I am wondering what it takes to open a small brewery. First, what size system is considered small or how many barrels would be small? I would rather do smaller batches so I could have more varieties to choose from, but not so small that there is no profit. Also, how easy would it be to expand if need be? Second, what is a rough estimate on start up costs (equipment and permits)?
The term "small brewery" has many meanings these days. Nanobreweries are becoming more common, and the startup microbrewery is also quite small.
Nano brewers are typically under 100 BBL per year and brew on a system of, let's say, 4 BBL, and often times 1 BBL or less. Nanobreweries are proving that they can be a start to a viable business by building a reputation with minimal investment, but in most cases nanobrewers aren't able to quit their day jobs as the revenue often doesn't leave enough cash to pay themselves at the end of the day. To start a nanobrewery, I've heard $50,000 - $150,000 in startup funds is sufficient as long as you're doing most of the construction yourself, and you still have a "day job". In my opinion, the best nanobrewery model is to sell everything in-house through a tasting room so the revenue is based on retail dollars, not sales to the distributor (or self-distributed). Of course some homework is involved to make sure the state / county / city you're in will allow this.
A microbrewery is brewery producing under 15,000 BBL per year, and most microbreweries are much smaller than this. The typical system size for a microbrewery will be 7-15 BBL, and well funded startups might have a 30 BBL system. A modest startup would be in the $500,000 range, and a well capitalized startup would be in the $1,500,000 range. The difference between these ranges is whether you're starting out with new or used equipment, the size of the system, whether you're able to do your own construction, whether you have a "day job" or not, how many employees you plan to have, how expensive your rent will be, and ultimately how much beer you intend to sell in the early years.
The more beer you can produce, the greater the scale of economy, the faster you can get to profitability, and the faster you can grow the business. On the other end, if you're not interested in fast growth but more of a lifestyle business, your business model should be getting profitable making the least amount of beer with the least amount of startup funds. It's easier to raise money in the first scenario than the second, though.
Hope this helps!