It may sound like turning a hobby into an enterprise, but there are plenty of risks for craft brewery start-ups.
Australia has averaged one small brewery opening each week for the last two years, making this small business model big business in the industry. While the thirst for authentic brews with back stories is creating a boom, start-ups need to be aware of what can go wrong.
In its blog ‘Lessons learned opening our brewery business’ Queensland’s Black Hops lists the main issues microbrewers need to be prepared for, and here our Gallagher National Head of Food Production Stephen Elms fills in the gaps with the insurance policies that cover them.
“Property insurance, liability cover and product recall are the big three,” Elms says, adding that industrial special risks (ISR) cover can be customised to respond to small brewing exposures.
In terms of capital raising from banks or backers, these sources will want some form of assurance. “Banks will need stock to be protected from physical damage and liability in the event of contamination, for example,” he explains.
The things you might not think of
Running costs such as bank fees, wages, accounting, rent, freight and office expenses can be covered by ISR, which can also apply to most aspects of storage, packaging and distribution. External exposures through supplied ingredients or equipment, over which you have no direct control, also need to be taken into consideration.
Black Hops lists equipment failures and compromised batches as major problems, and these should be addressed under an ISR policy through cover for losses on site and product recall insurance, Elms advises. Business income protection is equally a given, since sourcing, ordering and installing replacement equipment may involve suspending operations for days, if not weeks.
If you are also contract brewing – producing craft beer to order for external distributors or pubs – it opens up a problem if the client isn’t happy with their custom brew. Professional indemnity covers the supplier under the provision of professional services for a fee.
“In fact, any legal exposures can be picked up by a liability policy,” Elms says. “As your broker, we would put together an insurance package that safeguards your brewery against potential costs and losses.”
Standing up to scrutiny
“Every authority has us in their sights,” Black Hops laments, saying that even after they had jumped through "a heap of hoops" to ensure they were compliant with industry and government regulations, the local council, police and Australian Tax Office were unhealthily interested in their operation.
“This is where an insurance broker can help, not only with estimating costs and covering exposures but with structuring business strategies for compliance response,” says Elms.
Finally Black Hops recommends transparency as an effective marketing approach, but it’s also the best way to get the most out of your insurance with a broker who understands your business. Be open about all the aspects of your operation that may pose a risk, even if that could be an unanticipated event that might occur in the future.
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