Starting Up a Brewery

Before our old server went down and we lost our entire database of blog entries and articles, I had written a few posts about starting up a brewery or at least a nano. In the December 2010/January 2011 issue of Mid Atlantic Brewing News, I was quoted as saying, “Do it, just talk to me first” meaning, if you’re a homebrewer and want to go pro. See the article here. That quote prompted many e-mails and many phone calls, my wife got after me for going over my minutes on my cell phone, I had many a conversation by the side of the road so I could talk safely. After repeating the same story over and over, not that I tired of it, because I didn’t, I was just afraid of leaving details out. So my solution was to begin writing blog entries about starting up a brewery. I’ve learned a lot in the almost two years we’ve been open, that’s two years in July! I’m starting from scratch, so here goes.

Funding
I started this brewery on a shoestring budget. I had $30,000 and I soon discovered it wasn’t enough. It got me the warehouse and the basic equipment I needed, which was two 55 gallon Blichman brew pots, a chiller, a few pumps, burners, two 42 gallon Blichman fermenters, way too many 12oz bottles, a two head wine bottler, capper, and my initial ingredients. If I could do it all over, I would have changed things a bit. If you think you need $30,000, try again. Some homebrewers out there say they could run a brewery part-time, this is not true, be prepared to work and work hard. Having been a one man operation, I can tell you now, to keep up you have to brew at least 3-4 times a week if you’re as small as I am. We’re now looking at expanding, so we’re looking for much higher numbers. Bank loans can be tricky, years ago, I paid off all my debt, this believe it or not, counted against me when I went to go seek out a loan. Sounds very strange, you don’t owe money, so you have no credit history. Banks can charge an arm and a leg, and it really hit me in my wallet. If you can find local sources, family, friends, and acquaintances, I’d go that route first.

Paperwork
Ah the bane of my existence. Check this picture out:
It’s all too true, paperwork is a big part of running your own brewery, one day, I hope soon, I can get someone else to do it so I can concentrate on brewing. So what kind of paperwork is involved? Let’s start with what you need just to get started.

First, establish your business, I went through Legalzoom mainly to avoid getting expensive lawyers involved. When that’s done you can start filling out the required TTB (Alcohol and Tobacco Tax and Trade Bureau) forms, click here for the required forms. This includes a brewer’s bond, power of attorney, etc. You will also have to provide a layout of the brewery, and in some cases it means you need to have the property ready to go. You’re paying rent on something you can’t even begin to manufacture in. This process can take anywhere from 30-90 days, so work that in to your budget. You may also have to provide data on your water source, this is easy thanks to Google. The only thing you will have to pay for is your bond. If you’re small, it’s about $1,000.

Once that is done, you can fill out the State paperwork. What’s really funny, is that the Comptroller of Maryland defines a microbrewery as a brewery attached to a restaurant (Class 7). That’s a $500 annual fee plus the $200 filing fee. We have a Class 5 license, we are categorized the same way as our larger brethren. This license costs $1,500 plus the $200 filing fee. To top that off, you need yet another bond, so that’s 2 bonds, both for at least $1,000.

Local paperwork may come into play as well, but this is usually pretty painless. I had some problems zoning, but it was only because the local government had never zoned a brewery before. If you are going to pass out samples in Montgomery County to gain new customers, you’ll need a solicitor’s permit. I believe it is around $65. Cash or check only. It’s almost better to go through a distributor. Mind you, Montgomery County is the distributor in the county, so all orders I place goes through them.

Now for the monthly and quarterly paperwork. The Federal paperwork, you’ll need to do quarterly reports, we do at least and I’m still learning how to do the operational reports properly. I guess it makes logical sense to some people. Then there’s the ever coveted returns. You only get taxed on what goes out, not what you’re producing, at least that is how it was explained to me. You get taxed a flat rate by the barrel, $7.00. I had heard somewhere that number is supposed to go down. Label approval can be tedious, you can send your label and the associated paperwork for approval via snail mail, but be prepared to wait up to 30 days for approval. The other option for label approval is to sign up to use COLA Online. From here you can upload your label and fill out the forms online. This shaves a good 3 weeks off. Be careful about your wordings, but I’ll tell you more about that in another post.

More State paperwork, not done yet. Monthly reports, oh joy. You have to fill out a “Brewer’s Report of Beer Dispositions” every month. This form was a little confusing for me at first, but I soon got the hang of it. I wish they had it online, that would save some much time. This report needs to be reported in gallons, not barrels like the TTB report. We use 22oz bottles now, so we have to convert the number of cases into gallons. It’s simple math, simply multiply the number of cases by 2.063. First time I started doing these reports, I was putting everything on one report and thus, over paying and adding confusion for not only me but the Comptroller’s office as well. So if you have a distributor in say, Virginia, you have to put that on a separate report, you’ll need this data for your tax filing. But hey! You only pay for what you sell to Maryland. I have a distributor in Virginia, so I don’t pay the State tax, I only have to pay for what I sell in Maryland. You have to pay .09 cents per gallon, since we’re so small, I think the largest check I’ve written was about $3.00.

And the list goes on. One of the big differences between the State definitions of Microbrewery and Brewery is that we can actually distribute, they can’t, but we can’t sell by the pint unless we do a special event at the brewery, we’re allowed 12 per calendar year. These cost about $25, they say to file 15 days prior to the event, but I usually get it a week after filing it.

I think I’ve covered most of the paperwork. This post is getting long, so I will cut it off there. You should have enough to at least get started. Next, I’ll discuss the finer points of label submission.