Starting a distillery is a promising choice this year. With an estimated compound annual growth rate (CAGR) of 21.4% from 2022 to 2027, the market could reach $124.7 billion by 2027.
Startup costs can be daunting. Aspiring distillery owners need working capital for equipment, ingredients, rent, licensing, and staff. Yet with proper planning and preparation before jumping in, artisanal distilling can be a rewarding small business venture.
This guide offers insight into how to start a distillery. Topics include market research, registering an EIN, obtaining business insurance, forming an LLC, and more. Follow along for everything you need to open a distilling business.
1. Conduct Distillery Market Research
Market research is important when starting a craft distillery. It provides information on your target market to help develop a thorough business plan. There are two types of market research, primary research you do yourself and secondary research by third-party researchers.
Some details you’ll learn through market research as you open your own distillery include:
- There are now over 2,300 permitted craft distilleries nationwide according to the American Craft Spirits Association.
- The best opportunities are in states with thriving tourism, dining, and cocktail cultures.
- Specific spirits categories show particular promise for new entrants as well.
- While craft whiskey has exploded in popularity, making competition fierce, demand for locally-made gin, vodka, rum, and liqueurs continues to rise.
- Startup costs and regulatory burdens remain challenging.
- Initial equipment, ingredient, rent, licensing, and staffing costs typically exceed $1 million. And navigating federal, state, and local permit requirements can be daunting.
- Partnerships can help mitigate some financial and operational risks.
- By thoroughly researching the market dynamics and opportunities in a particular region and spirits category first, distillery entrepreneurs can set their new ventures up for success.
With proper planning and preparation, artisanal distilling can be a rewarding and potentially lucrative business.
2. Analyze the Competition
Understanding the competitive landscape is critical for any new distillery. An in-depth analysis of existing regional distilleries should examine product offerings, pricing, business models, and brand identities. This provides intelligence to carve out a unique market niche.
Identify direct local competitors making similar spirits. Visit their tasting rooms to sample products and get price lists. Compare quality, flavor profiles, production methods, and backstories. Seek unique value propositions like unusual mashes, aging techniques, or botanical blends.
Check distillery websites and social media presence too. Assess liquor branding aesthetics and marketing messages. Look for gaps like underutilized platforms or customer engagement opportunities. This is especially vital for e-commerce and tasting room sales.
Widen the review to include both national craft distilleries and larger-scale regional whiskey or vodka producers. Though not direct competition, positioning strategies should consider their brand identities and price benchmarking. This analysis illuminates what styles, prices, and stories resonate in the area.
Incorporate on-site customer interviews whenever possible. Listen for desired product qualities, brand values, or specific unmet needs. Visitor demographics and psychographics may reveal underserved patron groups worth targeting. Their organic word-of-mouth feedback is invaluable.
Ongoing market intelligence gathering is essential even after opening. Customer review sites, sales data, and website analytics provide empirical performance metrics. Follow local economic and tourism trends. Continue visiting other distilleries to stay atop the latest products and innovations.
3. Costs to Start a Distillery Business
Starting a distillery requires extensive upfront capital investment. Estimating expenses for your business enhances your company’s financial wellbeing in the future. Total expenses typically range from $250,000 to $5 million or more. Let’s look at the costs involved in opening a successful distillery.
- Distilling Equipment: A basic 15-gallon system costs around $10,000. Larger stainless steel stills with 100-200 gallon capacity run from $50,000 to $150,000 or above.
- Additional necessary gear includes fermenters, mash tuns, crushers, temperature controls, pumps, boilers, storage tanks, filters, bottling machinery, generators, etc. A fully outfitted boutique setup can easily top $500,000. Even more if you choose to use bottled water to enhance your product.
- Real Estate: Leasing or buying an adequate property with proper zoning allowances, space, utility access, waste management capabilities, and an optional tasting room costs at least $150,000+ in capital.
- Ingredients: Quality grains, fruits, sugars, botanicals & herbs, yeasts, and other fermentables are crucial for distillation.
- Licensing & Permits: Navigating federal, state, county, and municipal licensing requirements carries high financial barriers.
- Attorney fees, licensing fees, regulatory operational taxes, and liability insurance add up quickly. Just federal TTB permitting can run $5,000+.
- Labor: Staffing is a major cost before generating revenue. Hiring a seasoned head distiller at a $70,000+ salary is ideal.
- Additional sales, hospitality, warehousing, and bottling staff add $200,000+ in annual payroll expenses. Outsourcing bottling and distribution may offset costs.
Additional upfront overheads like branding design, business formation legal fees, accounting software, security measures, and pre-launch marketing raise costs higher still. Conservatively budget $500,000-$1 million to launch before factoring production scaling expenses.
- Major fixed monthly overhead expenses include rent, payroll, equipment financing, supplies, utilities, and web hosting.
- Variable batch-driven costs per cycle include ingredients, custom bottles/labels, advertising, etc.
- Expect baseline overhead of at least $10,000 per month for a small operation, not counting other major variable annual costs like maintenance, quality control testing, license renewals, liability insurance, legal retainers, etc.
- Once distribution flows, costs inflate further scaling inventory, sales, and fulfillment capabilities simultaneously.
4. Form a Legal Business Entity
When launching a distillery, formally establishing the most appropriate business structure is critical. The four primary options each carry distinct pros, cons, and legal implications worth weighing.
The simplest route registers the distillery under the founder’s identity. This avoids extra registration costs and paperwork but entails massive financial risk. The owner assumes unlimited personal liability for debts and legal actions against the distillery. Their assets can be seized to settle business debts.
Two or more partners share ownership equally in a general partnership. This allows the pooling of resources and expertise but still carries unlimited personal liability for each partner. All partners can legally bind the business through agreements which creates tremendous risk without formal controls.
Limited Liability Company (LLC)
Forming an LLC offers distillery founders liability protection while retaining tax flexibility. It limits legal and financial exposure if the distillery faces debts or lawsuits. Only each owner’s invested capital is at risk. LLC income can choose to be taxed as a partnership or corporation.
An operating agreement governing ownership percentages and voting rights adds stability to multi-member LLCs. For these reasons, the LLC model is well-suited for most distillery startups.
Establishing a state-registered C-corp or S-corp creates a distinct legal entity from the owners to shoulder liability. Ownership is easily transferable through selling or trading shares. Corporate formalities like appointed director boards, shareholder meetings, and detailed record keeping must strictly follow state laws.
The “double taxation” of both corporate and dividend income poses challenges for smaller distilleries not offsetting taxes through payroll and deductions.
Limited Liability Company (LLC)
Overall the LLC balance of liability protection, operating flexibility, and lower registration burdens makes it an appropriate default entity for distilleries with expansion ambitions. Consult deeply with business attorneys and tax professionals when deciding on the best structure. Get clear on competing priorities around ownership control, profit allocations, investor confidence, and risk management based on long-term vision.
5. Register Your Business For Taxes
Once your distillery business is legally formed, obtaining an Employer Identification Number (EIN) from the IRS is essential for federal tax purposes. This unique 9-digit number identifies your business to the IRS and is required even if you don’t have employees. An EIN is necessary for opening business bank accounts, paying taxes, and applying for licenses and permits.
Applying for an EIN is free and can be completed entirely online via the IRS website in just minutes. Simply navigate to the link above and click “Apply Online Now”. Answer the prompts regarding your business structure, ownership details, and contact information. Upon submitting your details electronically, you will receive an EIN assignment immediately.
In addition to your federal EIN, be sure to officially register with your state revenue department for tax purposes. You will need to file regular sales and excise tax returns once distribution commences. Spirits excise taxes must be paid before transporting the product as well.
Setting up required tax registrations may seem intimidating but following these essential steps will keep your new distillery compliant. Reach out to an accountant or attorney specializing in alcohol industry businesses for personalized guidance navigating legal and tax requirements at the federal, state, county, and municipal levels.
6. Setup Your Accounting
Properly managing your distillery’s finances is imperative but complex, especially regarding alcohol tax reporting, payroll, depreciation, and cost of goods sold. Investing in the right accounting software and professional guidance prevents headaches.
Using dedicated small business accounting software like QuickBooks helps track all transactions, generate financial statements, and simplify state and federal tax filings. Linking QuickBooks to your business bank accounts and credit cards allows automatic imports of itemized spending. This relieves manual data entry and reduces accounting errors. Monthly fees start around $20.
Hire an Accountant
Supplementing with an experienced accountant who understands distillery taxation intricacies is highly advised. A good accountant handles bookkeeping, quarterly sales tax filings, and managing inventory. Accounting itemizes all income and expenses. This optimizes financial transparency for smarter strategic decisions.
Open a Business Bank Account
Keeping your personal and distillery finances completely separate is crucial. Open dedicated small business checking/savings accounts and credit cards solely for distillery purposes. Never co-mingle personal transactions in your business accounts. The IRS requires properly categorizing every transaction. Doing so cleanly shows your distillery’s true profitability.
Apply for a Business Credit Card
Applying for a small business credit card also helps track expenses. Business cards offer higher limits than personal ones thanks to weighting factors like business revenue, credit score, years in business, etc. Have your EIN and income documentation ready to submit for the best approval odds.
7. Obtain Licenses and Permits
Before producing and selling any spirits, a distillery must formally obtain several federal and state licenses and operational permits. Find federal license information through the U.S. Small Business Administration. The SBA also offers a local search tool for state and city requirements.
Federally, the main oversight body is the Alcohol and Tobacco Tax and Trade Bureau (TTB). Their permitting process ensures production safety and tax compliance. You must submit detailed operational forms outlining equipment specifications, source ingredients, byproduct waste plans, and proven security measures.
Another key TTB license secures approval for liquor bottle labeling, packaging, and formulas for each product variant. Applications detail every ingredient, alcohol percentage, origin statements, and graphic design. Each formula and label undergoes individual review with a $940 per approval cost. Expect 4-8 weeks per label permit.
Your state liquor licensing board mandates additional licensing tied to production volumes and business models. For example, Ohio offers nine distinct distillery tiers with fees ranging from $100 to $6900 annually. On-site tasting rooms require further licensing with extra food handler certification rules. State laws also govern storage bonded warehouse permits and contract distilling arrangements.
Seeking guidance from an alcohol licensing attorney helps navigate this extensive red tape. They detail requirements tailored specifically to your distillery plans by state, county, and municipal jurisdiction. Trying to interpret complex statutes without legal expertise often derails or delays openings. They also represent your business if any permit issues emerge.
Patience is key when securing your licensing permissions. While burdensome, responsible regulatory measures ensure public safety and fair market standards. Building good relationships with local authorities also pays dividends if seeking expansions later.
8. Get Business Insurance
Insuring your distillery protects against scenarios that could otherwise devastate your operations. Policies shield against property damage, liability claims, employee injuries, inventory losses, and more. Without coverage, a single catastrophe threatens business continuity.
Consider if a small electrical fire damaged your aging warehouse and $500,000 of bourbon. Or a visitor slipped on a spill suffering serious harm. Imagine losing a key staff distiller to extended medical leave. In all cases, lacking insurance magnifies the disruptions through lost inventory, legal expenses, hiring temporary staff help, etc.
Researching customized commercial policies suited for alcohol production operations is vital. General liability insurance protects against bodily injury and property damage claims from third parties. Product liability shields against losses from distributing defective products.
Equipment breakdown coverage handles replacing damaged specialized gear. Business interruption insurance provides alternative revenue streams if forced to close temporarily. Finding an insurer familiar with distillery risk dynamics is crucial.
The application process examines your business model, facility safeguards, compliance controls, and liability mitigation efforts. Prepare safety manuals, equipment inspection logs, hazmat procedures, emergency response plans, and staff training regimes.
Underwriters will require extensive documentation supporting risk reduction protocols to limit claim exposures. The ideal broker deals exclusively with beverage producers to secure tailored coverage at optimum rates.
9. Create an Office Space
Having a dedicated office space allows distillery owners to handle crucial administrative, accounting, and marketing work more effectively. While production and tasting rooms occupy most square footage, carving out an office aids multiple facets of operations.
Coworking spaces like WeWork provide amenities and community at affordable monthly rates starting around $300. Gaining separation from home life retains focus while leveraging shared conference rooms for meetings. The flexible terms suit early-stage ventures. However, privacy for sensitive discussions is limited.
Tasting Room Office
Opening a tasting room or specialty liquor store may merit a retail shop office for merchandise management. Storefront presence captures walk-in traffic yet incurs additional rent/staffing expenses. Expect retail build-out and occupancy costs to exceed $5,000 monthly depending on location and size.
Leasing modest commercial office space offers the most professional setting for daily operations. Fully customized layouts, conference capabilities, dedicated parking, signage, etc. project prestige for sales meetings with distributors or investors. However, expect lease rates around $2,000 monthly for a few hundred square feet in a business complex. Also, factor in dedicated office furniture and utility costs.
10. Source Your Equipment
Launching a distillery requires specialized stainless steel equipment for mashing, fermenting, distilling, storing, and bottling spirits. Planning your purchases around production scale and budget is key.
Buying brand-new copper stills, stainless fermenters, grinders, tanks, and generators from reputable manufacturers like Vendome and Psycho Brew ensures code-compliant gear built to last decades. However, be prepared to spend tens of thousands per item. Also, factor lead times of up to 16 weeks for custom fabrication.
Purchasing carefully inspected used equipment can significantly reduce startup costs. Vintage stills and tanks often get listed for 30-50% off retail prices on auction sites like BidSpotter. Facebook Marketplace, Craigslist, and eBay also list deals on bottling machinery and smaller fermenters locally. Just vet condition, and capacity ratings and verify copper purity levels before purchasing any secondhand gear.
Leasing equipment through specialty financing companies merits consideration too. While monthly payments add up over long terms, zero money-down leases preserve capital for other startup costs. Maintenance and damage are also covered. Leasing suits smaller distilleries hesitant to overinvest upfront in expensive equipment that may exceed near-term production requirements.
Rent-to-own equipment arrangements offer another creative path to limit startup capital. Small deposits secure short-term rental access to necessary gear from trusted retailers. A set percentage of the monthly rental fee applies to the eventual full equipment purchase should you decide to buy it outright later on. This helps limit downside risk.
11. Establish Your Brand Assets
Crafting a compelling brand identity is crucial for distilleries to stand out in a crowded market. Investing in professional logo design, signage, a tailored web presence, and marketing materials gets new spirits ventures noticed while conveying quality and stirring consumer intrigue.
Get a Business Phone Number
Getting a unique toll-free business phone number from a provider like RingCentral lets patrons easily reach your tasting room or sales office. Choose memorable 800 numbers or vanity numbers spelling a name. Expect basic plans from $30 monthly.
Design a Logo
A custom logo should capture your distillery’s personality and story. Consider created marks, letter marks, pictorial logos, or abstract designs. Looka’s AI tools generate thousands of polished concepts for under $50. Just provide keywords reflecting your vibe. Branding agencies also craft icons although fees exceed $1,000.
Print Business Cards
Consistent branding across business cards, merchandise, bottles, websites, etc. boosts recognition. Vistaprint offers 500 basic cards for $20. Investing in exterior signage and interior design elements reflecting your logo signals professionalism for tasting room guests.
Get a Domain Name
Secure matching domain names for your brand, especially regional variants. NameCheap domains start around $9 annually. Choose short memorable .com names without hyphens when possible. Redirect regional domains to consolidate branding.
Build a Website
Building a modern, responsive website in WordPress (or hiring a designer on Fiverr) lets patrons browse spirits, purchase online, and engage across devices. Expect $500+ for custom site development or opt for Wix’s DIY templates from $5 monthly.
Prioritize showcasing brand polish through compelling photos, smooth interfaces, and easy navigation. Offer e-newsletter signups too.
12. Join Associations and Groups
Networking with industry peers often leads to crucial insights when starting a distillery. Local associations, meetups, conferences, and online groups provide connection opportunities.
Research distilling or craft spirits-focused regional trade associations to join. Meeting area proprietors lets you garner informal advice. Introduce yourself at association gatherings to start valuable dialogues and friendships.
Attending beverage industry conferences, conventions and events also bear fruit. Some groups like Meetup, offer discounted insurance, group purchasing benefits, or advocacy resources as well. Conversations with fellow artisans and suppliers reveal “in the trenches” wisdom no guide imparts.
Facebook groups are a free and easy way to access advice, support, and guidance from peers in the craft distillers market. Some groups to look into include the Craft Distilled Spirits Professionals group.
13. How to Market a Distillery Business
Implementing marketing initiatives steadily builds awareness and customer bases for nascent distilleries. Balancing digital promotions with real-world experiences captures attention across key demographics. Leveraging one’s circle while offering patrons added value expands positive word-of-mouth referrals.
Tap into existing social networks first. Friends, family, and colleagues gladly sample early production runs when invited to special tasting events. Request brutally honest product feedback to improve recipes. Offer discounts for posting reviews publicly or following social media accounts. Nothing catalyzes discovery like satisfied patrons endorsing your brandy or gin to their relationships.
Ongoing digital efforts then enhance visibility further.
- Launch Google and Facebook ad campaigns promoting signature bottle releases, cocktail recipes using your spirits, tasting room happenings, or giftable merchandise specials.
- Geo-target nearby areas with interest in craft liquor.
- Post YouTube videos chronicling production techniques, local supplier shoutouts, staff interviews, or facility walkthroughs. These clips can resonate with transparency-loving patrons.
- Commit to regularly publishing engaging blog content around seasonal cocktail ideas, founder backstories, barrel-aging science explainers, employee spotlights, or local ingredients being showcased.
- Simultaneously facilitate foot traffic and local media coverage by distributing print flyers and mailers announcing openings or events to nearby households and businesses.
- Seek inclusion in regional tourism guides, chamber materials, and targeted trade publications.
- Host release parties, whiskey dinners, craft fairs, live music nights, and tasting seminars to drive positive word-of-mouth.
- Send personalized emails to regional journalists and social influencers inviting them to preview your space or sample products.
- Measure analytics diligently while refining strategies toward Conversion Growth Experts’ highest-yield approaches.
14. Focus on the Customer
Delivering exceptional customer service should remain a top priority when opening a distillery. Positive word-of-mouth stemming from memorable tasting room interactions or stellar patron support after sales drives growth more than any advertisement ever could.
Consider a couple visiting your rustic hillside tasting room while passing through the region. Your bartender engages them for over an hour discussing your mash bills, barrel strategy, and farm-to-bottle ethos while sampling a flight. He tailors suggestions to their palates and discloses production statistics most places would never share. The intimate experience sticks with them long after.
Weeks later when friends ask for a distillery recommendation near where the couple vacationed, your facility becomes the enthusiastic answer. Or envision receiving an email that a rare barrel-finished bottle gifted for an anniversary tastes a bit off. You immediately dispatch a courier to pick up the bottle for lab testing and rush a replacement at zero extra cost. That uncompromising service earns loyalty beyond dollars.
In an increasingly crowded craft spirits landscape, mastering customer service proves decisive. Hire and train staff obsessed with creating delightful patron memories through transparency and accountability. Small touches feel huge for those unaccustomed to such treatment from bigger faceless brands.