How to Track Production Batches and Compliance for Distilleries

There is a Tuesday morning every month that craft distillery owners learn to dread. The TTB Form 5110.40 is due on the 15th. You sit down with a stack of barrel cards, three spreadsheets nobody trusts, a calculator, and the still log. By noon you have a number for proof gallons produced last month. By three you are not sure that number is right. By five you are filing anyway because the alternative is a late-filing penalty.

This post is for the distillery owner on the other side of that morning. You have already burned the hours. You have already had the moment where your wholesale invoice for Account A and your in-bond inventory for the same batch did not agree. You know that the next chapter is not another tab in the spreadsheet — it is a real production management system. The question is what to look for, what compliance actually requires, and how to migrate without losing your mind in the middle of a busy production season.

The short answer up front: distillery production management software is software that tracks every drop of spirit from mash bill through bottling, in proof gallons, with the lot-level audit trail the TTB requires for distilled spirits plant (DSP) records. The right system gives you a Form 5110.40 you can file in twenty minutes, a barrel inventory that reconciles to the penny, and a path from a finished bottle through POS, DTC, or wholesale without re-entering anything. The rest of this post walks through exactly what that looks like for a small craft distillery doing 5,000 to 50,000 proof gallons a year.

A distilled spirits plant is a federally bonded facility. The Alcohol and Tobacco Tax and Trade Bureau (TTB) regulates production, storage, processing, and removal of distilled spirits, and the paperwork is non-optional. Three federal forms anchor the monthly rhythm at most small craft distilleries.

Form 5110.40 — Monthly Report of Production Operations. Due by the 15th of the following month. It reports spirits produced, by kind and proof gallons, and reconciles starting inventory, production, transfers, and ending inventory in the production account.

Form 5110.11 — Monthly Report of Storage Operations. Same due date, different account. It tracks the spirits sitting in the storage account (barrels aging, bulk tanks holding finished spirit) and the gains and losses on each. Angel's share — the evaporation loss during barrel aging — gets reported here.

Form 5110.28 — Monthly Report of Processing Operations. Reports spirits moved through the processing account: blending, bottling, dumping for bottling, finished case goods on hand.

There is also Form 5000.24 — the Excise Tax Return — filed semi-monthly or quarterly depending on annual tax liability, currently a flat federal rate that for most craft producers benefits from the Craft Beverage Modernization Act reduced rate on the first 100,000 proof gallons. State ABC reporting sits on top of all of this, and the format varies by state. Some states want monthly production reports of their own. Most want detailed records of what was shipped, to whom, and in what state.

And then there are records. TTB regulations under 27 CFR Part 19 require DSP records to be retained for at least three years. That includes production journals (what was distilled, when, by whom), storage records (every barrel's fill, transfer, and dump), processing records (every blend, every bottling run), and the bottling record itself with case-level traceability. If TTB shows up for an audit — and they do — you have three years of paper or digital records to produce on request.

The penalty math is unforgiving. A late 5110.40 can trigger a failure-to-file penalty plus interest on any underpaid tax. A consistent pattern of late filings is the kind of thing that puts a DSP on TTB's short list for an in-person audit. Most operators learn this once.

Every batch of spirit moves through the same seven stages, and at every stage there is a number you need to capture, a record you need to keep, and a calculation that will eventually show up on a TTB form.

Grain bill, water, mash tun, target gravity. You record the recipe, the starting and final gravity, and the volume produced. This stage does not yet have proof gallons attached, but it is the foundation of the lot trail — every downstream gallon traces back to a specific mash batch.

Yeast strain, fermenter, start and end dates, end-of-fermentation alcohol by volume. You are tracking a fermenter as a vessel and a fermenter batch as a unit of production. At a small distillery you might run two or three fermenters in parallel and need to know which finished spirit lot belongs to which fermenter batch.

This is where proof gallon math enters. A distillation run produces three cuts: heads (the volatile early cut, usually re-distilled or discarded), hearts (the keep cut), and tails (the late cut, usually saved for the next run's low wines). For each cut you record the wine gallons (actual liquid volume), the proof (twice the alcohol-by-volume percentage), and the resulting proof gallons.

Proof gallon is the unit that matters. 1 proof gallon = 1 wine gallon at 100 proof (50% ABV). At 120 proof, 1 wine gallon = 1.2 proof gallons. At 80 proof, 1 wine gallon = 0.8 proof gallons. Every TTB form, every excise tax payment, and every state report is denominated in proof gallons. Getting the conversion wrong on a busy month is how distilleries end up with a discrepancy between what the still log says and what the storage account says.

A quick example. Run produces 60 gallons of hearts at 140 proof. Proof gallons = 60 * (140/100) = 84 proof gallons. That goes into the production account, gets reported on the 5110.40, and follows the lot through the rest of its life.

Most bourbon and rye gets cut with water before barrel entry — common entry proofs run 110-125 depending on house style. Once filled, the barrel becomes a tracked vessel. Fill date, char level, cooperage, fill proof, fill volume, fill location in the rickhouse. From this point forward, the barrel is a unit of inventory with its own audit trail.

The water-cut math is the second place spreadsheets quietly break. If you take 84 proof gallons of new make at 140 proof and cut to 115 for barrel entry, you are producing 84 / 1.15 = 73.04 wine gallons of barrel-ready spirit. The proof gallons are unchanged (84) but the volume changed. Track both. The volume number matters when you fill a 53-gallon barrel; the proof gallon number matters when you file the form.

Barrels sit. Sometimes for years. Two numbers change while they sit: proof and volume. Hot warehouses concentrate spirit (proof rises, volume drops). Cool warehouses do the opposite. Average angel's share losses run 2-6% per year depending on climate, warehouse position, and barrel head/stave porosity.

For TTB storage reporting you do not gauge every barrel every month. You gauge on entry, on dump, and on any transfer between accounts. But you do report monthly aggregate gains and losses at the storage account level, and you absolutely need a system that knows the running proof gallons in storage. If you have 400 barrels at average 4-year ages, that is roughly 17,000-21,000 proof gallons of in-bond inventory carrying federal excise tax liability the moment they leave bond. Knowing that number to the gallon is the difference between paying the right tax and writing the IRS a letter.

Dumping the barrel moves spirit from the storage account to the processing account. Now you have batch-level proof gallons in bulk, and you typically cut to bottling proof — 80, 86, 90, 100, 114, whatever the SKU calls for. Bottling proof again involves a water cut and again preserves proof gallons while changing volume.

Example. You dump 10 barrels averaging 110 proof and 50 wine gallons each. Total: 500 wine gallons * 1.1 = 550 proof gallons. You cut to 90 proof for bottling. New volume = 550 / 0.9 = 611.1 wine gallons. From 611 gallons at 90 proof, at 750ml bottles, you get roughly 3,083 bottles before bottling line loss. That is a bottling run, a specific batch number, and a finished case-good lot that needs a tax-paid status as it leaves bond.

Spirits become tax-determined the moment they leave bond. At that point, federal excise tax is owed at the applicable rate per proof gallon. Under the Craft Beverage Modernization Act, the first 100,000 proof gallons per year carry a reduced rate. The system needs to know which production has been tax-determined, which has been removed for tax-paid sale, and which is still in bond — and these can be different bottles from the same bottling run if you released some and held some back for the tasting room or club.

Almost every craft distillery starts on spreadsheets. They work fine for the first eighteen months. They break in three predictable places.

The proof gallon math compounds errors. A typo in cell B14 on the still log propagates through six downstream sheets. By the time you notice the 4 proof gallon discrepancy between production and storage, you have lost an afternoon hunting for it.

Barrel-by-barrel proof tracking outgrows the row count. The first 50 barrels live happily in a spreadsheet. At 200 barrels with quarterly updates, dump dates, and partial dumps for single-barrel programs, the sheet becomes the bottleneck. Looking up a single barrel's history requires filter dances and the answer is one VLOOKUP away from being wrong.

Multi-system reconciliation fails. Your wholesale order pulled 60 cases of the spring batch. Your tasting room sold 23 bottles. Your DTC store shipped 14. Your barrel inventory says you bottled 248 cases of that batch. The four numbers should reconcile and they almost certainly do not — because the tasting room POS, the DTC store, the distributor portal, and the barrel sheet are four separate tools that never agreed on a SKU. The reconciliation work falls to whoever cares the most, which is usually the owner, late at night.

A real production management stack for a 1-5 employee distillery doing 5,000-50,000 proof gallons annually has more moving parts than most owners realize until they map them out. Here is the list, with what each piece actually has to do.

Deelo runs every one of those workflow areas on a shared customer and inventory database. The connection is the point. Here is how a batch moves through the platform from grain to glass.

In the Inventory app, you create a production batch — Bourbon Mash Bill #4, fermentation lot 26-041, distillation run on May 8, 2026. The system tracks proof gallons at every stage and records the barrel fills as discrete lots tied back to that production batch. Each barrel is a sub-lot with its own fill proof, location, and projected dump window.

The Forms app pulls from Inventory's data to auto-generate the Monthly Report of Production Operations. You review, sign, and file. The numbers reconcile to the still log because they came from the still log.

When you bottle, the bottling run creates finished SKUs in Inventory tied to the parent barrel lot. Those bottles are now available across every sales channel.

A visitor walks into the tasting room. The POS app rings up two bottles of the new release. Inventory depletes from the bottling run lot. The customer signs up for the bottle club at the register and becomes a record in CRM. They get an automated welcome email through the Marketing app, scheduled to drip the release calendar.

The same bottling run also sits in the eCommerce store. A DTC order ships through the Shipping app with the right state-by-state compliance overlay. Inventory depletes from the same lot pool. Both channels reduce the same bottle count, so the reconciliation that used to take a Sunday afternoon now just happens.

Wholesale orders go through Invoicing with excise tax broken out as a separate line item. The invoice numbers match the distributor's purchase order. When the distributor disputes a shorted case, you pull up the bottling run, the case label history, and the BOL in three clicks instead of three days.

Every one of those records — every batch, every barrel, every bottle, every sale — lives in the same database with a three-year retention policy that satisfies TTB Part 19.

The hardest part of moving off spreadsheets is doing it without losing visibility during a production season. Here is the staged plan we recommend.

There are real distillery-specific tools in the market — Encompass, Whiskey Systems, ePlant, OrchestraIQ — each with their own focus and feature depth. Each is worth a demo. The questions to ask any vendor are the same.

Does it generate TTB Forms 5110.40, 5110.11, and 5110.28 from your actual production data, or does it just give you a CSV to copy into the PDF? The difference is hours per month.

Does barrel inventory share a database with finished-goods inventory? If the answer is no, you will be reconciling two systems for the rest of your operating life.

Does it handle the DTC and tasting room sales side, or do you still need a separate POS and ecommerce stack? If separate, you are back to multi-system reconciliation, which is the problem you were trying to solve.

What is the per-month cost across all the pieces? An honest comparison includes the integration platform, the POS, the ecommerce subscription, the email tool, and any per-transaction fees. Distillery-specific tools tend to be priced for their depth; the all-in price for a stack often exceeds an all-in-one platform's pricing once you add the satellite tools.

What is the data export story? You should be able to leave with three years of records in a usable format. If the vendor cannot answer this clearly, that is your answer.

The owners we talk to who have made this move say the same thing afterward. The biggest change is not that filing a 5110.40 takes twenty minutes instead of a day. The biggest change is the Tuesday morning that stops being dreaded. You walk in, the form is ready, you sign it, you ship a batch. The system runs underneath the work instead of becoming the work. That is what production management software is supposed to do, and once you have it, you do not go back.