New year, new business goals?
With the recent permanency of the Federal Excise Tax reduction, now is the perfect time to take your DSP license (or craft spirits concept) to a full-blown distillery operation.That said, turning a passion for craft spirits into a successful distillery is a giant leap. Luckily, you have us to serve as your trusted resource in helping you get on your feet – and way, way beyond.
Let’s start with the basics.
Determine the location of your DSP.
Obviously, you must have a TTB-approved location before you can start distilling. A strategic location can be integral for a variety of reasons. If you’re looking to grow your own ingredients, you’ll need a lot of land. You’ll need to be in an accessible location to receive and distribute supplies and product. Will you have a tasting room? You may want to focus on a highly trafficked location. Building/use permits and zoning requirements will be subject to state and local regulations.
Determine which spirits you’ll produce initially.
To produce whiskey as your sole product, you need two things: millions of dollars, and time – several years, to be exact. To help bridge the gap between laying down and bottling your delicious whiskey, most new distilleries launch with vodka, gin, or other un-aged spirit, which can generate revenue while whiskey ages. To set your clear spirits apart from the rest, consider what your recipes will include. Some basic questions to start with are:
a) Is this a grain-to-bottle process, or are you starting with a high-quality neutral grain spirit or barreled whiskey?
b) If you are doing fermentation, what’s the base for your spirit: grain, fruit, cane, or something else?
c) Will you get creative with botanicals and flavor profiles?
d) How are your sourcing decisions affected or influenced by consumer and market trends? Will your product be organic? Locally grown? Sustainably sourced?
e) Establishing a baseline or guiding principle for your recipes, product line, and marketing strategy is a crucial step to hit the ground running with your new distillery. Don’t forget that all formulas and labels need to be approved by the TTB before production can start. (PS – we offer consulting services for this!)
Determine Your Capital Investment Needs.
It’s important to know exactly how much capital you are going to need up front to ensure long- term success, whether you’re self-funding or raising capital from private investors or a bank. A few things to consider in calculating your capital needs:
a) Estimate material costs based on preferred vendors and suppliers.
b) Define your sales process: are you self-distributing or using a distributor?
c) Estimate your target profit margins and, based on distribution, define a target price. point for retail, wholesale, or both. Do research on comparable products and how they are positioned in the market, both in price point and sales strategy.
d) Estimate production capacity and forecast revenue accordingly.
e) Identify and estimate fixed and labor and overhead expenses.
The calculations can be used to generate a high-level P&L statement to share with investors, to obtain bank loans, or simply to use as a guide in setting up or evaluating operations. The more clearly you understand what will go into starting a new distillery and what will likely occur during your first five years of operating, the better you can set yourself up for success from day one. A P&L statement is as basic as it gets – and may be your ticket to the funding you need or to avoiding mistakes in the beginning.
Define your brand and register your business name.
With more and more craft distilleries popping up by the week, thoughtful, intentional and unique branding will be key to differentiating your product from the rest and cultivating a loyal customer base. This is a highly saturated market: how will you get people to pick up your bottle of vodka over other brands? Focus on “shelf appeal” when deciding bottle shape, label design, and spirit names. Who will your product be tailored to? Is there a specific market segment that you’ll be targeting your brand to? Additionally, (and we know this one might seem obvious) make sure to Google and triple-check that your brand name doesn’t already exist!
Apply for your DSP if you have not already, as well as other necessary federal, state and city licenses and permits.
While the regulations, licenses, and permits necessary to start your distillery differ depending on your geographic location, below are the standard licenses to take into consideration, no matter where you are.
Distilled Spirits Plant (DSP): A distilled spirits plant (DSP) may be established to produce, bottle, rectify, process or store beverage spirits. Examples of beverage distilled spirits include neutral spirits or alcohol (i.e. vodka or grain spirits), whiskey, gin, brandy, blended applejack, rum, Tequila, cordials and liqueurs (TTB.gov). A DSP must be acquired before any production can begin.
Business License: All businesses operating in the United States are required to obtain a business license.
Employer Identification Number (EIN): In order to hire employees in the United States, you will need an EIN.
Certificate of Occupancy: Every business in the food or beverage industry needs a certificate of occupancy. This certificate is subject to local government health and safety regulations.
Liquor License: Liquor licenses are acquired at the local level and are required before you can begin to sell liquor at any volume.
The state also regulates what products can be produced and how they can be distributed. Pay close attention to how these regulations vary between state lines. We recommend joining your local Distillers’ Guild or networking with other distillery owners in your area to quickly get up to date on best practices for opening a distillery in your state and city.
Feeling overwhelmed? FIVE x 5 offers a robust set of Distillery Planning Tools that helps you develop your business plan and even calculates the nitty gritty financial details for you. Not sure what a formula application needs or have questions on getting COLAs? We also provide solution-agnostic extended business consulting services tailored to individual needs for those who need additional guidance. Inquire today to see how we can help you turn your DSP dream into a successful and sustainable operation and continue to support you as you grow with our integrated inventory, production and compliance tracking software solutions DISTILL x 5 and Whiskey Systems.
Email us today at [email protected] to get started.