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Managing Your Winery - Does Your Cash Flow Like Your Wine?


A quick check of the number of new winery licences issued in B.C. over the last couple of years tells us there are many new or fledging winery operations . If you are involved in one of these new wineries as a manager, owner or investor (or all three at once), you know it can be a long wait for the dollars from the sale of that first bottle. In the meantime, you’ve invested significantly in building, equipment, grapes, supplies, labour, advertising, and other items.
Planning and monitoring your cash flow, particularly in these early years, can spell the difference between success and failure. Too often, management view cash flow projections as a necessary evil, a hurdle to be overcome when obtaining financing from the bank or private investors. They rush through the exercise and fail to update, or even review, the original projections as time goes on. So how will you operate your winery? Will you employ crisis management, trying to react at the last minute to cash shortages? Or will you follow a dynamic plan, updating for changing circumstances and anticipating the cash crunches long before they arrive?
Here are a few tips that can help control your cash flow as well as you control your wine:

  • Have a Plan
    Planning is hard work. That’s probably why so few of us do it. But we all know failure to plan is a recipe for disaster. A properly prepared cash budget will highlight the times you can expect cash to be tight. It will also help you consciously consider just how much cash you’ll need. It you don’t feel you have the time or skills to do this, your accountant and business advisor can help. Choose one with knowledge of your industry and an understanding of its production cycle.
  • Pick the Right Timeframe
     The further out you try to project, the more you enter “crystal ball” territory. For a winery, a 36-month cash budget is appropriate. A premium red can take three years from crush to release. To be useful, your budget should be prepared on a monthly basis, at least for the first 12 months. Because cash requirements are seasonal, you need to anticipate your cash balance at the end of each month.
  • Keep Your Plan “Rolling”
    As you complete a month, add a month to the end of your projection.
  • Keep it Dynamic
    A properly prepared electronic spreadsheet will allow you to update your cash budget at the click of a button for things like changes in grape costs or interest rates. As circumstances change, so should your plan.
  • Review Against Actual Results
    Get in the habit of comparing your budgeted results to actual on a monthly basis. This will help highlight operational inefficiencies so you can react. It will also assist you in “fine-tuning” your assumptions going forward.
  • Don’t Forget About Investing and Financing Cash Flows
    We can group cash inflows and outflows into three major categories: operating, financing and investing. Operating cash flows look at how much cash you generated and used in normal business operations over a period of time. In the summer, when production costs are light and you’re selling your wine, you’ll likely see a net cash inflow from operations. In the fall when you’re buying grapes and crushing, your net cashflow from operations is likely negative.

Investing cash flow looks at what we need to buy to sustain or grow our operation. Do we need to buy more barrels? When? Are we planning to sell some old tanks and buy new ones? Financing cash flows looks at where the cash is going to come from if we are not yet generating enough cash from normal operations. Do we need a line of credit? A new term loan? More money from investors? Or are we scheduled to pay down our debt or pay a dividend on our shares? To be complete, a cash budget needs to consider all three types of financing cashflows.

Monitor Your Cash Flow
To influence the cash flow of your winery positively, you need to select key measures to monitor.

Here are two we like to use for wineries:

  • Days to Sell
    Out We suggest you monitor the number of days from bottling a particular vintage to the time the last bottle sells. We don’t want you to rush the winemaking process, but the quicker you can turn your bottled inventory into cash, the better your cash flow.
  • Working Capital Cycle (in days)
    In simple terms, this metric tracks the amount of time it takes a dollar to work its way through your production cycle until it comes out the other end as cash from your customer. Compared to most types of businesses, wineries have a horrendously long working capital cycle. The time from grape purchase to collected sale is measured in months or years, not days. Compare that to a restaurant that may carry two or three days of food and beverage inventory before it’s converted into cash sales.

Again, we don’t want to rush the wine making process but you can focus on paying your suppliers slower, selling your wine faster and collecting your receivables more quickly. Every day you can shave off your working capital cycle helps ease that cash crunch!

Geoff McIntyre is a Business Advisor specializing in wineries with Meyers Norris Penny in Kelowna.  Geoff can be reached at 250-763-8919 or [email protected]