Start a distillery by following these 10 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your distillery. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Check out our How to Start a Business page.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a distillery?
The exact cost of opening a distillery depends on the size of the distillery and where it will be located. It is possible to start a small distillery for around $30,000. This includes spending about $5,000 on the initial lease and relevant licensing and $5,000 on equipment such as stills and fermenters and mash tuns. Larger expenditures include $9,000 or so for insurance and about $6,000 to obtain a vehicle large enough to help with transporting supplies and helping with distribution (if possible in your state). Finally, you should budget $4,000 o $5,000 to help pay a small team of employees.
What are the ongoing expenses for a distillery?
Your ongoing expenses will vary due to factors like area, number of employees, amount of monthly production, and so on. Using the figures from earlier, you may be paying $2,500 a month for your lease, $4,000 a month for your worker's salaries. You will also be paying for more supplies each month and gasoline for transporting those supplies, but these amounts may vary from month to month.
Who is the target market?
Because of the three-tier system (which will be explained later), your most direct customers are actually the liquor distributors who will then distribute to retailers. Your best distributor is usually a small- or mid-range distributor because they are likely to specialize in (or simply take a chance on) liquor created by a smaller distillery.
How does a distillery make money?
On the most basic level, a distillery makes money from the sale of liquors the distiller has created. This process is a little abstract in most states, though, as they follow a three-tier system. In this system, the distiller is the producer who sells their products to distributors who then sell to retailers.
How much can you charge customers?
As mentioned before, you are most likely selling to distributors who, in turn, will sell to retailers. Prices can vary based on what spirits you are selling and what the size of the bottle is. A general rule of thumb is that you will receive 40-50% of the eventual retail price of something, so if your spirit is eventually sold for $40, you are likely to get $18-$20.
How much profit can a distillery make?
There is great potential for profit. As an industry, small (“craft”) distilleries have now become a $450 million market, and the amount of craft distilleries has increased by 300% from 2011 to 2014. It is a growing industry with a good profit margin built into every bottle, though your overall amount of profit obviously depends on how many bottles you sell.
How can you make your business more profitable?
Never stop promoting your business, as the retailers and distributors will not do much (if any) marketing for you. Make sure you have SEO-enhanced online marketing of your spirits, and try to fill your social media with genuinely funny, engaging, and/or moving content. Don't forget to pound the pavement and try to physically talk to various distributors and retailers as well in order to build a relationship and advertise your product. Finally, never forget that this is a long game: it may take a while to build a reputation and grow your profits in a crowded market, but a truly unique product and marketing campaign can set you apart and firmly establish your brand.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Distillery Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your distillery is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate an alcohol distillery. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
An alcohol distillery is generally run out of a large indoor space. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to an alcohol distillery.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your alcohol distillery will be in compliance and able to obtain a CO.
Businesses involved in the sale of alcoholic beverages are required to obtain a liquor license from the appropriate state or local agency. A comprehensive list of laws by state (including necessary licenses, zoning laws, etc), curated by the Alcohol and Tobacco Tax and Trade Bureau, is included here.
Distilleries and breweries are subject to additional regulations. For more advice on permits, labeling, proofing, importing/exporting, etc., look here.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
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How to promote & market a distillery
As mentioned above, it's good to emphasize this product as locally owned and brewed in your marketing. Some smaller distillers have created unconventional marketing tricks such as signing every bottle they sell or creating spirits using locally-harvested ingredients, making such drinks feel like hometown labors of love. Considering your biggest audience for specialty craft spirits will be Millennials, you should consider a lot of online marketing via Youtube, social media, and a custom website. This lets you put videos online explaining your company's history and your creative vision (both of which are important to making this feel like an experience for consumers rather than just a business transaction) as well as building community engagement via online interaction. You may consider newspaper marketing as well based on your region and the exact demographic in the area.
How to keep customers coming back
In addition to the marketing above (and in accordance with relevant state laws), try offering experiences like distillery tours and product tastings to your local area. Try to develop an ongoing relationship with local bars and liquor stores and participate in promotional events with them. A quality product at a competitive price will naturally lead to customer retention, and making sure that you offer different spirits over the years will keep them coming back for more.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Recommended: Find the best phone system for your business; check out our review of the Best Business Phone Systems 2021.
Start A Distillery In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Obviously, this business is great for those who love alcohol. It is also good for those who are patient, as the process of making liquor can be lengthy. It is also good for those who like to work alone or in small groups, as most small distilleries start with the owner as one of the handful of workers.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a distillery?
There are many daily activities at a distillery. Some time may be spent planning, designing, and testing new spirits that will be sold. A fair amount of time is spent actually distilling spirits (from malting and fermentation all the way to bottling). Time will also be spent researching the liquor industry, researching liquor history, and researching what your competition is doing. Finally, a good amount of time may be spent promoting your products, and in most states, having conversations with the retailers who will sell your liquor.
What are some skills and experiences that will help you build a successful distillery?
If you have the time and money, there are online and offline educational programs that offers degrees or certifications in distilling and brewing, which can be a big help. Any previous experience working at a distillery is also beneficial. Ultimately, the best skill is research: it is important to simultaneously learn about the distilling industry and its methods as well as the history of alcohol promotion and sales.
What is the growth potential for a distillery?
The growth potential for this business is very steady. The Bureau of Labor Statistics shows employment among breweries, wineries, and distilleries increasing from a little over 132,000 in May of 2016 to nearly 146,000 in May of 2017.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a distillery?
Be sure to do your homework on other brands so that you can truly create unique flavors that will be a big hit with your customers. Be sure that your promotional material plays up the idea of this as a local alcohol brand, as this can engage community interest. Finally, start by focusing on white spirits that do not have to be aged while you let your other spirits age (a process that may take years).
How and when to build a team
Even for a small distillery, you will likely need a team right away, as there are many moving parts to the process of distilling spirits, storing spirits, transporting spirits, and so on. Plus, the process may involve a fair share of late nights, and it's good to have others to share that burden with.