Do you dream of opening your own brewery and making a living off quality craft brews? The craft beer revolution has opened up opportunities for independent breweries, but starting one requires more than a passion for beer – you’ll need a strategic plan to navigate the regulatory environment, secure funding, and manage business operations.
This guide will give you an overview of the industry, key steps for getting started, and answers to common questions aspiring brewery owners have.
Business Overview
Breweries specialize in developing and brewing their own beers, alcoholic and even non-alcoholic beverages. Breweries can vary greatly in size, specialty, and overall business design. For example, some breweries feature kitchens and dine-in options complete with bars and entertainment, while others take a more private route, acting more as wholesalers.
There are four main types of brewery models: microbreweries producing less than 15,000 barrels per year, regional breweries making up to 6 million barrels per year, brewpubs selling 25% or more of their beer on-site, and contract facilities brewing beer without their own brand. No matter the type, most function as small manufacturers – purchasing ingredients, producing and packaging beer, and managing distribution.
Starting a brewery is complicated as they are heavily regulated. You will need to comply with federal, state, and local regulations covering permitting, licensing, production processes, alcohol distribution, taxes, labeling, and more.
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Industry Summary
Beer is a popular drink, competing with wine and spirits for market share and consumer attention. In America, beer has regained its place as the top beverage after briefly being overtaken by wine. Independent craft breweries have rapidly grown in the past decade thanks to rising consumer demand for high-quality and unique flavors. The craft beer industry experienced a decline of 2.8% annually over the last five years, largely due to COVID restrictions, but in 2023, the industry is expected to generate $7.2 billion.1
There is an increasing number of new entrants in the beer industry, making it highly competitive. The number of breweries increased to 9,552 in 2022, up from 9,384 in 2021.2 This growth was spurred by increased demand for various beers as consumers grew to appreciate the attention to detail and craft that small-scale brewers offer and are predicted to continue, though the industry is becoming saturated with craft brewers.
Steps To Start A Brewery
Step 1: Research
When dreaming of starting a brewery, it’s not just about crafting the perfect pint. There are many important factors to consider when entering the market, and you need to know the rules you’ll be required to follow, the competition that you will be up against, and how you’ll get your product to customers.
Before setting up a brewery, find out all the legal requirements. These include licenses, permits, and health regulations. The laws covering these might be different depending on whether they are federal, state, or municipal. Learn as much as you can about these areas, including the laws related to making beer, the labeling on the packaging, and the taxes you’ll have to pay. Bear in mind that starting a brewery is complicated because it needs a lot of papers to be in place and a strong understanding of the laws, which might be tough for a small brewery that’s just starting out.
Next, find out about the other breweries in your area. What kind of beer do they make? How are they different from one another? Looking at strengths, weaknesses, and customer reviews of other breweries will give you an idea of what works and what doesn’t. Ask yourself: What can you do differently or better? The answer to this question could be the making of your own unique selling point in a competitive market.
It’s not enough to create great beer; you need to get it into the hands of customers, so next, think through the process of how you will sell your beers. Are you only going to sell through your front door, or will you also sell via distributors and retailers? As a new brewery, gauging the ease of getting your beer onto taps and shelves is important. In many regions, distributors have established relationships with larger breweries, making it challenging for a new, smaller brewery to break into the market.
Step 2: Write a Business Plan
The journey of starting a brewery is exciting, but it’s not without its challenges. One of the most important steps in the process is to write a business plan. Many people might think that they have a clear vision in their head, and that should be enough. However, writing a business plan will make you consider every aspect of your brewery, from financing to marketing, and help you identify potential risks.
Writing a business plan helps you define what your brewery will be about. In it, you’ll answer tough questions such as, what kinds of beers will you make? What will your brewery look and feel like? This clarity is vital not only for you but also for your potential customers and investors. By defining your concept, you’ll be able to differentiate your brewery from others in the market.
Opening a brewery requires significant capital investments, and a business plan will include financial forecasts that will help you understand how much money will be needed to start, how much you’ll make, and how long it will take before you turn profitable.
Last, if you seek funding, whether from banks, investors, or other sources, a business plan is often the first thing they’ll ask to see. It’s your chance to prove that you’ve thoroughly thought through your business idea, have a clear strategy, and have considered the financial implications of starting and running a brewery.
Related: How to write a business plan
Step 3: Secure Funding
Starting your own brewery will require a significant financial investment, and finding the funding to get your brewery off the ground can be one of the biggest hurdles to overcome. So, one of the early and most significant steps involves securing the funds to get your brewery off the ground. How do you find the money to start a brewery? Here are some options to consider.
Personal savings & assets will be your first source of funding. Using your personal savings or funds from the sale of assets such as property or tapping into a retirement fund is one way of kickstarting your brewery. However, it’s often the case that such savings or assets won’t fully cover all the costs associated with starting a brewery, so we need to look at some outside sources.
Bank loans are a popular outside funding source to consider. Many banks offer small business loans with fair interest rates and reasonable payment schedules. Additionally, the bank may want to have the loan backed by the Small Business Administration through an SBA loan guarantee. This gives lenders an extra layer of certainty that the loan will be repaid.
You might also consider finding private investors. This could be anyone from wealthy individuals to investment groups, or even crowdfunding, where you raise small amounts of money from a lot of people. With private investors, be prepared to give up some ownership in your brewery in exchange for their money. This means they’ll own a part of your business and may have a say in how you run it.
Buying all the brewing equipment you need can be really expensive. An alternative is to lease the equipment. This means you pay a monthly fee to use the equipment instead of buying it outright. This can help keep upfront costs lower, though you need to make sure the lease terms are favorable and it makes good financial sense in the long term.
Unless you have relationships with other breweries already, this will be hard to pull off, but an interesting way to fund a brewery is with contract brewing. In this arrangement, a brewing company (such as yours) with spare production capacity can brew beer for other businesses that own beer brands but don’t have their own production facilities or need additional capacity. In this arrangement, you could get some money upfront or use this additional revenue stream in your business plan, making the bank more willing to loan money.
Related: Finding the money to start a business
Step 4: Choose a Location & Purchase Equipment
Acquiring a location and setting up a facility for a brewery is a complex process that requires careful planning and consideration of several factors.
The quest for the ideal brewery space starts with understanding local zoning laws. Often, breweries need to be in industrially zoned areas. This is because they are considered manufacturing facilities, which many local governments don’t allow in commercial or residential zones. So, before falling in love with a place, make sure you can legally open a brewery there.
Next, think about the physical requirements of your brewery. You’ll need a building with high ceilings to accommodate large brewing tanks. Also, don’t forget the ventilation. The brewing process releases steam and odors, so good ventilation is essential for safety and comfort.
Since a brewery will regularly receive ingredient deliveries and distribute products, convenient road access is an absolute must. An additional consideration includes having a loading dock, which simplifies the task of carrying supplies like hops and grains into the brewery or pallets and kegs out to delivery vehicles.
Water supply is another factor to consider. Brewing beer takes a lot of water, not just for making the beer itself but also for cleaning and other processes. Your facility needs to be connected to a water and sewer infrastructure that can handle this high demand. And it’s not just about quantity; the quality of the water is critical to the taste of your beer. The process of brewing also creates waste like spent grains, yeast, and wastewater and you’ll need a system for dealing with this responsibly and efficiently.
Step 5: Register the Business
Starting your own brewery requires various approvals, licenses, and permits from federal, state, and local authorities, and this next step covers the process of legally registering your brewery. The requirements vary by location, but here are the common requirements.
Choosing a business structure: To start a brewery, you first want to decide the structure it will operate under. There are four primary types of business structures:
- Sole proprietorship: This is a common option for starters due to the easy setup process and lowest initial costs. If you’re a single owner, this could work for you, but be aware that it doesn’t offer protections against personal liabilities.
- General partnership: Here, two or more individuals join to run a business. Each partner shares equal responsibility and liability.
- Corporation: A corporation is a legal entity separate from its owners. It provides good liability protection, but it comes with more complex management and operational requirements.
- Limited Liability Company (LLC): Combining the characteristics of a corporation and a partnership or sole proprietorship, an LLC offers liability protection along with easier management rules.
While each structure has its advantages and disadvantages, many breweries choose to operate as LLCs because of the liability protection and ease of setup. However, the best structure for your brewery depends on your specific circumstances and goals.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
Related: Tips and ideas for naming a brewery
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Related: Finding a domain name for your business
Brewery licensing: Now, the time has come to work on obtaining the necessary licensing, a process that requires jumping through hoops at different governmental levels. Because there are so many licenses required within this industry, it’s best to start planning well in advance of the brewery’s opening day so that you have plenty of time to obtain all of the necessary licenses.
- Federal Brewer’s Bond: This bond guarantees that a brewery will pay tax on the products sold. It’s required when applying for a Brewery Notice from the Alcohol & Tobacco Tax and Trade Bureau (TTB). Some states also require a local brewer’s bond for licensure.
- Brewer’s Notice: Apply for a Brewer’s Notice from the TTB. This process requires proof of your brewer’s bond and information about your brewery’s packaging, labeling, and environmental impact. It can be lengthy, so start early.
- State Liquor License: Apply for a brewery permit or state liquor license. The requirements vary by state and may include floor plans, statements of funding, a brewer’s bond, and more.
- Local Regulations: Check with your local Alcohol Beverage Control board or similar agency for specific requirements for obtaining a brewery license in your area.
In addition to the above, you may also need health department permits, building permits, and fire department permits, depending on your location.
General business licensing: In addition to brewery-specific licensing, there will also be general registrations, such as a local business license, sales tax permit, and Employer Identification Number.
Related: State guides for general business licensing
Step 6: Hire Staff
Hiring employees is a critical step in the process of starting a brewery. As a new employer, you will have several responsibilities and legal requirements to fulfill before you can start hiring.
The first is the Employer Identification Number (EIN) from the Internal Revenue Service, which is used for tax purposes and is required for any business with employees. Next, you must verify the employment eligibility of your employees. This typically involves completing an I-9 form for each employee to confirm they are legally allowed to work in your country.
Hiring practices and requirements can differ by state, so familiarize yourself with the specific laws in your state. These can include state-specific forms, new hire reporting, and compliance with state labor laws. Also, most states require employers to have worker’s compensation insurance, which provides coverage for employees in case they get injured at work.
Last, it’s important to be aware of and comply with labor laws, which cover a range of issues from minimum wage to workplace safety, overtime, and breaks.
Step 7: Prepare to Open!
Starting a brewery involves several steps beyond the core ones we’ve discussed. Once you’ve established the legal structure of your brewery, hired employees, and chosen a location, here are some additional ones to consider:
Business insurance: Obtain the appropriate insurance policies to protect your business from potential risks, which typically include general liability insurance, property insurance, and liquor liability insurance.
Bookkeeping: Set up a system to handle daily transactions, taxes, and financial statements to keep track of your income and expenses and make tax filing easier.
Business bank account: Opening a business bank account separate from your personal account is important for keeping your finances organized and making tax time easier.
Brewery management software: Explore and invest in relevant software suited for breweries, such as Ekos, Breww, or BrewNinja, to streamline operations.
Distributors: Besides only selling out the front door of your brewery, you can also sell through distributors. Some states will allow self-distribution to retailers, restaurants, bars, and liquor stores. However, other states require the brewery to sell to distributors before their product can get on the state shelves.
Marketing strategy: Develop a plan to introduce your brewery to potential customers. This should include designing a memorable logo, building a user-friendly website, and utilizing social media. Also, consider traditional marketing avenues like local events, brewery tours, and collaborations with local businesses.
Industry associations: Participate in industry associations like the Brewers Association and your local state brewers guild for networking opportunities and professional development resources that will benefit your business.
Grand opening: Plan a memorable grand opening event. This could include special brew releases, live music, or collaborations with local food vendors. It’s an opportunity to showcase your brewery and make a lasting impression.
Common Questions When Starting A Brewery
How much does it cost to start a brewery?
You’re probably wondering: What’s the price tag on starting a brewery? This figure varies depending on multiple factors, but you might spend between $500,000 and $1 million on average to launch a small to midsize brewery. Let’s break down the common costs.
Brewing equipment: This is usually the most significant expense, and brewery equipment costs can range from $100,000 to $1 million for a small brewery. The price varies based on the capacity and quality of equipment, including kettles, fermenters, cooling systems, and storage tanks.
Location: Another considerable expense, the cost of securing a location for your craft brewery business, can also vary widely depending on the size and location of the property, in addition to leasing vs. purchasing. You might expect to spend between $20,000 and $100,000 on a lease deposit for a suitable property.
Renovations and build-out: Depending on the condition of your building, you may need to invest in significant renovations or build-out to make it suitable for a brewery. This could include installing drainage systems, reinforcing floors to handle the weight of brewing equipment, and modifying the space to accommodate a taproom.
Initial inventory: The cost for initial ingredients and brewing supplies can range from $2,000 to $10,000, depending on your brew types and batch sizes.
Point of sale and software systems: Initial costs for point-of-sale systems and brewery management software can range from $1,000 to $5,000.
Licenses and permits: The costs of federal, state, and local permits can add up. Plan to budget around $5,000 for these necessary documents.
Insurance: Initial insurance costs, which can cover property damage, liquor liability, and employee-related risks, might be around $3,000 to $5,000 for the first year.
Marketing: Initial marketing efforts, including website development, logo design, and initial promotional materials, can range from $2,000 to $10,000.
Working capital: $30,000 to $100,000 covers staff wages, sales and marketing, licensing fees, and other expenses incurred before opening doors.
It’s also important to have three to six months of operating expenses on hand as a buffer to cover unexpected costs or lower-than-expected revenues. This can help ensure the financial stability of your business in its early stages.
How profitable is a brewery?
Estimating the profitability of a brewery involves considering various factors, including production capacity, sales channels, and operating expenses. Let’s assume a small to medium-sized brewery with a capacity to produce 1,000 barrels of beer annually.
Revenue: If the brewery sells its beer at an average price of $200 per barrel (considering both wholesale and retail sales), the annual revenue potential is 1,000 barrels x $200 = $200,000.
Expenses: Major expenses include the cost of goods sold (COGS), which averages around 50%. So, COGS = 50% of $200,000 = $100,000.
Other significant expenses include labor, marketing, rent, utilities, insurance, and administrative costs. These can vary widely but often amount to about 30-40% of revenue. Let’s estimate these at 35% for this example, which equals $70,000.
Profit: The potential annual profit would be calculated as Total Revenue – Total Expenses. So, $200,000 (Revenue) – $100,000 (COGS) – $70,000 (Other Expenses) = $30,000.
This is a simplified estimate and actual profitability can vary based on a multitude of factors including location, pricing strategy, sales volume, operational efficiency, and more.
What skills are helpful in running a brewery?
You won’t necessarily need a business degree to start a brewery, but certain skills and experiences are helpful.
Previous brewing experience: Firsthand experience with brewing is really a must for anyone planning to start a brewery. Knowledge of the brewing process, its challenges, and the equipment and time required will prepare a business owner to build a successful business.
Intricate knowledge of beer: A brewery owner needs to be invested in and enthusiastic about the work. Comprehensive knowledge of beer and the brewing industry will be an advantage for any brewery owner.
Familiarity with beer trends: Trends can change quickly, so brewery owners need to stay aware of the beer industry’s current and evolving trends. With this knowledge, a brewery owner can make wise product development choices.
Attention to detail: Details are so important when brewing beer. A brewery owner needs to have a focused, attentive nature from choosing the right equipment and ingredients to accurately describe the notes in each beer.
Customer service skills: A business owner with great customer service skills can help ensure that brewery visitors have a great experience, encouraging return visits and customer loyalty.
Management experience: Breweries require multiple staff, so a business owner who’s previously hired, trained, and managed staff will be at an advantage.
What is the NAICS code for a brewery?
The NAICS code for a brewery is 312120.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
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