Contingency in a brewery capex budget and how much to hold

Overruns are normal, not bad luck

A brewery build combines heavy equipment, plumbing, electrics, drainage, refrigeration and regulatory approvals. Each brings its own surprises. The quote from the equipment supplier is usually reliable. The cost of making a building ready for that equipment usually is not.

Contingency is money set aside in the budget for costs you know will come but cannot yet name. It is not a buffer for scope you have chosen to add, such as a bigger fermenter or a canning line halfway through the build. Keep those decisions separate, or the contingency vanishes into upgrades.

Set contingency by risk, not one number

A single percentage across the whole budget is a start, but it hides where the risk is. We break the budget into parts and hold a different percentage on each:

• Brewhouse and tanks on a fixed quote: 5 to 10%, mainly for freight, duty, exchange rate movement and installation extras.
• Civil works and fit-out in an existing building: 15 to 20% or more. Old buildings hide problems in floors, drains and walls.
• Utilities: 15 to 20%. Electrical load upgrades, water treatment and effluent handling are where many brewpubs get caught.
• Licensing and pre-opening: a separate allowance for delays, because each month late means rent paid with nothing sold.

Weighted across a typical small brewery, this often lands at about 10 to 15% of total capex. A refurbishment of an old building can justify 20%.

A worked example

As an illustration with round numbers, take a brewpub with a capex budget of ₹2 crore:

• Brewhouse, tanks and glycol: ₹1 crore. Contingency at 8%: ₹8 lakh.
• Civil works and fit-out: ₹50 lakh. Contingency at 18%: ₹9 lakh.
• Utilities, including electrical upgrade and drainage: ₹30 lakh. Contingency at 18%: ₹5.4 lakh.
• Kitchen and bar: ₹20 lakh. Contingency at 10%: ₹2 lakh.

Total contingency: ₹24.4 lakh, about 12% of capex. That is real money. It is also roughly what a delayed power upgrade plus a redesigned drain run can cost on a site that was never built for a brewery. Our guide to planning the electrical load shows why utilities are so often the surprise.

Imported equipment adds currency risk

Many Indian breweries import some equipment. If the price is in euros or dollars and you pay in stages over six months, the rupee can move against you between order and delivery. Customs duty and port charges also depend on classification and current rates. Ask your supplier and a customs broker for a landed cost estimate, then hold contingency on that portion for currency movement.

The one floor detail we would insist on: confirm the floor slope and drain positions before the tanks arrive. Floors need a steady fall to the drains. A slab poured flat means water pooling under every tank. Fixing it after installation means lifting equipment.

Contingency is not working capital

Keep contingency separate from the cash you need to run the brewery after opening. If you spend the contingency on the build and have nothing left for the first months of trading, you have swapped one problem for a worse one. Our guide to cash reserves before opening covers that second pot.

Banks and investors look for both. They ask about them early. A plan showing contingency and working capital as separate lines reads as a founder who has done this properly.

Control who can spend it

Treat contingency as locked. Any draw on it needs a written reason and sign-off from whoever holds the budget. Track every draw in a simple log: date, amount, cause. Review the log at each site meeting with the contractor present. A contractor who knows every variation is being recorded against a locked fund prices variations more carefully. If more than half is gone before the halfway point of the build, stop and replan before you run out.

Whatever is left at opening is not a windfall. Move it into working capital or keep it as a reserve for the first year's surprises.

Split your budget this week

Setting contingency well depends on a budget detailed enough to see where the risk sits. That is the kind of capex planning we work through with founders in the course, alongside the business plan that sits around it.

Your first step: split your capex into equipment, civil, utilities and pre-opening. Put a contingency percentage on each from the ranges above and add them up. Compare that total with the single figure you had before.

Common questions

How much contingency should a brewery capex budget have?

Around 10 to 15% of total capex is common for a small brewery, with more on civil works and utilities than on equipment bought on a fixed quote.

Is contingency the same as working capital?

No. Contingency covers build overruns. Working capital funds trading after opening. Budget them separately.

Where do brewery builds usually overrun?

Civil works, drainage, electrical upgrades, water and effluent handling and licensing delays are the most common causes.