Excise bonds, bank guarantees and deposits to budget for

Spent money and locked money

A cash plan has two kinds of outflow. Spent money buys something: a fermenter, a sign, a salary. Locked money is held by someone else as security and comes back, maybe, years later: a rent deposit, a bank guarantee, an electricity deposit.

Locked money does not show up as a cost in the P&L, which is why it is easy to forget. It shows up in the cash flow, at the worst possible moment, just before opening. Our guide to first-year cash flow shows where it fits.

Excise security

State excise departments commonly ask licensees for some form of security against duty and compliance. Depending on the state and licence, this may be a security deposit, a bank guarantee, a bond or a combination. Some states also collect licence fees in advance for the year.

The amounts, forms and rules vary by state and change with excise policy, so we will not quote figures. Ask your licensing adviser for the current list for your licence type. Get it in writing early. It is one of the first questions to answer when you read up on microbrewery licensing in India.

How bank guarantees really cost you

A bank guarantee sounds like the bank is taking the risk. For a new company with no track record, the bank usually asks for security in return: often a fixed deposit or cash margin covering most or all of the guarantee, plus a commission each year. So a guarantee can lock up nearly as much cash as a deposit, with a fee on top.

Ask your bank early what margin and commission it will want. Ask too whether an existing banking relationship or collateral can lower the margin. Put the margin money in the cash plan as locked money. The commission goes in as a yearly cost.

Rent and property deposits

Commercial leases in Indian cities usually come with a refundable security deposit equal to several months' rent, sometimes more in prime areas. Some landlords also want advance rent. On a large brewpub space this can be one of the biggest single cash items before opening.

Negotiate it. A longer lock-in or a phased deposit is sometimes possible. Whatever you agree, read the refund terms: what can be deducted, when it comes back and what happens if the landlord sells the building.

Utility and supplier deposits

Smaller deposits add up:

• Electricity connection and security deposit, which grows with the load you apply for. A brewhouse with electric heating and a glycol chiller needs a large connection.
• Water connection and sewerage deposits where you are on a municipal supply.
• Piped gas or LPG supply deposits for the kitchen and any gas-fired kit.
• CO2 cylinder deposits with your gas supplier.
• Fees and any deposits linked to pollution control board consent, fire and other approvals.

Timing is the real problem

Most of these deposits fall due in the same few months: when you sign the lease, apply for power, secure the licence and order gas. That is also when you are paying fabricators, contractors and the first salaries. A plan that has enough money in total can still run dry in month minus two.

Map each deposit to the month it is paid. If the cash line dips below zero before opening, you need a bridge: a larger equity round, a working capital line agreed in advance or a slower fit-out. Finding that out on paper costs nothing. Finding it out at the bank counter can delay the opening by months.

Build a locked-money schedule

Make a separate tab in your model listing every deposit and guarantee: who holds it, amount, date paid, expected refund date and conditions for refund. Add the bank guarantee commission as a yearly cost. Total it and add it to your funding requirement.

Then add a margin for the deposits you have not heard about yet. The first list is almost always shorter than the real one.

Getting the money back

Track refunds as carefully as payments. When a licence period ends, a guarantee expires or you reduce a power connection, ask for the release in writing. Deposits that are not chased are often not returned.

This is the kind of line-by-line planning that separates a business plan from a wish list. Most founders learn it after the money has gone.

Common questions

Are excise deposits and guarantees the same in every state?

No. The form and amount vary by state and licence type and change with policy. Ask a licensing adviser for the current requirements in writing.

Why does a bank guarantee lock up cash?

Banks usually ask new businesses to back the guarantee with a fixed deposit or cash margin, so the cash is tied up and a yearly commission is charged on top.

Do deposits count as costs?

They are not expenses in the P&L because they are refundable, but they reduce your available cash and must be in the funding plan.

How do I get deposits back?

Keep a register with refund dates and conditions. Request releases in writing when a lease, licence or connection ends.