How to Start a Brewery

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How to Start a Brewery

Do you have a passion for craft beer? Maybe you’ve even tried your hand at some home brewing. If you’re creative, know your beers, and are looking for a business opportunity, then starting your own brewery might be a great fit for your interests. While starting a brewery requires a significant investment of both time and money, a brewery can be a rewarding and successful business venture.

Brewery Business Overview

Breweries specialize in developing and brewing their own beers, alcoholic, and even non-alcoholic beverages. These facilities are equipped with a significant amount of equipment necessary to the brewing process, but many also offer brewery tours and encourage visitors. Some breweries feature kitchens and dine-in options complete with bars and entertainment, while others take a more private route, acting more as wholesalers. Breweries can vary greatly in size, specialty, and overall business design.

Industry Summary

According to IBIS World, the craft beer industry experienced a 4.4% growth from 2015 to 2020. As of 2020, the industry was a $7.6 billion industry. That 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. That interest is predicted to continue, though the industry is becoming saturated with craft brewers. Still, IBIS World expects that industry revenue will continue to rise from 2020 to 2025.

The Brewers Association reports that in 2019, overall beer volume sales in the United States were down by 2%, though craft beer sales grew by 4%, evidence of the growing preference for craft beers. In 2019, craft beers made up 13.6% of the United States beer production by volume. That same year, retail sales of craft beers reached $29.3 billion. As of 2019, 8,386 breweries were in operation, and 8,275 of those breweries were craft breweries. A total of 302 breweries opened in 2019.

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Industry Trends

Craft Brewing Business predicts that the brewery industry will see several trends in 2020 and beyond. One of those trends is the result of the increased competition in the industry because of the many new breweries that have opened in the past few years. With over 8,000 breweries in existence, competition on retail shelves is steep. Many breweries will likely focus heavily on branding and rebranding to stay relevant and competitive.

There’s a growing market for non-alcoholic beer, creating an opportunity that breweries can explore. The popularity of Dry January and the interest in dry seltzer may indicate that more adults are looking for lighter or non-alcoholic alternatives that they can enjoy. That focus on health is also reflected in the growing popularity of low-calorie and lite beers. Breweries are embracing this trend and are delivering quality products that deliver better taste than some of the lite options offered by big-name breweries.

Customers are increasingly seeking out breweries for the experience, rather than specifically drinking beer, and breweries need to focus on improving the experience they deliver. Everything from design to furniture to music and menus affects the customer experience. When done well, breweries can create a great experience and use that to build customer relationships and customer loyalty.

Target Market

Broadly put, breweries market to beer enthusiasts. A brewery’s target market may be beer enthusiasts looking for the entertainment and education that a trip to a brewery provides. Breweries may also market to beer enthusiasts who don’t ever visit the brewery but who can still become loyal fans of the brand and product.

Breweries also market to retailers who will stock their products. The specific target retail market will depend on many factors, including the brewery’s products, price point, and ideal end customer.

Skills, experience, and education useful 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 beer 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.

Finance knowledge and skills. Because breweries can be expensive to start, it may be necessary to secure investors or loans. Finance knowledge and an understanding of investment and loan practices may help a brewery owner to secure funding.

Checklist for Starting a Brewery

If you’re thinking about starting a brewery, it’s important to do your research first. Here is a checklist to help you get started.

Step 1: Write your Business Plan

After coming up with the idea, the next step in starting your business should be to write a brewery business plan. Not only will a bank or potential investors require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related: How to write a business plan

Step 2: Name the Business

Finding the perfect name for a business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use. Before launching your brewery, you may want to check into getting a trademark for your brand as you may end up selling across a wide area.

Related: Tips and ideas for naming a brewery

Step 3: Form a Business Entity

A business entity (also called a business structure) refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a brewery, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

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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Step 4: Select your Location

While breweries don’t always require a prime, high-traffic location, it is usually important to be located close to densely populated areas or activities if you plan to have a tasting room.

According to Specific Mechanical, the space needed to operate a brewery will vary on the amount of production. They recommend at least 300 to 500 square feet for a 3 to 5 barrel system and 550 to 1200 square feet for a 7, 10, or 15 barrel system.
Finding a space can be challenging since finding a facility with tall ceilings is necessary to get large tanks in the building. Additionally, the facility should have a loading dock as carrying hops, grains, and other supplies by hand will get tiring really quickly, and ventilation from the brew kettle is a must.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

Obtaining the licensing for a brewery is a very complex process, requiring federal, state, county, and city approvals in most instances. According to Craft Brewing Business, a business owner must:
– Obtain a federal brewer’s bond or brewer’s collateral bond, which guarantees a brewery will pay tax on the products sold. A federal brewer’s bond is required when applying for a Brewery Notice, and some states also require that a brewery have a local brewer’s bond to apply for licensure.
– Apply for Alcohol & Tobacco Tax and Trade Bureau Brewery’s Notice. This can take between six months and a year to obtain. To apply for the Brewery’s Notice, business owners must submit proof of their brewer’s bond, as well as information about the brewery’s packaging, labeling, and environmental impact.
– Apply for an alcoholic beverage permit or state liquor license from the state. Licenses are available for supplier, importer, wholesaler, and retailer brewery businesses. Each state has its own application requirements, which may require floor plans, statements of funding, a brewer’s bond, and more.

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.

In addition to brewery-specific licensing, there will also be local, state, and federal registrations such as a sales tax permit, Employer Identification Number, Occupancy Permit, among others.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a brewery is another due to the high costs.  Funding to start a brewery business can be difficult due to start-up expenses. To get a small business loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.

The high cost of starting a brewery, Small Business Administration, or SBA loans is a popular option as this reduces the bank’s risk and collateral requirements.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Figure out Distribution

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.

Even if you can self-distribute, you will want to consider the time and effort it takes to do so.

Regardless of which way you go, be sure to understand your state’s rules thoroughly.

Step 9: Get your Marketing Plan in Place

The brewery industry is highly competitive, and in recent years many more new breweries have opened, adding to the competition. That doesn’t mean there isn’t room in the industry for your business, but it does highlight the importance of great branding, a focus on a niche, and identifying local and national demand. A detailed business plan and thorough market research can help develop a unique concept and position your brewery for success.

Good marketing is essential to a brewery’s success, especially when developing a brand of beer that beer enthusiasts will recognize, connect with, and remember. Developing a website, logo, and initial branding can cost $5,000 or more, and that branding will also need to be applied to every new beer developed.

Marketing costs will depend on the type of activity performed, as well as its volume. Common marketing techniques for breweries include print advertising, online advertising, and social media marketing. Connecting with local tour guides and event managers is another valuable strategy that can help build brand awareness and secure valuable partnerships. Breweries may also choose to compete in local food and beer competitions to promote their beers.

Related: Low-cost ideas to market a new business

One important task while working on the marketing is developing an online presence. A website developer may be out of the budget, but Wix makes it easy for non-technical people to get a website running quickly and affordably.

Step 10: Get Business Insurance

A brewery needs several types of insurance for full coverage:
General liability insurance protects the brewery if customers are ever hurt while on the business’ premises or from the business’ products. This type of policy helps to cover expenses like legal fees or medical bills.
Commercial property insurance can cover the business’s cost of equipment and building if they are ever damaged or destroyed by an event like a fire.
Commercial auto insurance covers any company-owned vehicles and protects the business against expenses if those vehicles are ever in an accident.
Worker’s compensation insurance helps to cover expenses like legal and medical bills that can occur if an employee is ever injured while on the job.

Insurance policy costs can vary greatly depending on the value of a business’ equipment and building, the number of employees on staff, and the types and numbers of vehicles owned by the business. To get the most accurate idea of insurance policy costs, request quotes from multiple providers. When comparing the quotes, pay attention not only to differences in premiums but also to how the coverage limits, exclusions, and deductibles compare.

Step 11: Hire Employees

Most breweries will need to employ multiple staff. According to PayScale, the average salaries for these brewery positions are:
– Head brewer: $41,000
– Brewer: $35,000
– Regional sales manager: $60,000
– Marketing manager: $51,000
– Maintenance technician: $50,000

Depending on a brewery’s size, some or all of these staff may be necessary. In addition to budgeting for salaries, a brewery will also need to account for related expenses like paid time off, health insurance contributions, and workman’s comp insurance.

Related: Hiring your first employee

Step 12: Set up an Accounting System

Setting up an accounting system for your brewery is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a brewery?

Startup costs for breweries can be substantial. 2nd Kitchen reports that many breweries cost between $500,000 and $1 million to start, though that cost can exceed $5 million depending on the scale of the project. Much of that cost is due to construction costs and equipment purchases. When starting a large brewery, it may be necessary to secure a large business loan or seek multiple investors who can assist with these startup costs.

Microbreweries or craft breweries are smaller, so while their startup costs are still substantial, they’re more affordable than a traditional brewery.

Common startup costs for a brewery include:
– Building construction or renovation costs can be significant due to plumbing and electrical needs, in addition to any aesthetics of the real estate.
– Brewing equipment, fermentation tanks, kettles, bright tank, boilers, storage tanks, refrigeration equipment, bottling or canning lines, etc.
– Supplies, like kegs, bottles or cans, mugs, and glasses
– Inventory, including ingredients
– Furniture including chairs and counters
– Uniforms
– Signage
– Working capital for three to six months of cash to pay payroll, lease or rent, utilities, internet, etc.

How profitable is a brewery?

Brewery income can vary dramatically depending on factors like the brewery’s size, location, years in business, target audience, profit margins, and more.

Whether a brewery sells mostly through its own taproom or wholesaling its beer to other retailers can also play a role in profits. Craft Brewing Business highlights that breweries selling through their own taprooms will provide higher profits than wholesaling beer to other retailers.

To ensure that your brewery has the best chance of becoming profitable, it’s important to do thorough market research and identify a niche in the industry that your brewery can specialize in.

Are there grants to start a brewery?

It’s extremely rare to find a grant to start a brewery. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.

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.

Related: What is a NAICS code and how to find yours

Resources:
Beer Institute
Brewers Association
Craft Brewers Conference
Master Brewers Association of the Americas

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