The Business Finance Guide spoke with Keith McAvoy, from the Seven Bro7hers Brewery, about how the business tackled the immediate challenges brought on by COVID-19. We asked Keith how Seven Bro7hers moved swiftly from being only marginally reliant on e-commerce to depending on it completely, as well as its plans for recovery and growth.
2020 was set to be a year of growth for the Seven Bro7hers Brewery. In March, the McAvoy brothers, who own the business, unveiled their new brand identity, with plans to expand the brewery and to open two new bars before the end of the year.
The outbreak of coronavirus (COVID-19) and the lockdown period that followed during the past three months has put Seven Bro7hers Brewery — and the entire hospitality industry — into an unimaginably difficult situation.
Yet despite the lockdown, the brothers have remained positive and taken bold strides forward, continuing with their plan to have two new bars open by the end of 2020.
The impact of COVID-19
The UK brewing sector, which, according to Companies House, has increased almost ten-fold since 2008, was hit particularly hard by COVID-19. Without the ongoing revenue stream from on-trade sales from both their own taprooms and other outlets, craft breweries were left struggling.
With overall beer sales down 7.2 per cent in the first quarter of 2020 (compared to the same period in 2019), and almost two-thirds (65%) of brewers ceasing production due to lockdown measures, the industry is calling on a definitive pathway to reopening from 4th July.
Although its bars and taprooms have been closed since the end of March, Seven Bro7hers has continued to make beer. It has also switched its focus to e-commerce, which despite making up only 20 per cent of its business before COVID-19 now accounts for the company’s entire revenue.
Keith said: “While we’re lucky that we could flip the business to e-commerce, we still needed financial support to purchase raw and packaging materials and support our closed beerhouses.”
Finding the right financial support
In the early stages of the coronavirus crisis, advice and protocols around brewing and hospitality changed frequently. The industry’s reactions had to be quick.
The first thing Seven Bro7hers did was to set out what it needed to survive until a certain point in the future. When the initial wave of government support became available — deferrals to VAT and business rates payments, PAYE holidays, grants for hospitality businesses, and the job furlough scheme — the business took immediate advantage.
But the lockdown and the government order to temporarily shut all hospitality venues meant the McAvoys needed further financial help. As an SMB with a turnover of less than £45 million, Seven Bro7hers applied to the Coronavirus Business Interruption Loan Scheme (CBILS) for support, through two banks with whom it had an existing relationship.
“In the first instance I wasn’t sure whether we’d be able to receive any government support,” Keith McAvoy said. “We’d ended up with quite a negative EBITDA of £200,000 because our investment money had come from crowdfunding investment rather than revenue.”
Luckily, the applications were successful, and one of the banks approved two loans of £75,000 for both the bar business and the brewery. However, just days after the approval came through, the Government launched the Bounce Back Loan Scheme (BBLS).
After some thought, the brothers decided to apply for a Bounce Back Loan as well. If successful, they planned to use that loan before the CBILS one, due to its more favourable interest rate and the money being paid to them sooner.
Keith said: “Our decision was made for us in a way. We went for what was available and best for us in this instance but are grateful to still have that funding from CBILS if we need it. Hopefully we won’t, but there’s still plenty of work to do at the brewery. We have lots of infrastructure changes planned, and finance will become part of the decision-making process when we come to buy these pieces of equipment.”
Rewind to 2014: The Seven Bro7hers journey
The Seven Bro7hers Brewery was established by seven brothers from Salford, who in 2014 turned their shared love for craft beer into a working business.
Fast forward to 2020, the McAvoy brothers now employ 15 people in their brewery and taproom. Their craft beer is sold nationwide, as well as in their Seven Bro7hers ‘beerhouses’ in Manchester city centre and Salford.
The brothers received initial funding of £45,000 through British Business Bank’s Start Up Loans company and secured a further £600,000 of investment through crowdfunding to open their second bar.
Re-opening bars is at the forefront of Keith’s mind
With lockdown easing, Seven Bro7hers has developed a new at-table ordering app, and has adjusted the layout inside all its bars to accommodate social distancing between groups. While there’s still a lot of uncertainty around when exactly bars will be allowed to reopen, both premises already have a lot of outdoor space that they can put to use.
The company has also just launched a new crowdfunding campaign, predominantly targeted at its existing investors and aiming to raise £250,000 toward the refurbishment of its two new bars.
Financial and operational management: need for a financial controller
Over the past two years, Seven Bro7hers has received business advice from its investor and board advisor, Keith Webb. He has advised on all matter of things, from starting monthly board meetings to company and employee infrastructure.
Then, 18 months ago, the McAvoys made the decision to bring in a financial controller.
Keith McAvoy said: “It was the best thing we ever did! We were having to deal with all of the financials and not doing it justice to be honest. So, bringing in someone who was dedicated to the numbers has been absolutely key to our success.”
Appointing a financial controller has been a huge benefit to the brothers when trying to find government schemes to help them survive the current crisis.
“Our financial controller left no stone unturned in the bid for grants, loans, VAT deferral and furlough support, to make sure everything would still run as smoothly as possible from a cashflow perspective.”
Planning ahead – a rolling three-year plan
Forward planning is crucial for all businesses, especially during these times of uncertainty and Seven Bro7hers is no different.
There are three strands to the business’s strategy, which has allowed it to diversify its revenue streams and to spread the risk.
Portfolio of bars
“Our portfolio of bars is our number one priority and we have a pipeline of opening new bars in place. Our next two bars are still set to open at the end of the year – fingers crossed!”
From the crowdfunding money they received in January 2020, Keith and his brothers have been able to triple the company’s sales team, with help from their new Head of Sales. Joining Seven Bro7hers from Brewdog, Emma Skuce has set to work putting together a northern regional salesforce in order to get more Seven Bro7hers beers into bars nationwide.
While Seven Bro7hers has had some exposure within the convenience sector — Co-op, Ocado and Booths, for example — up to now it hasn’t been ready to take on a national retail partner.
Now the company is on the brink of closing a national supermarket deal that will form the final part of its three-pronged approach.
Seven Bro7hers works with a detailed three-year plan and cashflow projection, which it typically reviews every year but, due to COVID-19, has had to reassess frequently over the last few months. The plan — what the McAvoy brothers call their “roadmap to success” — is vital to support the operational and financial needs of this complex business, and includes a pessimistic, realistic and optimistic trajectory.
“Once COVID-19 is over with and we have five of our beerhouses up and running, we should be able to become self-financing for the rest.”
A cashflow forecast
In times like these, it’s vital that business owners understand their financial position and know where they will be financially in two, three and four weeks’ time. The best way to do this is by creating a cashflow forecast.
From the projections and cashflow forecasts from their first bar in Manchester, Keith and his team can use their last two years’ trading history to determine the cashflow for the new Leeds bar at the end of 2020.
Keith said: “This way we’ll know whether we can service that asset finance debt over the next two years, so it’s a risk, but a calculated one.”
We wish Seven Bro7hers, its employees and their families — along with all the bars, breweries and businesses in this country that are affected by COVID-19 — success for the future.
And we leave the final word to Keith.
“The best thing you can do is to build a team of excellent people with a range of skills and a set of shared beliefs. This will help enormously in times of change. Sometimes the changes are too big, but a combination of great people, an open mind, a cash ‘buffer’ and a clear plan (with contingency built in) will give the business the very best chance of thriving in uncertain times.”
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