Ten Quick Things (most) Spirits Entrepreneurs Can Do to Get Better Sleep

cropped-hooch4mod1.pngAs published in the Spring 2019 issue of Artisan Spirit magazine.

  1. Talk to a Tax Advisor

Talking about taxes may very well be one of things that puts you to sleep. But that’s not what I mean when I say talking to a tax advisor can help you get better sleep. What I mean is that having a conversation (even a brief one) with a tax professional about your business’ tax situation can help ensure the vision you have for your business entity and the growth you desire are aligned with the practical tax and business considerations needed to get there.

To many spirits entrepreneurs, the concept of choosing a structure for their business entity was/is nerve-wracking. There are valuable reasons (tax and otherwise) in selecting each entity type. With that said, the entity type that suited your needs as a startup distillery years ago may not be the most advantageous entity for your business needs as they stand today. Spending time with a tax professional to discuss whether your current entity structure fits the long-term goals of your business could go a long way for the development of your business.

I briefly discussed in my spring 2018 article [Render Unto Caesar: Impacts of Federal Tax Reform on the Distilling Community] the developments of H.R. 1, the tax reform law (colloquially, and, incorrectly, referred to as the Tax Cuts and Jobs Act) that changed the tax landscape for individuals and businesses of all sizes. If you formed your entity prior to January 1, 2018 — even if you sought advice from a tax professional at the time — chances are that because the tax landscape has changed so much, another sit-down conversation is in order.

Tax considerations come into play at all stages of the business life cycle, but they are especially important if you anticipate engaging in a significant transaction in the next few years. Whether a transaction is definitively on the horizon or more of a distant mirage, talking with a tax professional could help to ensure your business is on the correct path for your vision to be become a reality.

  1. Review and refresh the business plan

The best business plan is not one that is simply completed and then stuck on a shelf. Instead, the best business plan is a living document that grows and changes over time — just like your business. Chances are very good that your business has changed since you last revised your business plan, and taking a quick peek to see what needs updating may be just the thing needed to spur your business’ growth. A refresh to your business plan doesn’t mean you need to rewrite the plan in its entirety, or completely change direction if you hit a rough patch. A refresh can be as simple as reviewing how your internal organization structure, sales strategy, fundraising efforts, market analysis, etc., have changed since your last business plan edit. Ensuring your business plan is up to date with those changes can help keep your business focused and ahead of the curve in terms of reacting to consumer demands.

A scheduled bi-annual or annual review of your business plan is a solid start. In addition to scheduled reviews of the plan, there are also several triggering events which could prompt a more frequent review and potential refresh. Maybe a nearby business opened up and is offering competition with your product. Perhaps you plan to sign a massive distribution agreement next month and you are going to be expanding significantly more than you previously anticipated. Maybe you hit a lull in sales, incurred an unexpected expense, had a key employee leave, or are just ready to take your business to the next level and need to raise additional capital. Any of these scenarios are likely to provide high levels of anxiety for any spirits entrepreneur, but especially one who has an outdated business plan and no real documented sense of direction for his or her company. Tying back to one of my earlier points (performing a corporate audit), by having up-to-date information on the internal operations of your business, the act of performing a refresh to your business plan can be relatively quick and painless. Being able to take new or challenging events in stride could be critical in determining the profitability and overall success of your business.

  1. Use a Website Age-Gate

Search any major alcohol brand on the Internet and before accessing the company website you typically run into a pop-up screen requiring you to enter your date of birth or check a box certifying you are of legal age. These so-called “age-gates” are everywhere and while the law doesn’t mandate them — and  candidly, requiring a user to self-identify their age prior to accessing the site may seem a bit stupid — an overwhelming majority of the large players in the alcohol industry has bought-in to this particular aspect of self-regulation.

Reports from the Federal Trade Commission (FTC) provide extensive analysis of online advertising and other online aspects related to alcohol sale and consumption. The FTC has explicitly stated that companies should use age-gating technologies and require consumers to enter their date of birth before accessing online alcohol-related material. The less our youth know about or are exposed to alcohol-related topics, the better off our youth will be — or so the rationale goes. So perhaps if your company does not already use an age-gate, a quick revamp to your website wouldn’t hurt. Is it silly to blindly follow the industry trend without any substantive legal requirements backing the decision? Maybe so. But at least you are demonstrating to your potential consumer-base that you are aware of and in line with the industry trend and you are trying to be responsible. At this point, it’s simply good form. But more to the point, using an age gate is consistent with what I like to call the wildebeest theory of risk mitigation; if you stay within the middle of the pack you’re less likely to get eaten by lions.

  1. Assess Your Intellectual Property Rights

You may think that you’re in the business of making spirits. But unless you’re exclusively contract distilling, your business is actually broader than that. You’ve branded your company and your spirits. You’ve designed your labels and marketing collateral. You’ve probably got a website that describes your company, your spirits and what your company stands for. All of this means that you’ve got intellectual property (IP).

That IP has value and should be protected. But whether and to what lengths you go to protect it will depend on a number of factors, including the nature of the IP itself, where you’re currently doing business, your expectation for the business’ future, and your budget. Protecting your IP can run the gamut from simply keeping things confidential all the way to filing patent applications in multiple countries — with multiple inflection points in between.

You wouldn’t allow your new make to simply pour out all over the floor. But when you fail to consider and appropriately protect your intellectual property rights you may be suffering just as real a loss. You owe it to your business to spend some time thinking about your IP portfolio and deciding how best to protect it.

  1. Do a Corporate Audit

Similar to talking to a tax professional, performing a detailed corporate audit may be the last thing a devoted spirits entrepreneur wants to think about before catching a few much-needed Z’s (I use the term “corporate audit” to refer to the internal company audit of any entity type, corporation, LLC or otherwise). However, the issues which we would prefer to leave on the back burner as long as possible (the “out of sight, out of mind” thoughts) such as equity ownership, board meeting requirements, shareholder meeting requirements, etc., are sometimes the same issues that can keep us up at night.

Being able to answer a few simple questions about the internal operations of your business can go a long way in reducing stress. Questions like, do I have good records of all board, shareholder or similar company actions? Do I have good records of all sales of equity in my business? Are my tax and general accounting records up to date? Particular emphasis should be placed on the fact that having business records and having good business records are two separate concepts. Even if your records consist of a few binders or several file folders saved to your computer, having company information in an organized and accessible location is a solid start to maintaining good business records. Inevitably, in the midst of a busy stretch some tasks will fall to the wayside. This can be especially true for smaller operations. Nevertheless, conducting a corporate audit to ensure your business has good records of up-to-date and readily accessible information is a great way to reduce uncertainty and fall asleep knowing you are in a good spot regardless of the size of your operation.

  1. Update Your Employee Handbook (or Create One if It Doesn’t Yet Exist)

 Nobody likes worrying about compliance. And if you’re in the spirits industry, you’re already very busy thinking about compliance with state and federal laws relating to alcohol. But unfortunately your compliance headaches don’t stop there. If you have employees (and hopefully you do — otherwise you’re probably overworked and quite lonely), you need to also think about the care and feeding of your workforce.

Having a handbook is almost essential to ensuring compliance with the myriad of federal, state and local employment laws. Crafting or updating a handbook will force you to examine your practices with regard to virtually every aspect of the employment relationship (e.g., hiring, attendance, conduct policies, confidentiality, leave). Worse yet, these laws are routinely being amended, and new laws are being passed, particularly in certain parts of the country (California – I’m looking at you). Having a handbook and updating it regularly forces you to examine these new or amended laws and either remain or become compliant with them. Of course, full compliance requires that the company follow its policies. Relatedly, certain laws actually require that employees be advised in writing of the existence of a law and an employer’s policy relative thereto. As such, not having certain policies “on the books” and distributed to employees can — in and of itself — be a violation of the law.

The bigger your operation in terms of number of employees, the more vulnerable you become to employment claims. And “big” for employment purposes is really not that big at all. Entrepreneurs and small companies often want to resist the “formality” of a handbook, but it is a mistake to do so.

  1. Get Involved in the Community

 There is an old proverb — the Internet suggests it is Chinese in origin — that states that a man without a smiling face must never open a shop. If you’re in the spirits world, this obviously applies to your tasting room, but it doesn’t stop there.

If you’re trying to build your spirits brand, it is usually a good idea to win first in your own backyard. That means that you need as many local brand evangelists as you can get. Some of that comes from making amazing hooch. But, truth be known, a good number of consumers don’t actually know what makes one dram “better” than another — they just know what they like. And a big part of whether they like your product will depend on whether they like you, your company, your branding and what you stand for in the marketplace.

Faced with that reality, you need as many touchpoints with your consumer as possible.  The more your consumer sees your smiling face and comes to associate that face with things they like (e.g., your booze), the more likely they are to buy a second bottle and to tell their friends about it.

  1. Become a Mentor

I know what you’re probably thinking. You’re likely thinking that you need to have a mentor of your own. And you’re probably right. But as a practical matter, research demonstrates that there are also tremendous benefits to serving as a mentor to someone else. First of all, it just feels good to give back. The psychological boost that may be obtained by providing someone else with a helping hand can go a long way in helping to mitigate the extraordinary stresses that accompany entrepreneurism.

The benefits of mentorship don’t stop there. In many cases, serving as a mentor to someone else within your industry can help you better understand the challenges you face and the untapped opportunities that may exist, within your own business. Much like refreshing your business plan, the energy you spend helping someone else navigate your industry is likely to pay unexpected dividends.

Finally, there’s that whole brand evangelist aspect again. By mentoring others within your industry or community, you’re helping to create an army of folks who will think fondly of you and your product. Isn’t that what you’re trying to achieve?

  1. Join a State Guild

Perhaps the biggest impediment to success in the spirits industry is the need to comply with onerous regulations and other legal obligations. Many of those arise as a result of federal law, but a tremendous number of the day-to-day challenges of making and selling hooch flow from state and local obligations. And that’s where participation in a state guild can be really helpful.

Just as the American Craft Spirits Association and the American Distilling Institute can drive helpful regulatory change at the federal level, state guilds can be extremely helpful in driving regulatory change at the state and local levels. However, the benefits of a guild really only result if the guild has sufficient buy-in by its various constituents. That means attending meetings and making your voice heard, but it also means paying the member dues that are necessary to keep the guild running and fund its efforts.

When you’re not yet paying yourself for your labors, forking over those dues can feel like a burden. In most cases, this is money well spent and a very good investment. By participating in your guild you may be able to help the organization reduce restrictions on tasting room sales, decrease the impact of state taxes, fund “drink local” campaigns or any number of other things that can meaningfully benefit your business and improve your likelihood of success.

  1. Make Friends With a Lawyer

Believe it or not, lawyers are people too. Sports, music, the arts or enjoying a well-made cocktail are among the hobbies of lawyers just as much as they are for members of any other profession. The point being, engaging with a lawyer even initially for non-legal purposes may not be all that painful, and it could pay huge dividends when times are tough or you have questions about how to move forward and grow your business. To help you focus on what you do best, it is good to have someone in mind who you have developed a relationship with that you can tap when something comes up outside of your sweet spot. If you are uncomfortable with the formal business/legal hurdles necessary to operate your business, or even if you are comfortable, but you just don’t have the time focus on them, having a resource who is familiar with the legal landscape of the spirits industry could provide some much needed comfort.

With the right relationship you can — for the cost of a cup of coffee or a taco-truck lunch — get personalized and pragmatic advice to help you understand what areas of risk are most pressing to your business today. Building a relationship with a lawyer at any stage of your company’s growth can provide comfort that at the end of the day you now have a number to call if you ever have a question or concern about how to move forward.

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