How To Start a Microbrewery in 8 Steps
You consider yourself a beer aficionado and you want to start a brewery. Good for you. You might do well in this fast-growing industry.
In 2020, craft beer accounted for about a quarter of all beer sales in the United States. Craft breweries, particularly brewpubs or taprooms, have become social centers of small and large cities, college towns, and beer trails across the country. Community brewers are local heroes. Be can be one!
This brief guide will introduce you to the basic ideas you will need to form your own microbrewery.
One note before we begin: Like any business, the more you know about the beer business going in, the better off you will be. It may be worth the time to train for a while in a local brewery, take some classes, or make your own at home. Most brewers start in their sink or garage and expand from there.
Of course, you could get some family money and hire an experienced brewer, too.
We make business formation EASY. Learn about our DIY business formation services here.
1. Decide How Large Your Brewery Will Be
Breweries can be regulated and taxed in different ways depending on how many barrels of brew they manufacture and sell. Also, you'll want to figure out how much space you will need to open your brewery based on what kind of business you are developing. For instance, on a national basis, it takes about 0.8 square feet of production space for each barrel of capacity. And then you will have to decide how much space you will need for the office and for a brewpub, tasting room, or restaurant.
Many, if not most, beginning brewers start out at home. While these skills can inspire you to start something bigger, you really need training (or to hire an experienced brewer) before you go big with your exclusive recipes.
Selling in very small quantities or making tiny quantities of beer qualify you as a nanobrewery. A nanobrewery is generally defined as having the capacity to brew five barrels at a time or less. These are often in a home garage and are distributed without selling to customers onsite.
Technically, a microbrewery produces less than 15,000 barrels of beer annually and sells more than 75% of that offsite (including carryout). No food is served on site.
A brewpub is a brewery-restaurant combination that sells more than 25% of its beer on site.
A taproom is a brewpub with minimal-to-no food service. The beer sold in the taproom usually goes directly from the brewery itself into the bar and the customers' drinking glasses. The brewery can be in the basement or on the same level as the bar, and is usually in a position so that the customers can see the beer-making process.
The Coors Brewing and Anheuser Busch companies of the world live in their own realms and are regulated in their own ways. And anyway—you're too good for them, right?
2. Calculate Startup Costs
It takes a couple of hundred dollars to buy a kit to make beer in your basement. That's a good place for anyone to start.
But once you decide to open a brewery, be prepared to invest at least $250,000 and up to $2.5 million or more to get started, depending on brewery capacity, real estate, and building costs.
Brewery startup costs will begin with the brewing equipment. That will run you from $100,000 to $1 million. You will also have real estate costs for renting or buying a building. The real cost for the building will be in reinforcing the floor and installing the specialized plumbing and electrical lines.
You will also have the licensing fees, which get their own section below.
3. Create The Business: Name and Structure
After your initial inspiration to open a microbrewery, you will next have to actually create the business itself. You should do this as soon into the process as possible. This is the best way to own your business name and the brand names of your beers before anyone else can snag them. Also, once you start throwing time and money into this process, it will be more difficult to back away from a name if you find you can't use it.
You will make two early decisions—what to name the business, and how to structure that business.
Find a Unique Business Name
The first thing you have to do is create a great name (that's up to you). Then check to make sure that no one else is using it. Your name must be unique because generic names run the risk of being rejected.
Is Your Domain Name Available?
For the internet, make sure the internet domain name for your brewery is available. Then grab it (that will cost a few dollars). You may also want to get the name for a beer or two.
At the same time, visit the website of your state's secretary of state and make sure that the name is available there. Then register that name on that site. You can come back later and trademark your name in that state (which is different from a national or international trademark).
You then need to trademark both the name of your brewery and the names of your unique beers and their recipes with both the federal and state governments. One thing to remember is that you can't trademark a generic name-- like “wheat beer," for instance. It would have to be a unique name for that wheat beer.
Next, trademark that name with the U.S. Patent and Trademark Office (USPTO). After approval, you can use the ® symbol after the name. Before that, you will have a common law trademark, which uses the symbol TM. You can use the TM for any amount of time before you are formally approved by the Patent Office.
Then register that trademark back with your state.
Now that name is yours.
You will have to incorporate your business. The type of business that you create will be a joint decision among you, your attorney, and your financial people.
Most small business startups like microbreweries are limited liability companies (LLCs). It is more than likely that you will incorporate as an LLC because they provide liability protection for the owners, yet are not subject to the corporate income tax.
4. Write a Business Plan
Every new business needs a business plan, especially one that will potentially require hundreds of thousands of dollars or more in startup costs. Any lender (except maybe a family member) will need to see a sophisticated, professional business plan in order to give you the financing you will need.
There are professionals who can write you a business plan. There are also a few software programs that can at least give you a good start in writing one.
A good business plan will include the following sections:
- Executive summary
- Objectives and missions statement
- Keys to success
- Company summary
- Inventory needed
- Market and competition analysis
- Web plan
- Management summary
- Financial plan
A substantial number of breweries are family businesses started with family money. But if you do not have access to this kind of financing, ordinary bank loans targeted to specific neighborhoods are a good place to start. Emphasize that you will be bringing business into the whole neighborhood (if you have a taproom), employment, and an upgrade to the community. Many cities and civic organizations will also have grants available for new businesses that will employ people.
A major part of your business plan will be creating a marketing plan. The first step in developing a marketing plan is to identify the target customer base. You then figure out where and how you will reach them.
Before you establish your location, make sure that is room for your business in the local market. There's a fine line between a cool beer trail and an oversaturated market.
Who is your target customer? You are usually appealing to young professionals, millennials (who spend more on craft beer than they spend on cell phones), and just generally the hip crowd in your community. They come from tech, music, politics, or just from the neighborhood. You have to find them and show them that they need to drink your beer.
Where do you look to find that? In your own backyard. Here's how.
- First and foremost (as you know), your social media presence is the lynchpin of the target community's awareness of your business. Do them all—Facebook, Instagram, Twitter, whatever. The real pro tip of social media is to keep it fresh—post at least once a day on every platform. Get and publicize Google reviews and likes on Facebook and Instagram. Work those review sites (Yelp, etc.). You have to pay constant attention to your social media accounts.
- Use social media to create an email list and pound that, too. Once a week, no more—people get enough marketing emails.
- Partner with local social influencers, online and offline. Host political gatherings, open mics, trivia nights, ping pong tournaments, game nights, online singles groups, etc. and have influencers post about you live. Get on the local beer trail.
- Invest in Google and Facebook ads. Remember that your target audience is on social media all the time. Go where they are.
- Create a Google My Business account and constantly monitor and update your website SEO. If you don't know what that is, educate yourself or hire someone who does.
- Create customer loyalty rewards (to the extent that state law will allow).
- Get out and be an active member of the business community. Everybody likes being friends with a brewery owner. Go out there and make friends!
5. Decide if You Are Serving Food
Many new microbreweries make the decision not to sell food on-premises. They will often make arrangements with local restaurants for food deliveries, or will allow food trucks to set up in the parking lot. This saves the effort of starting up a restaurant along with the brewery.
However, if you want to sell food along with beer, you will also be subject to all of the laws and regulations pertaining to restaurants. FindLaw has a guide to opening a restaurant that will help you through this part of the process.
6. Laws, Rules and Regulations
The beer industry has a number of laws and rules specific to this business.
Each state has different beer distribution laws, definitions of what constitutes “beer," reporting requirements, and excise taxes on beer. Remember also that, in addition to each state's beer-specific laws, you must also comply with each state's alcohol laws. This includes the various state permits you will need to open, sell alcoholic beverages, and to continue in business.
You may need to pay excise taxes and put up a brewer's bond, depending on the state.
State Beer Distribution Rules
It is one thing to brew and sell your beer at one location (or several that you own). In most states, though, it is another thing to distribute your beer outside the four walls of your brewery tasting room. It could be a good part of your business plan to distribute your new beer to local stores and bars, but you may not be able to do that, or it may be more difficult than you want it to be.
Most states do not allow a brewery to distribute its own product. These states require a licensed distributor to do so in what is generally called a “three-tier system." The three tiers are: manufacturer, distributor, and retailer.
And last, if a state does allow a brewery to distribute its product, every state's distribution laws rules are different. You will have to know the laws of your state.
Federal Beer Laws and Regulations
From Prohibition in 1919 until February 1, 1979, home brewing of beer was illegal on the federal level. Alcohol regulation was mostly left to the states, as “home brewing" became microbrewing over time (see the sections on state beer regulations in this article).
The sale of beer is taxed under Chapter 51 of the U.S. Tax Code and regulated under the federal Alcohol Administration Act. Your tax advisors and lawyers can help guide you through this particular maze. It can be difficult to do on your own.
Commercial beer sales are regulated now on the federal level by the Alcohol and Tobacco Tax and Trade Bureau (usually called the TTB) of the U.S. Treasury Department. Here is their industry startup tutorial.
Federal Brewer's Notice and Brewer's Bond
Probably the most time-consuming piece of starting a brewery is getting your federal commercial brewing license, called a Brewer's Notice. This can be applied for online and there is no application fee. The TTB has to approve your complete operation-- name, labels, recipes, processes, you name it. You'll be subject to background checks, potential onsite inspections, and more. This approval process can take from six months up to a year.
You also will probably have to post a federal brewer's bond securing tax payments when applying for your Brewer's Notice, with some exceptions. This bond is renewed every four years. A local surety company should be able to take care of this.
You will need all the normal business permits to get your brewery off the ground and selling your beer. You may also need a local business license.
Whether you are putting up new construction or modifying an existing building, you will likely need construction permits. Before you open, you will need to pass fire inspections and receive a certificate of occupancy.
Depending on the jurisdiction, you may need a sales or use tax license or a sign permit.
7. Employment and Taxation
You will be hiring employees and you will be paying taxes. Your first hires will probably be in the back brewing, or will be your relatives. Your first step in this process will be to obtain a federal Employer Identification Number (EIN).
You should also run background checks on your new hires, particularly those who will handle money. It is probably a good idea to only hire employees who are 21 years of age or older.
You will be responsible for properly doing your employment taxes. This is usually a job for your accountant. Also, each state has an excise tax specifically for selling beer. You must file and pay this tax.
You will be responsible for conforming to all state and federal employment laws. Unless you are a lawyer, it is often a good idea to hire one for this.
You should also strongly consider employment contracts that include non-compete clauses for essential personnel (particularly your head brewer). You need employee loyalty, earned or by contract, especially because your brewers and other staff are going to know your recipes. Non-compete contracts can be very tricky. Every state has different rules, and the language has to be very precise. Each one should be written individually by an attorney.
Also, if you want customer loyalty, then employee loyalty is where you should start. Pay a living wage and offer good benefits where it is possible and appropriate to do so. Make it fun to work there and pay attention to what your employees need. If you can't give them what they need, you are not going to be very happy with what they deliver—and most importantly, neither will your customers. A small brewery is an important part of any city's landscape, and you want to be a welcome member of your community. You don't want employees going negative on you behind your back. Be good to them.
You will need several kinds of insurance for your new brewery. A local insurance agent should supply all of your needs in this area. Common types of business insurance policies include:
- Business liability insurance. Minimum policy limits may be set by your financiers or franchisor.
- Worker's compensation insurance
- You may consider commercial umbrella insurance
Finally, you may want to offer health insurance to your employees. One way of doing this is to join an organization like the Chamber of Commerce that offers group health insurance packages.
Use a Simple Process To Form Your Business
Want to take the guesswork out of forming your business? Consider using our trusted, simple-to-use online business formation tool. We'll walk you through the steps of creating your business and help you meet all the legal requirements.
Need More Help? Contact an Area Attorney
That's a lot, isn't it? Well, that's only the beginning. Before you start, you should call a business formation attorney who can guide you through this very complex process.
Was this helpful?
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.