If you are starting a new beverage production business, you have probably figured out that determining your timeline is crucial. Knowing what to expect during your first months means that you will (hopefully) have a realistic idea of how much financing you will need, and whether your doors will ultimately open. Of course, this start-up timeline cannot substitute for legal advice. However, I do hope it can help provide a framework for your early planning efforts. To jump to the punch line, you should budget at least six months from submitting your license applications. But before you can do that, you’re going to need certain things in place, such as your commercial lease and your company documents.
Stage 1: Prepare Your Business Plan
To produce any alcoholic beverage (that includes you Kombucha brewers!), you will need to obtain a license—or possibly licenses—from the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB for short), and your state liquor control board (the Washington State Liquor and Cannabis Board (LCB) for our Washington clients, or the Liquor Control Division of the Montana Department of Revenue for our Montana clients). When you apply for your licenses, you will need to give these agencies a detailed description of what you will be doing, and how and where you will be doing it. So, sit down—or stand up, that works too—and write out the following, in as much detail as you can:
- What will I do? Here you should describe the full range of products you will be producing or selling, and who you will be producing them for or selling them to. Get specific. How is the alcohol derived? How much will you produce? Where will you get your raw materials? If you plan to brew beer, will you sell directly to consumers? Will you have someone else’s cider on a guest tap? How many guest taps will you have? Will you warehouse any of your product? Will you operate a restaurant? Will you produce for yourself, or contract for someone else? Will you sell at Farmers’ Markets? The answers to these types of questions will dictate which licenses you need, and whether your plan is allowed under current regulations.
- How will I do it? Here I’m talking about your business structure, not the mechanics of brewing beer, distilling wine, etc. (although you should probably know that too). Describe who you will be working with, and in what capacities. We’ll discuss forming a business entity in Stage 2 below, but for now you should be able to describe how you envision things operating. Again, be specific. Who will make day-to-day decisions? Who will be responsible for making the product? Or handling personnel issues? Describe your funding sources. Will you need investors? What type of investors? Will you be crowdfunding? Relying on sweat equity?
- Where will I do it? Location is critical. You don’t want to lose time fighting because the local zoning ordinance doesn’t allow your specific business to operate, or because the nearby public school has vetoed your application (yes, they can). We’ll discuss some specific space and equipment issues in Stage 4 below, but start thinking now about the type of location you will need. Or, if you’ve already found your dream space, list out its strengths and its weaknesses. It may have great ambiance, but will it require major renovations? Will the floor need reinforcing to support your equipment? Will you need to punch holes in the wall to allow for ventilation? Think through these issues now, so you can address them as you start negotiating your lease.
Stage 2: Form Your Entity.
Once you have your business plan in place (or at least sketched out), you will want to form your business entity. The most common entity for small beverage producers is the limited liability company (LLC), but you should talk with a CPA about whether that is the best option for you. You will need to file organizational documents in order to register your business with the state, but you should also have an operating agreement that lays out the particulars of how your business will run. Do this now, before the honeymoon period ends and unforeseen problems start creeping up on you.
A properly drafted operating agreement will provide clear guidance for how decisions are made—including which decisions require a vote, and what happens if the decision-makers disagree. The operating agreement can dictate whether shares can be transferred or sold, and if so, whether the remaining owners have a first option to purchase the shares. It can also clarify the role of investors, what happens if an owner dies (or goes bankrupt), and how owners are to be compensated for sweat equity.
If you are going to have employees, this is also a good time to prepare an employee handbook that is tailored to the unique needs of your industry (e.g., policies for drinking during or after work).
Stage 3: Protect Your Name.
Once you have registered your entity with the state, immediately start the process of trademarking your marquee name (or names) and your logo. Don’t skip this step. Budget for it. Think about all the time, energy and resources that go into developing your “brand”. Now think about having to start from scratch, with zero name recognition. Or having to fight in court over who gets your name or logo. It’s worth the extra money upfront to make sure that your name is protected.
Stage 4: Secure Your Space and Equipment.
As mentioned above, location is crucial. If you can, find a space located more than 500 feet from any schools or churches, with a supportive zoning ordinance. Once you find a space, talk to a contractor and get a diagram of the space. Make sure your equipment will fit. Understand what improvements will be needed. And then start negotiating your lease (or your purchase). Recall that you need an executed lease (or proof of ownership) before you can apply for your TTB license. If leasing, make sure the lease is in the name of the entity that will be applying for the license. You may be able to negotiate for reduced rate or no-rent for the first few months (while you’re waiting for your licenses), maybe with higher rent in later months. Make sure the lease gives you a clear right to operate the type of business you plan to operate, and to make any required improvements. You may also want to include a provision for Alternating Proprietor Relationships, allowing you to contract with other producers to use your space and equipment (this could be helpful if resources get tight). You should also have written equipment agreements for any equipment that you will be leasing.
Stage 5: Get Your Licenses!
Finally—the moment you’ve been waiting for—you get to apply for your license(s). If you haven’t already, take your description from Stage 1 above (“What will I do?”) to someone knowledgeable in federal and state liquor licenses, and make sure you know which types of licenses you will need. Check the TTB’s average licensing times. Be aware that there may be a backlog during Winter and Spring, as everyone scrambles for their Summer opening. If you are opening a production facility, budget for six months—less for retail-only businesses. And yes, the entire TTB application process can now be done online!
The specific documents and information you need to provide will depend on the type of permit (e.g., brewery, winery, wholesaler, distilled spirits plant) and your business structure (e.g., corporation, LLC, partnership), but here is a fairly representative list of what you should have ready:
- executed lease agreement or proof of property ownership;
- bond form;
- driver’s license or official state ID card;
- corporate documents (e.g., certificate of formation for an LLC; articles of incorporation for a Corporation; partnership agreement for a Partnership);
- diagram detailing the dimensions of your space and identifying equipment, loading docks, doors, windows, etc.;
- source of funds documentation; and
- signing authority authorization.
You should start your state applications at the same time. Your state agency won’t approve anything until you obtain your TTB license, but you can at least have everything ready and waiting. The state agencies require much of the same information as the TTB, but you will have to prepare different forms.
Stage 6: Open and Enjoy. Easy, right?