How to Start a Soft Drink Business
Soft drinks are popular around the world. Major brands dominate the market, but small business owners have created new flavors that have been introduced to the market. If you are looking for a business opportunity and think you have a creative flair when it comes to taste, a soft drink business could be an excellent opportunity for you.
A soft drink business creates new flavors of soft drinks, has them manufactured, and sells them to grocery stores and other retailers for resale. Some sell their products online.
Soft Drink Industry Summary
According to Grandview Research, the soft drink market was $221.6 billion as of 2020 and soft drink consumption is expected to grow at an average annual rate of 4.7% through 2028 to reach $320.1 billion.
Soda trends are moving toward fewer preservatives and chemicals with eco-friendly packaging. Flavors are more natural and low in calories and sugar. The desire for convenience is prompting more sales of single-serve soft drinks that can be picked up and consumed on the go.
Craft soda, which can retail for considerably higher than regular sodas, have seen much higher sales volume that past couple of years. IndustryARC projects the craft soda market to reach $711 billion by 2025 due to interesting flavors, and rising health concerns from the ingredients used in traditional soda.
Your target market will be those looking for alternative soft drink brands.
Skills, Experience, and Education Useful in Running a Soft Drink Business
There are several specific skills that you will need to open a soft drink company.
- Knowledge. You need to know how to make soft drinks and be able to come up with unique flavors.
- Business knowledge and experience. You will need to have at least some basic understanding of marketing, finance/accounting, and human resources.
- People skills. You’ll need to be able to build rapport with your customers so that you retain them as customers and keep them coming back.
Checklist for Starting a Soft Drink Business
If you’re thinking about starting a soft drink business, 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 soft drink business should be to write a business plan. The business plan will make you focus on some important aspects of the overall business strategy, such as who is the primary demographic that is being targeted, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your start-up expenses will be and what your ongoing expenses will be.
Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you to think through all the aspects of the business and then serves as a guide as you begin.
Related: How to write a business plan
Step 2: Name the Business
Finding the perfect soft drink business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name. Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.
There is a lot of advice regarding getting a patent from the United States Patent and Trademark Office for your recipe as it prevents anyone else from using it. Keep in mind that a patent is very expensive ($10,000 – $50,000), will probably take two years to get, and you have to write out your recipe. A better method is to keep the formula a trade secret, which is how Coca-Cola protected their recipe, which costs nothing; however, if someone else stumbles upon your intellectual property, they can’t be stopped from using it.
Step 3: Form a Business Entity
A business entity 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 soft drink business, 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: 3 steps 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:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 4: Select your Location
Many new soft drink companies start their business from their home and focus on their local market. Instead of investing the significant upfront costs of building out the facilities, equipment, bottling line, and health requirements, you can work with a contract beverage manufacturer or copacker create the beverage.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
Each state is different on the licensing required for consumable products. In most cases, employees will be required to have food sanitization permits, and the product will need to be created in a facility that is approved and inspected regularly by the local health department. Many states have lesser food safety requirements for businesses selling low volumes of products under the state’s cottage food law.
In addition, there also be general business license requirements such as a local business license, sales tax permit, and an Employer Identification Number.
Step 6: Source Suppliers
Suppliers will be needed for the raw materials such as sweeteners, fruit juices, etc. While purchasing from local markets may be sufficient to start, the costs and hassles of obtaining these ingredients often become unsustainable if the business grows.
Step 7: 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 soft drink business is another. In order to get a 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.
Step 8: 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 9: Get your Marketing Plan in Place
With the level of competition in the beverage industry, a solid marketing plan is a must to ensure your product can fly off of the shelves.
You will face massive competition in the soft drink market, so product quality and flavor has to be superior and appeal to a large number of people. Be careful in only getting feedback from friends and family as they are appreciative of free product and often don’t want to hurt your feelings.
Common marketing techniques for a soft drink business include social media marketing and online advertising. However, most of your sales will come from developing relationships with distributors such as grocery and convenience stores. Many retailers are encouraged to sell locally made products in their stores, so don’t be afraid to ask.
Step 10: Get Business Insurance
A soft drink business needs several types of insurance for full coverage:
– General liability insurance can help protect you from third-party claims of bodily injury and property damage.
– Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.
The cost of insurance will vary based on several factors. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.
Step 11: Hire Employees
You may need employees to help you run your soft drink business. Make sure that you select people with appropriate experience and training.
In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.
Related: Hiring your first employee
Step 12: Set up an Accounting System
Setting up an accounting system for your soft drink beverage company 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.
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.
Are there grants to start a soft drink business?
It’s extremely rare to find a grant to start a soft drink business. 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 soft drink business?
The NAICS code for a soft drink business is 312111.
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.