What to Expect When You’re Expanding
As Florida-made craft beer, spirits, and wine continue to grow in popularity, Florida beverage manufacturers may find it hard to keep up with demand. Every growing manufacturer must ask: Should we expand?
Deciding to expand involves answering a slew of questions, all while keeping existing production on track. This article reviews four primary questions a manufacturer must answer when thinking about an expansion.
Question 1: How will you grow?
There are different ways a manufacturer can choose to expand. Can you add new space to an existing manufacturing plant to increase production capacity? Are you going to add a nice new taproom or a distillery or winery gift shop to enhance direct-to-consumer sales? Should you build a larger plant? Are you going to keep the old plant, or migrate your entire operation to the new plant? Would you rather add new products–if you’re a brewery, do you want to start making mead or cider? What do you want it to look like–that’s the most important question.
Question 2: Who is paying for the expansion?
Expansions are expensive. You might need new capital to cover the cost of your expansion. Your primary sources for getting new capital are lenders and investors.
Lenders. As an existing business with a financial history, you might get favorable lending terms from a bank or private lender. Raising capital through debt is the best way to keep managerial control of your business. Be sure to understand the terms of a loan, particularly the duration, periodic payment amount, and security requirements. Does the lender require a personal guaranty?
Investors. Bringing in new investors might give you access to more capital and give you more control over how and when investors receive a return. However, if you’re looking to one or a small group of investors, they will probably want a large say in how the business is run. On the other hand, if you are wanting to take smaller investments from a larger number of investors, you need to pay particular attention to federal and state securities regulations, compliance with which can be costly. Whether one or more new investors, you’ll need a new owners agreement (Operating Agreement, Partnership Agreement, or Shareholders Agreement) and possibly a new corporate structure entirely.
Question 3: Where will your expansion happen?
If you are expanding in place, a simple amendment to your existing lease might be all that is required. If you are relocation or launching a new location, however, you must pay attention to a new lease and a new municipal code.
New Lease. Don’t assume that a new lease in a new location looks just like your existing lease. A new lease will almost certainly have different requirements about insurance, taxes, utilities, common area maintenance, and security (another personal guaranty, perhaps). A new lease also has a new landlord–along with the lease, be sure to evaluate the landlord and the prospects of working together. Most importantly, be sure that your new lease clearly states a permitted use that matches your plans.
New Municipal Code. Unless your new location is right around the corner from your existing location, you’ll need to pay attention to new municipal ordinances and new zoning. Do the municipal ordinances allow you to do what you want at the location you’ve chosen? Is the location zoned for your activity, and if not how difficult is it to get a variance? If you’re use of the location would be considered a higher use (such as having a taproom in a warehouse district), you might have to pay an impact fee prior to opening the new location.
Question 4: What licenses do you need?
As an existing beverage manufacturing, you already know that you cannot produce beer, wine, or spirits unless you have the proper licenses from the federal Alcohol Tobacco Tax and Trade Bureau (TTB) and the Florida Division of Alcoholic Beverages and Tobacco. Whether you are expanding in place or adding or moving to a new location, you need to make sure your licensing is in order.
Expansion in Place or Relocation. Making a change to your existing location or moving to a new location requires an update to your federal license and Florida license. A brewery updates its federal license by filing an update Brewer’s Notice. A Distillery or winery files TTB Form 5100.18 Application for Amended Basic Permit to update its federal license. The update to your Florida license depends on whether your are expanding in place or relocating. For an expansion in place, a manufacturer must file ABT Form 6029 Extension of Licensed Premises or Amended Sketch. When a manufacturer is relocating, file ABT Form 6014 Change of Location/Change in Series or Type.
Additional Location. If your expansion plan is to launch a second location, that location will have to have its own federal and state licenses. For brewing beer at the new location, a new Brewer’s Notice must be filed with the TTB. For the federal license to make spirits or wine, file TTB Form 5100.24 New Application for Basic Permit.
Do it Right This Time
The need to expand means that you’re doing something right. It means that whatever you did to get your brewery, distillery, or winery off the ground paid off, even if you had to cut corners. Don’t only expand your manufacturing capacity, improve your business structure too. Think carefully before taking on investors or debt. Pay attention to your lease. Have a professional Owners’ Agreement and understand it. Understand the municipal ordinances that apply to your operation.
Use your expansion as the opportunity to do things the right way. You might not be able to grow from the decisions you make this time around.