showing what will be brewed and by which team, so that the workload is shared evenly. There will be some flexibility in terms of any one-off brews or special orders requested by customers. Year 1 We aim to brew and sell an average of 12 x 9 gallon casks of beer per week from week 1 and build this up to 24 casks per week within 6 months. We will be employing part-time staff from day 1: a brewery manager, sales person and book-keeper (1.5 full time equivalent). We plan to break even by the end of the year. We will also raise a further £21,000 from a further share offer to provide working capital Year 2 Beer production and sales will be ramped up to 37 casks per week. We aim to make a net 10% profit by the end of the year. Year 3 onwards We aim to maintain a steady state of production at Year 2 levels 7. Financial Plan Our financial plan consists of raising sufficient capital to finance our set up costs and to underwrite running costs for the first three months.


Withdrawable Share offer We plan to raise up to £70,000 through a “withdrawable share” offer which will be available to all shareholder members. Individual shares will be set at £250. Shareholders who wish to invest multiples of £250 may do so. The upper limit of investment by individual shareholders will be determined by the Management Committee. We need to raise a sum of £49,000 to meet our start-up costs and call on cashflow during the first 6 months of trading The annual return on investment will be set at no more than 2% above bank base rate and fixed at the time of the share offer. Grants We have made no assumptions as to the availability of start-up Grants except for assuming we will receive the £2,000 bursary from the Plunkett Foundation. We believe we are eligible to apply for DEFRA grant funding which is administered by the BNED Leader Programme. We will be applying for up to 40% grant towards our start-up costs. If successful this grant will be offset against the total of £70,000 we need to raise. Financial Assumptions

Start Up costs Item Assumptions £

Income Bursary Assume successful bursary application 2,000

Grant Funding No grant funding assumed 0

Membership shares 100 x £1 shares 100

Initial Fighting Fund 100 x £9 loans 900

Withdrawable Share capital £250 shares x 196 49,000

Cash allowance Wks 1 -5 No revenue income from sales 0

Net income from trial brews 1 x IPA, 1 x GG 500

VAT Refund

0

52,500

Expenditure

Initial cashflow injection Months 1-6 18,800 Incorporation Model Rules, FCA Reg, Plunkett membership 310

Website annual fee Already paid for 25

Lease of premises (legal costs) None assumed 0

Lease of premises (Bond) Generally not required 0

http://www.bned-leader.co.uk/availability-of-funding/micro-enterprises-diversification/


Lease of Premises (advance payment) None now assumed 0

Preparation of Premises Sum assumes new floor/drainage/stud walls/electrics 10,000

Purchase and fit out of brew kit

Kettering Kit (and 2 new fermenters) - inc Hose Kit, Thermal Sleeve & Lids £1,130 5,500

CASKS - 100 Stainless (2nd hand) £5000 no VAT 5,000

Installation of equipment & extra valves etc. 1,000

Purchase of stock / consumables for start up Listed in 'Equipment Costings' 1,825 Other Equipment / Setup Costs Listed in 'Equipment Costings' 2,673

Marketing T-shirts, leaflets, pump clips etc. 200

Insurances Approx. £700 per year 700

Business Rates Should be £0 as below SBRR Threshold 0

Office equipment Lap top, desk, 2 chairs, filing cabinet, broadband 1,000

IT and admin systems Xerox, BrewMan inc installation and training 800

Contingency Assumed to be 10% on all estimated items 2,870

VAT on set up costs 20% ( on all + VAT items) - NIL if we register for VAT 0

Training and development

500

51,203

Balance

1,297

Receipts

£ £

Revenue from Cask Sales Price varies from £60-£75 per cask 69660 129870

Casks Sold (Number)

1924

Cash injection Weeks 1 - 26 Balancing figure to break even 18800 0

VAT Refund

0 0

88460 129870

0 0

Payments

0 0

Marketing Quarterly payment of £300 1200 1200

Training & development Quarterly payment of £200 800 800

Annual Accountancy fees p.a. from end of Yr 1 700 700

Website membership p.a. 25 25 Lease of Premises £4,800per year quoted for 100sq m

- Includes Buildings Insurance? 4800 4800 Maintenance & replacement of plant & machinery

Assume 5% of purchase cost p.a. Provision of sinking fund for replacement (?) 750 750

Insurances Estimate from Bollington 700 700

Business Rates Should be £0 as below SBRR Threshold 0 0


Electricity (per 18cask brew) - excl standing charge/gen use 1500 2500

Water supply (per brew) - ditto (per 18 cask brew) - ditto 1500 2500

Waste Water charges (per brew) Based on PH's estimate 2250 3750

Bank Charges Free banking from Co-Op 0 0

Shareholder return (2% above base rate) 49000 1225 1750

Annual Report fees

350 350

IT and admin systems Monthly fees 4500 4500

COST OF SALES (RAW MATERIALS)

Listed in 'Beer Costings' & based on sales forecast above £6 for 4.0% ABV, £8 for 5.0% ABV 7224 13468

COST OF SALES (BEER DUTY) £15 per cask 4.0% ABV, £20 per cask 5.0% ABV ( Paid monthly in arrears 20520 39128

Staff Wages Brewery mgr (£12.5k), Sales(£10k) bookkeeper (£7.5k) 30004 30004

NI Say 5% on brewery manager 1250 1250

Relief staff wages Assume 5 weeks pa. + 2 weeks sickness per annum = £4,039 4039 4039

Transport costs £5 per cask 4680 6240

0 0

88017 118454

0 0

Bank balance

443 11417

Net profit as % of turnover

100.5 109.6

Profitability assumptions Our profitability objectives are to maintain a modest level of surplus from Year 2. The assumed costs per brew are based upon actual costs for a range of beers and a median average taken for the cashflow forecast. Staff costs are based on market rates for the types of work envisaged. Inflation has not been built into the figures. We have assumed that cost inflation in production and distribution will be matched by corresponding increases in the sale price of beer.

8. Legal Requirements HRMC – Alcohol Duty A company intending to brew beer must apply for registration at least 14 days before it starts brewing. HMRC also requires financial security to safeguard the duty on all duty suspended intra EU movements of beer which may require a guarantor. This guarantor must be from an approved list from the Financial Securities Centre which is part of the National Registration Unit of HMRC.


HMRC - VAT We will not have to be VAT registered with HRMC as our turnover will not exceed the VAT threshold of £82,000 turnover per annum in its first year of trading. However, we will register for Vat and claim the cost of works and services retrospectively (4 years for works, 6 months for services) Insurance The standard cover for a brewery is contents and stock, business interruption and public/products liability. It also includes money, goods in transit & products liability and Employers Liability for casual & voluntary staff. Health and Safety Health and safety is a serious consideration within a brewery as it involves handling hot liquids, chemical processes (cleaning) and some heavy lifting. We have significant relevant expertise within the Management Committee to ensure that risk assessments are carried out and that safe working practices will be devised and enforced. Waste Water Discharge If we are discharging waste effluent from the brewery into a public sewer, we must apply for a licence from the Environment Protection Agency. 9. Risks We are aware that a community enterprise venture brings a number of significant risks that we need to mitigate; these include - Skills deficit – As a group of volunteers running a business we need to be able to demonstrate a full range of financial, admin and operational skills between us. Where we are weak, we will bring in outside expertise; in particular to provide initial support on business systems and financial reporting. Sales projections – Understanding our market and meeting customer demand lies behind our sales projections. We will continue to provide trial brews (e.g. Drone Valley IPA and Gosforth Gold) to test market acceptance of our products and build up a client base. Volunteer workforce – We are exposed to continuity of production and sales risks should we rely solely upon volunteers in the long term. We have therefore planned to recruit 3 part time members of staff. We anticipate that there will always be the need for volunteer help throughout the business. Operations – Brewing beer is an industrial process that produces a live product. The two areas we will address by developing procedures and delivering training is Health and Safety of the workforce and consistency of the product. We cannot afford to get either of these wrong. Our Consultant Brewer will provide training and support on


consistency and two members of the Management Committee have significant expertise in H&S matters. We have prepared a SWOT analysis which has helped shape our thinking and will be kept under constant review - See below SWOT ANALYSIS STRENGTHS

1. USP of giving back to the Community 2. Knowledge & expertise of running a

successful brewery 3. Our enthusiasm and commitment. 4. Two successful brews already 5. Some direct marketing experience. 6. Identified premises 7. Brewing kit secured, awaiting

installation 8. Small production runs means

flexibility. 9. Low labour costs. 10. Established links with local outlets 11. Healthy membership numbers 12. Eligible for a 50% reduction in Excise

Duty due to being under the small producer threshold

13. Sale of bottles will increase turnover and use up surplus beer stocks

WEAKNESSES 1. Some skills gaps in management

Committee (using co-opted members) 2. Dependence on DM availability /expertise. 3. Direct staffing level requires work 4. As yet only limited market presence. 5. Customer lists not tested in earnest. 6. We would be a smaller player. . 7. Some direct marketing experience. 8. Limited budget. 9. Brewing staff need training. 10. Processes and systems need to be

established and tested 11. May have to sell outside S18 area and incur

distribution costs 12. Reliance on volunteer commitment

(untested) 13. Non proven ability to raise share capital

(£49k) 14. Statutory compliance not yet tied down

OPPORTUNITIES 1. Real and Craft ale is a growth area. 2. Ability to put something back into

community. 3. Develop new products/merchandise 4. Invite home brewers to scale up their

recipes 5. Profit margins will be good. 6. End-users respond to new ideas. 7. Can surprise competitors. 8. Could seek better supplier deals. 9. Opportunity to diversify into ciders,

bottled ales, bespoke brews 10. Opportunity for contract brewing 11. Other local breweries operating to

capacity

THREATS 1. 13 other craft breweries in Sheffield and

North Derbyshire 2. Decrease in pub trade locally 3. Legislation could impact (Increase in beer

duty). 4. Competitors undercutting of our price. 5. Customers as poor payers – cashflow risk 6. Casks not collected/lost 7. Vulnerable to reactive attack by major

competitors. 8. Unable to maintain/increase sales to cover

costs/make profit. 9. Recruitment and retention of key staff 10. Increase in price of raw materials and

utilities. 11. Consistency of product using volunteers 12. Wastage from contamination/inexperienced

volunteers 13. Unrealistic business model and/or financial

assumptions – “optimism bias”

business plan and financial forecast - · pdf file3 final version october 2015 business plan...

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