What are the costs to start and maintain a distillery?

You should be able to start a small distillery for around $30,000, which will go towards: Leasing a suitable workspace Acquiring all relevant licensing Purchasing equipment (e.g., stills, fermenters, mash tuns, etc.) Purchasing a vehicle large enough to distribute supplies Hiring workers Your largest maintenance cost will likely be labor, followed by your rent. Visit our How to Start a Distillery guide to learn more about the costs of starting and maintaining this business.

Should I Start an LLC for My Distillery?

Starting a limited liability company (LLC) for your distillery can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a distillery, lawsuits can arise from things like alcohol poisoning allegations, as well as employee injuries (e.g., getting into a car crash while delivering beverages from your distillery.).

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your distillery seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Distillery?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should form an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Distillery

By starting an LLC for your distillery, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Distilleries will benefit from liability protection because alcohol-related businesses, including distilleries, face the risk of product liability, workplace accidents, trademark infringement, and financial data breaches.

Example 1: Whilst carrying out a delivery, one of your employees injures themselves during a car crash. When you refuse to pay for their medical bills, they threaten to file a lawsuit against your LLC in order to be reimbursed. If a lawsuit arises, your limited liability will protect your personal assets from the claimant.

Example 2: You acquire a business loan in order to finance some of your short-term costs. When you begin to worry that you may be unable to pay it back, you realize that your LLC’s limited liability will mean that the creditor will be unable to sue you personally in order to recoup their investment if your business is unable to pay them.

Example 3: When a customer claims that they got alcohol poisoning after drinking a beverage from your distillery, they demand that you compensate them. You claim that this must have been due to them overdrinking and refuse to offer any sort of compensation. If a lawsuit were to be filed against your LLC, you would not be held personally liable for compensating the claimant regardless of how the claim progressed in court.

Example 4: Following the successful release of a new product, a competitor sues your business claiming that your name and logo infringe on their trademarked content.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Distillery

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a distillery owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Distilleries rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a trusted LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All LLCs should purchase business insurance — especially distilleries. This is because limited liability does not protect an LLC’s assets, only the assets of its owners.

Moreover, limited liability does not protect owners’ personal assets from tort or negligence claims that they’re personally responsible for.

Common Situations Business Insurance May Cover for a Distillery

Example 1: During a distillery tour, a visitor trips and injures himself on some piping. He demands repayment for his medical treatment. General liability insurance would cover the visitor’s medical bills.

Example 2: As an employee moves grain from a delivery truck into the distillery, he loses control of the dolly and hits a customer’s car. General liability insurance would cover the customer’s vehicle repair costs.

Example 3: If a competitor sues you for libel, general liability insurance would pay for your legal fees and any damages awarded in a settlement.

Other Types of Coverage Distilleries Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all distilleries should obtain:

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability benefits stemming from a work-related accident.

Product Liability Insurance

While you encourage customers to enjoy your product responsibly, there’s always a chance a customer may file a lawsuit if they believe one of your products injured them. Product liability insurance would protect your business by covering your legal fees and any damages awarded in a settlement.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

Commercial Property Insurance

You’ve made major investments in your production equipment and supplies. If you own the building in which you operate, you’re responsible for all business-related property housed there in the event of a fire or natural disaster. Commercial property insurance would cover the cost of replacing your equipment and supplies after an accident so you can recover quickly.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance, workers’ compensation insurance, and commercial property insurance.

Read our Business Insurance article for more info

You should be able to start a small distillery for around $30,000, which will go towards:

Leasing a suitable workspace
Acquiring all relevant licensing
Purchasing equipment (e.g., stills, fermenters, mash tuns, etc.)
Purchasing a vehicle large enough to distribute supplies
Hiring workers

Your largest maintenance cost will likely be labor, followed by your rent.

Visit our How to Start a Distillery guide to learn more about the costs of starting and maintaining this business.

Some of the main ongoing expenses for a distillery are payroll, rent, insurance, and supplies.

Learn more about running a distillery.

The regulations for selling alcohol vary from state to state. A distillery makes money by distilling alcohol and selling it, but they may be required to sell their product to a distributor rather than directly to a retail customer.

Learn more about starting a distillery.

The craft distillery market is growing each year in the US. If you can distinguish your product from others, there is a potentially significant profit to be made

It is important to check the laws in your state regarding the production and sale of alcohol. Regulations can affect both your business’s profitability and its legal risks.

Distilleries typically receive about 40% to 50% of the eventual retail price of their products.

Learn more about starting a distillery.