Craft Distillery Business Plan, With a Projection

A craft distillery business plan is a big startup budget and a slow first year. The still, the fermenters and the tasting room cost a quarter of a million dollars before the first bottle, the permits and label approvals come before any of it is sold, and most of the money a bottle makes depends on where it's sold: in your own tasting room at the full price, or through a distributor at about half. In the example below, a craft distillery in Minnesota makes vodka and gin, sells bottles and cocktails in its tasting room and bottles through a distributor, and ends its first year about $5,300 ahead on $178,900 of sales, after a first half-year of losses, with a second year at full speed that looks nothing like it. Below is a description example, each part of the plan, the federal rules, the first year month by month, the startup budget, and a free template.

The short version

• Describe the distillery in a paragraph: the spirits, the still, the tasting room, the distribution, the goals.
• Register the plant and get the permits, and approve every label, before the first bottle is sold.
• Cost a bottle from the grain up: grain and energy, labor, the bottle and label, the federal tax, the fees.
• The federal tax is $2.70 a proof gallon on your first 100,000, about 43 cents a bottle of 80-proof vodka.
• The tasting room leaves about three times what a distributor bottle does.
• Plan for a first year of losses, and the cash to carry them.
• TaroStack keeps grain, botanicals and bottles counted and every batch costed with its lots. It doesn't file TTB reports. More below.

Part 1: the business description

Iron Range Distilling, a made-up craft distillery in Duluth, Minnesota, I use in these examples, writes:

Iron Range Distilling makes vodka and gin from Minnesota grain on a 250-gallon copper still, sold by the bottle and in cocktails in its tasting room and through a distributor to liquor stores and bars in the region.

Part 2: the federal rules

A distillery operates on the bonded premises of a distilled spirits plant, which is registered with TTB, with an operating permit and a basic permit (27 CFR 19.71). Every label on a bottle sold in interstate commerce needs a certificate of label approval from TTB before the spirits are bottled (27 CFR 5.21). The federal excise tax on spirits is reduced to $2.70 a proof gallon on a distiller's first 100,000 proof gallons a year (26 U.S.C. 5001). A 750 ml bottle of 80-proof vodka is about 0.16 proof gallons, so its federal tax is about 43 cents. States license the distillery, set the state taxes, and decide what a tasting room may pour and sell and how bottles reach stores, which varies a great deal. This is general information, not legal advice.

Part 3: what a bottle costs

The bottle, cork and label cost more than the grain and energy that made the spirit. The distributor bottle is an average of vodka and gin. How to work out the cost of a batch from what went into it is in batch costing example.

Part 4: customers and prices

A bottle sold in the tasting room leaves about three times what a distributor bottle does. At full speed the distributor bottles bring about $5,580 of the month's $17,950 of contribution from 700 bottles; the tasting room's bottles and cocktails bring the other $12,370. Distribution is how people who never visit find the spirits, and how the still is kept busy; what a distributor keeps is in distributor margin.

Part 5: the first year, month by month

Fixed costs are $9,735 a month: the building lease ($4,500), tasting room staff ($3,000), insurance ($500), utilities ($800), permits and bond averaged ($100), marketing and events ($800), and software and card fees ($35). Sales start at 15% of full speed and reach it in month 11:

The year's sales are $178,874 and the profit $5,267. Cash falls to −$26,073 by month 6, which is why the plan keeps $30,000 of working cash. A second year at full speed is about $98,600 ahead, because every month brings $17,950 of contribution against $9,735 of fixed costs. At full speed the distillery makes about 1,030 bottles a month, about 170 proof gallons with the cocktails, far below the 100,000 proof gallons a year that get the reduced rate.

Part 6: the startup budget

At about $98,600 a year from the second year, the $220,000 spent before working cash takes a little over two years to earn back after the first. Whiskey adds years of barrels before any of it sells; this plan sells unaged spirits first, so money comes in while anything aged waits. How long stock sits and what that costs is in inventory carrying cost.

Get the template

Download the craft distillery business plan workbook. Four sheets: your bottles and cocktails with price, variable cost and a month's volume at full speed; the first year, month by month, with sales, profit and cash; your fixed costs; and your startup budget with working cash. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.

Where this stops working

Grain by the ton, botanicals by the pound, bottles, corks and labels by the pallet, a batch of vodka bottled on Tuesday and gin on Thursday, a distributor's order for 40 cases, and a tasting room that pours every weekend. A notebook can't say which lot of juniper went into a batch of gin, how many cases of vodka are bottled and ready, or what a bottle costs now that glass went up.

How TaroStack does it

TaroStack keeps grain, botanicals and bottles counted and every batch costed with its lots.

Batches with their lots. Each spirit is a recipe of grain, yeast, botanicals, bottles, corks and labels; each bottling is a batch that notes which lots went in, on its own, and gives the bottles a lot, with the good bottles and the rejects.

Dry goods as stock. Bottles, corks and labels are counted by the case on a phone and come up on a reorder list in days of cover, so a bottling day doesn't stop for want of corks.

What a bottle costs. Each batch is costed at what its grain, botanicals and glass cost, and the price creep report shows when glass went up. Plainly: TaroStack doesn't produce TTB reports or excise returns, and it isn't built around tank and barrel transfers.

Recipes, batches, lots and reorder lists are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.

Questions people also ask

How much does it cost to start a craft distillery?

In the example, $250,000: a 250-gallon copper still, fermenters and a mash tun, a bottling line, a tasting room build-out, permits and label approvals, first materials, and $30,000 of working cash.

Is a craft distillery profitable?

It can be, after the first year. In the example, a distillery ends its first year about $5,300 ahead after six months of losses, and a second year at full speed about $98,600 ahead.

How much is the federal excise tax on a bottle of spirits?

At the reduced rate of $2.70 a proof gallon on a distiller's first 100,000 proof gallons, about 43 cents for a 750 ml bottle of 80-proof vodka. State taxes come on top.

Do you need a license to open a distillery?

Yes: the plant is registered with TTB, with federal permits, and each label needs TTB's approval before bottling. The state licenses the distillery and sets the rules for the tasting room and distribution.