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How to Start a Craft Brewery

Stella Morrison
Stella Morrison

Getting into the brewery market requires a solid vision and an equally solid business plan.

  • With thousands of craft breweries across the U.S., getting into the business is a lucrative opportunity for beer lovers.
  • Like any other business, a brewery requires careful planning to ensure success, including the particular issues in navigating a regulated, restricted business.
  • Learning from the experts and from beer business resources can give you a robust foundation for your own business.
  • This article is for those who are considering opening a brewery and want to learn more about the essential steps and considerations involved.

There are thousands of small breweries and brewpubs scattered across the U.S., and it's not hard to understand why. According to the Brewers Association, craft breweries brought in 22% of the American beer industry's revenue in 2020, a roughly $22.2 billion share of the broader $116 billion market. But as with any business, long-term survival can be a challenge for breweries, particularly because the craft beer market has become so crowded over the past 20 years.

To compete, you'll need to evaluate your market and create a clear vision of what you have to offer that direct competitors do not. There is still room in the market for businesses that offer niche products in less-saturated local markets. You'll have a better chance for success if you can distinguish yourself, not just with beer recipes, but also with branding.

Editor's note: If you're looking for information to help you with business plan services, use the questionnaire below to have our sister site provide you with information from a variety of vendors for free:

Who should start a craft brewery?

So you think you want to go into the beer industry? There are many questions you should ask yourself before pursuing this challenging and costly business venture:

  • Do you love beer?
  • Can you clean all day long?
  • Are you able to work more than 40 hours per week?
  • Do you have sales and marketing skills?
  • Are you a good recordkeeper?
  • Can you afford to work for years without seeing a profit?
  • Do you have something to offer that no one else can?
  • Do you have good equipment-repair skills?
  • Are you comfortable asking for funding?

There is a lot more to the business than just brewing and drinking beer. Unless you are heavily funded and can hire a full crew right away, you may spend hours a day cleaning, then taking the rest of the day to manage your books, sales, vendors and customers. And the brewing process never sleeps, so you may also work nights and weekends. In fact, many small-brew business owners keep their day jobs, brewing nights and weekends until they can afford to pay themselves a salary. Despite the challenges, most brewery owners say the effort is worth it.

The basics

Before you embark on the brewery journey, you need to nail down the basics: your new brewery's name and location. Learn more about these steps below.

1. Choose a name.

Choosing a name for your business is an essential first step in opening your brewery. It can also be one of the most difficult. You'll need a name that speaks to your new business's brand identity and values. If you're stuck on ideas, reach out to a marketing or branding professional to help you figure out what's right for your business.

2. Choose your business structure.

At its core, creating a business separates your personal assets and liabilities from those your new brewery may incur. If your business has multiple stakeholders, the business structure also clarifies who owns what, who is responsible for what, and the rights each owner has. Speak with a business attorney to determine the right type of business entity for you.

3. Trademark your brewery or beer name.

Once you select a name for your brewery or beer, protect your intellectual property with a trademark. Through this process, you'll submit your name to the U.S. Patent and Trademark Office for consideration. The USPTO will weigh aspects such as the uniqueness of your name and whether another company in a comparable category has the same or a similar trademark already. While in theory you could submit a trademark application yourself, consider speaking with an IP attorney who can help you navigate the process and overcome any potential challenges with your application.

4. Find a location.

Your location is key to your success. It sets the tone of the business and dictates whether your brewery is a destination people will go out of their way to visit or a neighborhood spot locals will frequent. 

Once you choose your location, be sure that your name, address, and phone number – known as your NAP – are the same in every online listing.

"Your name, address, and phone number need to stay updated across the entire internet to help customers find you," said Jason Bass, founder of Brewery Hours. "No matter which app, map, search engine, social network, or directory your customers use, they need the right information at their fingertips. What matters most is that your customers can find accurate and complete basic information about where your brewery is located and when they can come enjoy your products."

Training and education

There is a lot to learn if you want to become a successful brewer. Experts recommend that even seasoned home brewers spend time working in a brewery before starting their own. Entry-level work involves a lot of cleaning, sterilizing and other tedious tasks, but you'll learn the daily routines of a busy brewery. After you put in some time, you can move up and learn additional job skills that pay more, but it's worth your while to learn all the jobs involved in a productive brewery.

If you have the time and resources, formal training programs are also available, including university degrees. States such as Michigan, California, Colorado, Oregon and Missouri offer certificates and four-year degrees in brewery management. International schools are also available in countries such as Belgium, Germany and the United Kingdom. Alternatively, you can find online courses and even free programs. Portland State University offers a certificate program that focuses on the business portion of running a brewery, while CraftBeer.com offers free and low-cost educational opportunities.

Did you know?Did you know? Experts recommend working in a brewery before starting one. Additionally, formal educational resources are available, including university degrees and certificate programs that focus on brewery management.

Startup costs to consider

According to many brewers, you should be prepared to pay out twice the amount you think it will cost to launch your business. Unexpected expenses can pop up, such as additional contractor fees for altering your building, or delays in acquiring permits that push out your production date. Depending on the size of your operation, the number of barrels you intend to produce, and whether you plan on operating a brewpub or a stand-alone brewery, your costs can vary greatly. 

These are some factors to consider:

  1. Equipment: Kettles, boilers, kegs, cooling systems, storage tanks, fermentation tanks, filters, tubing, pipes, cleaning equipment, waste management systems, and canning or bottling equipment
  2. Building: Costs of reinforcing the floor, remodeling to accommodate equipment and pickup and deliveries, lease or rental fees, inspections, water system alterations, and room for future expansion
  3. Supplies: Hops, malt, yeast, bottles, labels and packaging
  4. Utilities: Energy, water, internet and telephone
  5. Insurance: Business, liability, unemployment, workers' compensation, property and others as required
  6. Licensing and permits: Varies by area
  7. Professional services: Brewing industry consultant or mentor, an accountant, marketing, and legal services
  8. Furniture: Varies, if restaurant or brewpub expenses will be more
  9. Payroll and ongoing expenses: Hourly and salary payroll expenses, payroll taxes, sales tax, and legal services
  10. Electrical equipment: Computers, phones, a POS system, automated monitoring systems, mobile devices, security cameras and printers
  11. Software and services: Network security, alarm monitoring, an inventory control system, accounting software, credit card processing, website URL and hosting

Key TakeawayKey takeaway: Most industry experts report a general range of $500,000 to $1 million in costs to start a small brewery.

Creating a business plan

A realistic and thorough business plan is necessary to your brewery's long-term success. Investors want to see not just a general plan, but up to three years of projected financials. Even if you have capital saved, you'll still benefit from a bulletproof financial plan. We recommend consulting a professional who can help you create your business plan, provide financial advice and legal assistance, and help you obtain funding. These services are not free (they typically cost around $5,000), but they are worth the investment.

Before you meet with your consultant, lay out as much information as you can, including your startup costs, expected ongoing costs, revenue projections, business vision, and anything else you think of to help you and your consultant create the best business plan possible.

If you are looking to build a new brewery with all-new equipment and asking for large sums of investment or loan money, you'll need to quantify your passion and present it in a way that potential investors will understand.

Funding your microbrewery

Unless you already have generous funding set aside, you'll need to raise capital and plan for extra expenses. You'll likely need to obtain funds from multiple sources. Consult a professional on how to obtain funding. Good credit, experience, and collateral will help, but you may also want to secure letters of intent from distributors who have agreed to purchase your product.

Here are a few ways to fund your brewery:

  1. SBA 7(a) loans: These government-backed business loans are the best place to start. Terms and rates are usually competitive, and larger loans are available. The paperwork to apply for these loans is extensive, but the terms make it worth your time. Learn more about these SBA loans.

  2. Local banks: Your local bank may be interested in funding homegrown projects that benefit the community. Many brewers have found more success with a local bank than with a national bank that has no direct ties to the community.

  3. Crowdfunding: This means receiving funds in advance from a large number of investors or donors. Some crowdfunding ventures are all-or-nothing, so you set an amount ahead of time, and if you do not reach that goal, you give the money you've raised back. Other crowdfunding platforms allow you to accept the funds even if you do not reach your goal. Platforms include Kickstarter, Indiegogo and Fundable.

  4. Peer-to-peer lending: This type of lending may involve a large group of investors or individual investors. Your credit history and credit score factors into these kinds of loans. Usually these loans are not large enough to fund your entire project, but they are worth investigating. Popular options include LendingClub, Prosper and StreetShares. [Read related article: 7 Non-Bank Business Financing Methods for Startups]

  5. Community-supported brewing: CSB is a newer concept that involves taking funds from community members in advance in exchange for beer or merchandise in the future. For this to work, you'll need excellent marketing, sales and social skills.

  6. Co-op breweries: These are democratic worker- or community-owned breweries. There is often a board to help manage the business, and individual members contribute their ideas as well. Co-ops are often integrated into the local community and try to be environmentally sustainable. These types of breweries usually involve multiple brewers who share the brewing equipment.

  7. Brewery incubators: This model allows new and experienced brewers to share expenses. Often, someone already in the industry, like a restaurant owner or an established brewer, will assist new brewers in their first large-scale projects. Sometimes they may even offer contests that award the new brewer a paid internship or other training opportunities. The established brewer may also charge the new brewer for training and use of their facilities. Every incubator is different, but they may provide inexperienced brewers a low-cost opportunity to brew their first large batches of beer.

It helps to get creative when you're starting a brewery. Many entrepreneurs in the industry are fortunate enough to take over an existing brewery after the previous owners have moved along. Some have been able to partner with restaurants looking to add a brewpub. You may also be able to lower costs by purchasing used equipment or by leasing equipment. Eventually, you should be able to afford your own equipment if you increase your volume. It is also easier to get funding once you demonstrate what you are capable of, even on leased equipment.

Finding a distributor

The U.S. has required a three-tiered system for alcohol distribution since the repeal of Prohibition. The three tiers are the producers (you, the brewer), the distributors and the retailers. You sell your product to wholesale distributors, and they in turn sell to retailers, who sell your product to the beer drinker. The exception is brewpubs, which manufacture the beer and sell it directly to patrons in the pub.

Most states have their own distribution requirements and are usually involved in the process. Some of the more prohibitive states, such as Utah and Pennsylvania, exert control at the distribution and retail levels. You'll need to research your state's requirements, as well as those of any other states you plan to sell in.

Depending on your area, you may be able to work with a major distributor such as Anheuser-Busch or Miller, or a distributor that specializes in non-major brands. Consider which company you want to distribute with and the specifics of your contract. Most states have laws to protect the provider-distributor sales contract (which could last years), so you'll want to consider both your current and future needs before signing a contract. Your local brewing group or guild should be able to help you find the best distributor to suit your needs and brand. You should also visit potential retailers to research the market and talk to them about their experiences with local distributors.

Prepare your presentation carefully before meeting with potential distributors. Know your pricing models, advertising and marketing plans, and other incentives. They need to understand how you will help them sell your beer to retailers and customers.

These are some important questions to ask potential distributors:

  • Do you have enough refrigeration space for my product (if required)?
  • Do you have specific brand managers?
  • Do you work with other craft brewers? Which ones?
  • What retailers or restaurants do you think would best sell my product?
  • What is your typical margin?
  • What kind of success have you had selling specialty brands?
  • How often do you restock products?

In three-tier states, the distributors have the advantage, since they don't need to work with you. They make the most profit when they can sell your product at a healthy margin, so let them know how you can help them do that.

In general, distributors want to know these things about your business:

  • Can it help them move your product?
  • Can it keep up with production expectations?
  • Is it financially solvent?
  • Does it have a product line that aligns with the type of beer they want to sell?

Depending on your state, you may be able to find alternative ways to get your beer to your customers. If you own a brewpub, you can likely sell through your pub without a distributor, since the beer doesn't leave your establishment, or you might be able to sell your beer online. Review your state's distribution laws to find the best method for you.

Permits and regulations

State and local laws for breweries vary greatly. Your local chamber of commerce should be able to point you in the right direction. Regardless of location, here are some things you will need to consider:

  1. Government permits and regulations: Federal, state, county and city laws, health department requirements and inspections, and building permits
  2. Brewery-specific permits: Federal brewing permit, brewers bond, and U.S. Department of Agriculture requirements
  3. Label approvals: State and federal
  4. Environmental regulations: Wastewater treatment and runoff
  5. Business regulations: Entity creation, tax ID numbers, operating permits, DBA and insurance

Advice from the experts

We spoke with two sources who work in or provide services for the beer industry, asking them what they would have benefited from knowing when they started out.

1. Get help from a professional.

Nigel Francisco, CFO of Ninkasi Brewery in Oregon, expressed the importance of obtaining professional assistance to help you with accounting, legal requirements and risk management. He said if you are not a numbers person, you need to find someone who is.

2. Track your inventory. 

Francisco also advised using an advanced inventory control system and a POS system. Tracking of inventory, loss and sales need to be as exact as possible. If you are audited, the IRS will look at your brew logs, test results, and everything else, he said. Ninkasi Brewery uses Microsoft Dynamics GP, which helps manage your accounting, supply chain and customers. Francisco said the reports available from this software help with not just business insight and forecasting, but also inventory tracking.

3. Create a financial forecast. 

Sabrina Parsons, CEO of Palo Alto Software, which makes the LivePlan business planning software, recommended that all potential brewery owners create not only a business plan, but also a comprehensive three-year financial forecast. Many LivePlan customers are small brewers, especially in Oregon, where microbrewers are abundant. Your financial plans should be as accurate and as detailed as possible, including production projections, ongoing expenses, expansion costs and cash-flow schedules, Parsons said. Dealing with financial challenges could be discouraging to new business owners, but she said it is much wiser to go in with "your eyes wide open" rather than not knowing what you are getting into.

Where to learn more: Beer business resources

Your local chamber of commerce

Your local chamber of commerce can help you learn about local laws and regulations that you may need to follow. This business advocacy group also provides business services and networking opportunities.

Local brewers guilds

Many areas – including cities such as San Diego and San Francisco and states like Colorado, Minnesota, and Texas – have a local brewers guild. Guilds provide a way to connect to local breweries in your area, and they often sponsor events and promotional opportunities.

Brewers Association

With more than 45,000 members, this is the service brewers are most likely to use. Here you will find beer news, event dates, statistics, best practices and legal resources. It also supports an active forum for members, guild information, brewpub seminars and much more.

CraftBeer.com

This site publishes articles featuring craft breweries and provides access to educational resources. It also lists information about beer events and brewing classes and offers food recipes that use beer.

Craft Brewing Business

Craft Brewing Business covers beer news, marketing information, business insights and more. Its focus is on professional brewers, rather than home brewers, so it offers information on professional-level equipment and supplies as well. The website also provides information on packaging and distribution.

Kinnek

Here you can find information on equipment and supplies. Kinnek can connect you with vendors to obtain quotes on items such as kegs, bottles, casks and tanks. You can also get pricing information on brewing equipment such as boilers, filtering equipment, heat exchangers, transfer pumps and water-filtration systems.

Beer magazines

Enjoy a print magazine? There are quite a few about beer, including BeerAdvocate, DRAFT Magazine, Beer Magazine, Craft Beer & Brewing, Brewer Magazine, and Celebrator. Most offer digital versions and post articles online as well.

National Beer Wholesalers Association (NBWA)

Here you will find information and news about beer distribution. According to the NBWA, its association includes 3,000 licensed, independent beer distributors.

Other local brewers

Local brewers often form a tight connection and provide a network for learning more about the industry, local regulations, source and vendor options, and marketing opportunities. In fact, many areas have local groups or cooperatives that craft brewers may belong to. So if you have not done so already, get out there and meet your local brewers to learn as much as you can. With passion and persistence, you can turn your love of beer into a viable business.

Pamela Stevens contributed to the writing and reporting in this article. Some source interviews were conducted for a previous version of this article.

Image Credit: Ridofranz / Getty Images
Stella Morrison
Stella Morrison
Business News Daily Contributing Writer
Stella Morrison is an award-winning writer who focuses on marketing for small businesses, including useful tools and best practices that help business owners introduce their products and services to new audiences. She is also a digital marketing professional who has worked with leading brands in the tech industry.