Your Journey to Starting a Distillery Business

Here are the most important things to know about when starting your distillery:

1. Location and facility — Choose a location that complies with zoning laws for distilleries. Your facility will need to accommodate production space with distilling equipment, storage for raw materials and finished products, and potentially a tasting room or retail space if you plan to sell directly to consumers.
2. Licenses and permits — You will need federal, state, and possibly local licenses to operate a distillery. This includes a federal Distilled Spirits Permit from the Alcohol and Tobacco Tax and Trade Bureau (TTB) and relevant state licenses. 
3. Equipment — Invest in the necessary distillation equipment, which includes stills, fermenters, mash tuns, and bottling lines.
4. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
5. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
6. Ingredient sourcing — Source high-quality ingredients for your spirits. The quality of your raw materials, such as grains, water, and yeast, will significantly affect the taste and quality of the final product.
7. Distribution — Plan how you will distribute your products. Options include selling directly from the distillery, through liquor stores, bars, and restaurants, or using distributors.
8. Learn from real entrepreneurs who run a successful distillery:

Sovereign Brands Success Story with CEO Brett Berish

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a distillery has pros and cons to consider before deciding if it’s right for you.

Distillery industry trends

Industry size and growth

• Industry size and past growth – The US distillery industry is worth $16.5 billion after expanding nearly 50% in the last decade.((https://www.ibisworld.com/industry-statistics/market-size/distilleries-united-states/))
• Growth forecast – The global craft spirits market is booming and projected to grow nearly 23% by 2025.((https://www.reportlinker.com/p05090626/Global-Craft-Spirits-Market.html?utm_source=GNW)) Craft distilleries, which are smaller, have seen rapid growth, which means serious opportunity for bold entrepreneurs.
• Number of businesses – There are 2,552 distilleries in the US as of 2021.((https://www.ibisworld.com/industry-statistics/number-of-businesses/distilleries-united-states/))
• Number of people employed – US distilleries employed nearly 22,000 workers in 2021.((https://www.ibisworld.com/industry-statistics/employment/distilleries-united-states/)) 

Trends and challenges

Trends in the distillery industry include:

• Ready to drink cocktails, in cans and bottles, are increasing tremendously. 
• Premium agave spirits are trending. Agave is a plant found in Mexico used to make tequila and other specialty spirits like Raicilla and Bacanora.

Challenges in the distillery industry include:

• With health concerns on the rise, distilleries are having trouble finding ways to safely sanitize their equipment, which is mostly made of copper, without damaging it.
• The sharp increase in craft distilleries, from 200 to 2,000 in the past decade, has made the industry more competitive.

Consumer spending

• Average consumer spend – The average consumer unit in the US spends around $500 a year on alcoholic beverages.((https://www.bls.gov/news.release/cesan.nr0.htm)) Spending on alcoholic beverages away from home plunged because of the pandemic, but was slightly offset by an increase in alcohol at home spending. 
• Potential customer base – More than 150 million, or 60% of US adults, drink alcoholic beverages, according to Gallup.((https://news.gallup.com/poll/353858/alcohol-consumption-low-end-recent-readings.aspx))

How much does it cost to start a distillery business?

Costs to start a distillery range from $13,000 – $33,000. Unless you have a huge basement, you’re going to need to rent out a distillery space, and that will be your biggest cost. Additional expenses will include insurance, distilling equipment, and a transport vehicle.

You’ll need a handful of items to successfully launch your distillery business, including: 

• Mills
• Fermenters
• Stills
• Mash tuns
• Packaging equipment

Start-up Costs	Ballpark Range	Average
Setting up a business name and corporation	$150 - $200	$175
Business licenses and permits	$100 - $300	$200
Insurance	$1,500-$3,000	$2,250
Business cards and brochures	$200 - $300	$250
Website setup	$1,000 - $3,000	$2,000
Deposit on distillery space	$2,500 - $6,000	$4,250
Distilling equipment	$5,000 - $10,000	$7,500
Vehicle downpayment for transfer of supplies and product	$3,000 - $10,000	$6,500
Total	$13,450 - $32,800	$23,125

How much can you earn from a distillery business?

If you sell to a distributor, which is your best bet at the beginning, you’ll get an average price of about $20 per bottle. Your profit margin after overhead and labor should be about 30%.

In your first year or two, you could sell 7,500 bottles in a year, bringing in $150,000 in annual revenue. This would mean $45,000 in profit, assuming that 30% margin. As you build your brand, sales could climb to 15,000 bottles a year. With annual revenue of $300,000, you’d make a tidy profit of $90,000.

What barriers to entry are there?

There are a few barriers to entry for a distillery business. Your biggest challenges will be:

• Generating the necessary funding, for even a small distillery 
• Dealing with government regulations, required background check

Step 2: Hone Your Idea

Now that you know what’s involved in starting a distillery, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an opportunity

Research distilleries in your area to examine their products, price points, customer reviews, and what sells best. You’re looking for a market gap to fill. For instance, maybe the local market is missing a high-end agave distillery.

Unlock the secrets of thriving in the wine and spirits world in our interview with Brett Berish of Sovereign Brands.

What? Define your distillery offerings

You need to determine if you want to specialize in a certain spirit or if you want to distill a variety. You could also add a tasting room to your distillery where you can sell your products and boost revenue.

How much should you charge for distilled spirits?

If you are selling to distributors, you will get around 40% to 50% of the eventual retail prices. For instance if your spirits sell retail at $40 per bottle, you’ll get $20 per bottle from distributors. Your ongoing costs will be for rent and overhead, as well as spirit ingredients. You should expect a profit margin of about 30%.

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price point. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will be distributors, who you can find on LinkedIn and in local business searches on Google Maps. Your best bet may be to call distributors directly. 

Where? Choose your business premises

You’ll need to rent out a space for your distillery. Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Distillery Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “distillery” or “spirits”, boosts SEO
• Name should allow for expansion, for ex: “The Distillery Co.” over “Whiskey Distillery”
• Avoid location-based names that might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Distillery Business Plan

Here are the key components of a business plan:

• Executive Summary: A concise summary of the distillery business plan, highlighting key aspects and objectives.
• Business Overview: An overview of the distillery business, detailing its mission, vision, and the value it brings to the market.
• Product and Services: Detailed information about the types of spirits produced, the distillation process, and any additional services offered.
• Market Analysis: A thorough examination of the target market for the distillery, including demographics, trends, and potential opportunities.
• Competitive Analysis: Evaluation of other distilleries and competitors in the market, outlining strengths, weaknesses, opportunities, and threats.
• Sales and Marketing: Strategies for promoting and selling the distillery’s products, including pricing, distribution, and promotional activities.
• Management Team: Introduction to the key individuals responsible for the distillery’s success, highlighting their roles and expertise.
• Operations Plan: A detailed plan outlining the day-to-day operations of the distillery, covering production, quality control, and supply chain management.
• Financial Plan: Financial projections, including income statements, balance sheets, and cash flow statements, providing a comprehensive view of the distillery’s financial health and growth potential.
• Appendix: Additional supporting documents and information, such as market research data, permits, licenses, and any other relevant details that enhance the overall business plan.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to distilleries. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your distillery will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a distillery business. You might also try crowdfunding if you have an innovative concept.  

Step 8: Apply for Distillery Business Licenses and Permits

Starting a distillery business requires obtaining a number of licenses and permits from local, state, and federal governments. You’ll need a license from the Alcohol and Tobacco, Tax, and Trade Bureau (TTB). Some states also require a state distillery license. 

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your distillery business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.  

You may want to use industry-specific software, such as onbatch, orchestra, or crafted, to manage your recipes, barrels, inventory, staff, and accounting.

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

• Professional Branding — Reflect the uniqueness, quality, and heritage or innovation of your distillery in all branding elements, including logo, bottle design, online presence, and tasting room decor.
• Website & SEO — Develop a website showcasing your products and distillery story, optimizing for search terms related to craft spirits and local distilleries.
• Social Media Engagement — Use Instagram, Facebook, and Twitter to share behind-the-scenes content, product highlights, and engage with your audience.
• Content Marketing — Maintain a blog exploring the distillation process, your spirits’ history, and distillery stories. Create video content offering tours, interviews with your master distiller, and insights into your production expertise.
• Email Marketing — Send newsletters to update your audience on new releases, events, and awards.
• Distillery Tours and Tastings — Provide tours and tastings to offer an immersive experience and connect visitors directly with your brand.
• Local Partnerships and Events — Collaborate with local eateries and bars for special pairing events or exclusive cocktail menus featuring your spirits.
• Strategic Collaborations — Work with local artisans on special edition flavors or products and engage local bars for exclusive offerings.
• Loyalty and Exclusive Offers — Implement a loyalty program for repeat customers and offer exclusive or limited-edition releases to subscribers.
• Targeted Advertising — Advertise in food and beverage magazines, local event guides, and online platforms that attract spirits enthusiasts.
• Influencer Collaborations — Partner with influencers in the food and beverage industry to expand your reach and attract new customers.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your distillery meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your distillery business could be:

• Locally-sourced bourbon for your tasting pleasure
• Fine agave tequila for upscale tastes
• Hometown crafted whiskey, unique and delicious

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a distillery, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in distilleries for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in distilleries. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

As your business grows, you will likely need workers to fill various roles. Potential positions for a distillery business include:

• Distillers – make products
• Salespeople – sell to distributors
• Marketing Lead – SEO strategies, social media

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a Distillery – Start Making Money!

Craft distilleries have seen explosive growth in recent years, and you can get in on that trend and produce excellent spirits while making a good living. You do need to make a bit of an investment to get started, but a distillery has great growth potential. 

People love fine spirits, so novel flavors are always in demand. Now that you know all the steps involved, go ahead and get started, and then drink a toast to your new distillery!

Common Questions

How profitable can a craft distillery be?

You can be profitable even with a small distillery. You just need to make sure that your distillery has enough capacity to allow you to make a profit after rent and other expenses. You should be able to earn a profit margin of about 30% by selling to distributors.

What’s the best way to sell my distillery spirits?

When you’re just starting out, it’s best to start with distributors because they know how to get it into retail stores. Later, once you’ve built a brand, it will be easier for you to go directly to retailers.

What do distilleries do with waste?

Spent grain can be used as animal feed, so many distillers sell it to local farmers. Other types of waste can be used as fertilizer.

How do distilleries get their water?

Water may come from a direct source, such as a river or stream. Some distillers use the public water supply. 

At what temperature do you distill alcohol?

Typically it’s distilled at 200 degrees Fahrenheit. However, the boiling temperature can vary with the alcohol percentage.

How do I measure the quality of my spirits and ensure consistency?

You can use a proofing hydrometer to measure the alcohol content. To keep consistency, you must follow a specific distilling process that gives you the quality you want.