Starting a distillery can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful distillery.
Importantly, a critical step in starting a distillery is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
15 Steps To Start a Distillery:
- Choose the Name for Your Distillery
- Determine the Type of Distillery You Will Launch
- Develop Your Distillery Business Plan
- Choose the Legal Structure for Your Distillery
- Secure Startup Funding for Your Distillery (If Needed)
- Secure a Location for Your Business
- Register Your Distillery with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Distillery
- Buy or Lease the Right Distillery Equipment
- Develop Your Distillery Marketing Materials
- Purchase and Setup the Software Needed to Run Your Distillery
- Open for Business
1. Choose the Name for Your Distillery
The first step to starting a distillery is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your distillery:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your distillery.
2. Determine the Type of Distillery You Will Launch
The next step is to determine the type of distillery you will launch. The four main types of distilleries are:
- Craft Distillery: A craft distillery specializes in small-batch production of specialty spirits. These businesses are often local and focus on quality over quantity.
- Industrial Distillery: An industrial distillery is focused on producing large volumes of alcohol for sale to consumers or other businesses. They may also serve as suppliers to craft distilleries.
- Boutique Distillery: A boutique distillery is a small-scale distillery that focuses on creating unique, high-quality spirits. These businesses often specialize in premium products and focus on personalized customer service.
- Virtual Distillery: A virtual distillery is an offsite distillation business that does not actually produce the alcohol itself but instead contracts with a distiller to produce spirits according to their recipes and specifications. Virtual distilleries may also sell directly to consumers or other businesses.
3. Develop Your Distillery Business Plan
One of the most important steps in starting a distillery is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your distillery.
- Company Overview – this section tells the reader about the history of your distillery and what type of distillery you operate. For example, are you a craft distillery, industrial distillery or a virtual distillery?
- Industry Analysis – here you will document key information about the distillery industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your distillery? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your distillery make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
4. Choose the Legal Structure for Your Distillery
Next you need to choose a legal structure for your distillery and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the distillery and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a distillery together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a distillery include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a distillery is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your distillery, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
5. Secure Startup Funding for Your Distillery (If Needed)
In developing your distillery business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a distillery to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a distillery that they believe has high potential for growth.
6. Secure a Location for Your Business
Having the right space can be important for your distillery, particularly if you’d like to meet clients there.
To find the right space, consider:
- Driving around to find the right areas while looking for “for lease” signs
- Contacting a commercial real estate agent
- Doing commercial real estate searches online
- Telling others about your needs and seeing if someone in your network has a connection that can help you find the right space
7. Register Your Distillery with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
8. Open a Business Bank Account
It is important to establish a bank account in your distillery business’s name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
9. Get a Business Credit Card
You should get a business credit card for your distillery to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
10. Get the Required Business Licenses and Permits
The licenses and permits you need to start a distillery will vary depending on your location. However, some of the most common licenses and permits you may need include:
Distilled Spirits Plant Operator License: This license is required by all distilleries in the United States. It is issued by the Alcohol and Tobacco Tax and Trade Bureau (TTB) and is used to track how much distilled spirits are being produced at each distillery.
Brewer’s Notice: A Brewer’s Notice is a permit that is issued by the TTB and is used track how much malt beverage is being produced at each brewery. If your distillery also produces malt beverages, you will need to obtain a Brewer’s Notice.
Business License: A business license is generally required by local governments and is used to track how many businesses are operating in a particular area. Contact your local government’s business licensing office to find out if you need a business license and how to obtain one.
Food Handler’s Permit: A food handler’s permit is generally required by local governments and is used to ensure that individuals who are handling food are following safe food handling practices. Contact your local government’s health department to find out if you need a food handler’s permit and how to obtain one.
Nearly all states, counties and/or cities have license requirements including:
- Sales Tax License or Seller’s Permit: for selling products
- Zoning Approval: typically at the city or county level, this provides authorization for construction or use of a building or land for a particular purpose
- Fire Department Approval: a process by which the local fire department reviews and approves the installation of a fire alarm system.
Depending on the type of distillery you launch, you will have to obtain the necessary state, county and/or city licenses.
11. Get Business Insurance for Your Distillery
When you’re starting a business, it’s important to protect yourself and your business with insurance. Some of the most common types of business insurance include:
General Liability Insurance: This insurance protects your business from any lawsuits that may arise from accidents or injuries that occur on your property.
Product Liability Insurance: This insurance protects your business from any lawsuits that may arise from products that you sell.
Property Insurance: This insurance protects your business from any damage or theft that may occur to your property.
Business Owner’s Policy: This policy combines general liability and property insurance into one policy.
Other business insurance policies that you should consider for your distillery include:
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
12. Buy or Lease the Right Distillery Equipment
When starting a distillery, you will need to purchase or lease the following equipment:
- Distilling Equipment: This includes a still, condenser, and collection vessels.
- Fermentation Equipment: This includes tanks, fermenters, and an airlock.
- Refrigeration and Storage Equipment: This includes refrigerators, freezers, and storage tanks.
- Packaging and Labeling Equipment: This includes a labeling machine, bottle filler, capper, and shrink wrap machine.
Visit distilling equipment suppliers to find the best prices on the equipment that you need. Make sure you purchase high quality equipment that will withstand the demands of a distillery.
13. Develop Your Distillery Marketing Materials
Marketing materials will be required to attract and retain customers to your distillery.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your distillery. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional distillery website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your distillery.
14. Purchase and Setup the Software Needed to Run Your Distillery
In order to run your distillery, you will need to purchase the following software:
- Distilling Software: This software is used to design and operate your distillation equipment.
- Fermentation Software: This software is used to control and monitor fermentation processes.
- Refrigeration and Storage Software: This software is used to control and monitor refrigeration and storage processes.
- Packaging and Labeling Software: This software is used to control and monitor packaging and labeling processes.
All of the above software can be purchased from distillery equipment suppliers. Make sure that the software you purchase is compatible with your distilling equipment and other business systems.
Research the software that best suits your needs, purchase it, and set it up.
15. Open for Business
You are now ready to open your distillery. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Distillery FAQs
Is it hard to start a distillery?
No, it is not hard to start a distillery. In fact, there are many resources available to help you get started.
However, if you follow the steps above, you should be able to start your distillery without too much difficulty.
How can I start a distillery with no experience?
The best way to start a distillery with no experience is to research the industry and get advice from those who have been successful in the business. There are many resources available, including online forums, distillery equipment suppliers, and your local chamber of commerce.
Another option is to partner with an experienced distillery owner. This can help you learn the ropes while still maintaining full ownership of your business.
Finally, consider attending a distilling school or workshop to gain more knowledge about the industry and how to start a distillery.
What type of distillery is most profitable?
The profitability of a distillery will depend on a variety of factors, including the type of spirits produced, the location of the business, and the marketing strategy.
However, some of the most profitable types of distilleries are those that produce craft spirits. These spirits tend to be higher quality and have a more unique flavor than mass-produced spirits. As a result, they are in high demand from consumers.
How much does it cost to start a distillery?
The cost of starting a distillery can vary depending on a variety of factors, including the type of distillery, the equipment needed, and the location of the business.
However, on average, it can cost anywhere from $50,000 to $250,000 to start a distillery. This includes the cost of purchasing the necessary equipment and setting up the software needed to run the business.
It is important to note that these costs can vary greatly depending on the size and scope of your distillery. Therefore, it is important to do your research and determine how much money you will need to start your distillery.
What are the ongoing expenses for a distillery?
There are a number of ongoing expenses that you will need to budget for when running a distillery. These expenses include:
- Rent or mortgage payments
- Utilities, such as water, gas, and electricity
- Equipment repairs and maintenance
- Supplies, such as grain, yeast, and bottles
- Labor costs
- Marketing and advertising expenses
Ongoing expenses can run between 10-20% of your total operating costs. It is important to keep track of these expenses, so you can ensure that you are not overspending.
How does a distillery make money?
There are a few different ways that a distillery can make money. The most common methods include:
- Selling spirits to consumers
- Selling spirits to retailers
- Offering tours and tastings
- Producing custom spirits for clients
Each of these methods have their own benefits and drawbacks, so it is important to decide which one will work best for your distillery.
Producing custom spirits for clients is a great way to attract new business and generate more revenue. This method allows you flexibility in terms of pricing and how much work you want to put into each project. However, it can be difficult to find clients who are interested in this type of service.
Is owning a distillery profitable?
The short answer is yes, owning a distillery can be profitable. However, like any other business, there are a number of factors that will determine how successful your distillery is. Some important things to keep in mind include:
- The cost of running your distillery
- The type of services you offer
- The market for your products
- Your competition
If you can manage these factors effectively, then you can create a successful and profitable distillery.
Some of the key things you can do to make your distillery more profitable include:
- Offering a variety of services, such as tours, tastings, and custom spirits production
- Focusing on quality and customer satisfaction
- Marketing and advertising your distillery to reach a wider audience
- Investing in high-quality equipment and supplies
- Optimizing your website for SEO to increase online visibility. This will allow you to attract the right kind of client to your business, who are actively searching for a consultant in your niche market.
- Creating a unique selling proposition. Be clear about what you can do that other consultants in your niche market cannot, and communicate this to potential clients.
Why do distilleries fail?
There are a few key reasons why distilleries can fail:
- Not understanding the market for their products
- Offering a poor product or service
- Poor marketing and advertising
- Lack of focus or niche market expertise
- Low quality equipment and supplies
- Unprofessional business operations
One of the main reasons that distilleries fail is a lack of planning. This can include not having a detailed business plan, not doing research on the industry, and not targeting the right customers.
Another reason is a lack of marketing and sales skills. This can include not creating a sales process and not have a clear and strong value proposition.
The last main reason is a lack of financial management skills. This can include not having a realistic budget, not tracking expenses, and not investing in the business.
Who are key players in the distillery market?
The distillery market is made up of a variety of different players, including small businesses, large enterprises, and even individuals.
Some of the key players in the market include:
- Hiram Walker & Sons
- Heaven Hill Distilleries
- Jack Daniel's
- The Macallan
- William Grant & Sons
However, there are many other players in your specific target market, and it is important to research the market to identify the key players that may have the most direct influence on the success of your business.
How much should I charge for my distillery services?
Distillery fees can vary depending on the type of distillery services being offered, as well as the size and scope of the project.
However, some common distillery fees include:
- Tours: $5 - $25 per person
- Bottling Fee: $2 - $3 per bottle
- Labeling Fees: $0.25 - $1 per bottle
- Corkage Fees: $0.50 - $2 per bottle
The best way to determine the right fee for your distillery services is to research the rates of similar businesses in your industry, and to also consider the value that you will be providing to the client.