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A Business Plan is the First Step in Assuring Your Winery’s Success

08/06/2009


Ever dream about starting up your own boutique winery? Do you envision long summer afternoons soaking up the Okanagan sun, chatting with tourists who are eager to buy up your award winning wine?

Here’s a reality check. Canadian studies consistently reveal that roughly one in every four small businesses will fail in its first year of operations. Another 20% will succumb in year two. Why are these rates so high? The answer often boils down to:

  • A lack of planning
  • Insufficient cash resources
  • Lack of relevant management experience

Sometimes dreams do come true, and there are ways you can improve you odds. Harald Thiel founded Ontario’s Hidden Bench Winery in 2003 with visions of a boutique winery selling ultra premium wines. After a less than stellar vintage in 2004 (which he eventually decided to sell in bulk), the 2005 vintage produced several award winning wines and earned Hidden Bench second place as winery of the year, behind Mission Hill.

Many new business owners view a Business Plan as a necessary step in attracting capital from potential lenders and investors. In reality, the exercise of preparing a Business Plan can force you to think about your business in detail, identify options, recognize opportunities and risks and test assumptions.

Successful startups such as Hidden Bench can often be traced back to a well researched and carefully thought out Business Plan. In an October 7, 2008 Globe and Mail article, Thiel reflected on how his winery managed to beat the odds. Mr. Thiel says he “thoroughly researched and visited 25-30 successful boutique wineries”. One common factor he noted was the importance of hiring the best talent he could find and involving them in the development of systems and procedures for the winery. In doing so, he capitalized on industry knowledge that he had yet to develop and created instant commitment and buy in from his team.

A solid Business Plan includes a number of components:

  • A description of the products and services
  • An industry overview
  • A marketing strategy which summarizes the product, promotion, pricing and distribution strategies
  • A description of the management and staff
  • An implementation plan with key dates to measure progress towards goals
  • Three years of financial projections built on reasonable and supportable assumptions.

Within the financial projections section, a cash flow statement will help you identify how much financing you will need. “Many new entrants forget about the cost of financing inventory for two- three years prior to the first sale,” Thiel says. Despite their early success, Hidden Bench does not budget to be cash flow positive until next year.

Developing the Business Plan is a time consuming project. However, the time and effort spent obtaining quotes on equipment, data on market opportunities and opinions on vineyard suitability can help you identify and plan around potential pitfalls at start up. Evidence of such research into significant assumptions will help satisfy investors and lenders.

At a minimum, you should show a draft of your Plan to professionals with knowledge of enology, viticulture and the BC wine industry. The feedback you obtain will enhance your knowledge and add completeness and credibility to your Plan. A qualified and knowledgeable accountant can compile your data into financial statement format and provide assurance on the key assumptions.

Finally, don’t abandon your Plan once you are up and running. Your projections should serve as a benchmark against which to measure actual performance. Reviewing your original vision and core strategies will help keep you on track and increase your odds of realizing your dream.

Geoff McIntyre, CA is an Advisor with Meyers Norris Penny in Kelowna. Geoff regularly travels to the South Okanagan to visit clients, on-site.