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Protea Conversations: Nastassia Lopez

Protea Conversations: Nastassia Lopez

Protea Financial was founded in 2014 to provide high-quality out-sourced accounting at an affordable price.  Given Protea’s flexible work environment, the Company especially appealed to accountants who wanted to re-enter the workforce after taking time off to start a family. This allowed Protea to attract extremely talented individuals who were overlooked.  Over 80% of both Protea’s leadership and accounting teams are women.

We selected the name Protea because is the national flower of South Africa and is a symbol of our connection. The Protea flower has become an ornamental flower because of this striking beauty and is included in arrangements and bouquets as a symbol of courage or daring to be better or a sign of positive transformation.

Protea Conversations focuses on a successful woman in business and their achievements.  The hope is that these conversations will create a forum to discuss the experiences, opportunities, and challenges women face, and how we can build a more diverse, inclusive, and successful environment for everyone.

In February 2021 we spend time with Nastassia Lopez. Nastassia is a partner in Booker and Dax, a kitchen equipment design company. Additionally, Nastassia co-hosts the weekly podcast “Cooking Issues,” with host Dave Arnold, the highest-rated show on the Heritage Radio Network. She also co-founded Pasta Flyer, the critically-acclaimed, fast pasta concept with Chef Mark Ladner. 

Nastassia also created the controversial Wine Santa and introduced it to bars and restaurants in NY and LA. Dave hates it because he didn’t think of it.

Prior to her work with Booker and Dax, Nastassia opened Salumeria Rosi with Chef Cesare Casella in New York’s Upper West Side in 2010. She also managed the Culinary Technology Department at the French Culinary Institute with Chefs Nils Noren and Dave Arnold before launching Booker and Dax.

Nastassia currently sits on the Culinary Board of the Museum of Food and Drink, and the Junior Council at the American Museum of Natural History. 

Nastassia worked in restaurants to pay her way through Stanford University, where she earned degrees in both Creative Writing and Communications. In 2015 she graduated from Stanford Business School’s Entrepreneurship Program. She lives in Hell’s Kitchen and has a passion for hosting and entertaining.

Now, this is what we call a successful leader.

 

 

How did you get into the food industry and specifically your current role at Booker and Dax?

I paid my way through college by working in restaurants in Palo Alto (I went to Stanford). I was the first in my family to ever attend college. I hated working in restaurants—I would see a lot of my classmates come in and I’d have to climb under their table and fix the wobbly leg or pretend I knew the difference between Grey Goose and Absolut when making their bloody mary. When I graduated, I resolved to never work in food again. I went on to work in music at MTV and fashion. On a trip to Italy to visit a former roommate when I was 24, I remembered how much I loved food. When I got back to NYC, I applied and started working as the assistant for Italian chef, Cesare Casella. The Food Network had just launched, and “foodie” wasn’t a thing yet. Cesare introduced me to Dave Arnold, who was/is a crazy, food tech, philosophy undergrad at Yale/art master’s at Columbia. Dave and I became friends for a few months, and then eventually became business partners because we both realized we had similar weird backgrounds, but also loved food and could think strategically.

 

 

What has been the biggest challenge you have experienced in reaching your current success (personally and professionally)?

Misogyny, verbal abuse, psychological abuse, some physical abuse. This industry is no joke, and I’ve had to act like one of the guys to get by, while also taking on a lot of shit.

 

 

What are the short-term goals of your career/business and yourself?

Sell our business to a larger company, and do something completely different career-wise after that. 

 

What is the best piece of advice you have ever received that has helped you in your success?

Be nice, work hard, and never sign the contract.

 

 

What is the piece of advice that you wished you had gotten when you were starting out?

Don’t hold on to the way things “should be.” Everything changes in ways that you will and won’t be prepared for, so don’t try to control the environment or the outcome. Ride the wave and be flexible. Everything usually always shakes out the way it’s supposed to. Worrying and fretting makes you age faster and does absolutely nothing for you.

 

 

What advice you give to others to help them be better leaders?

Managing people is incredibly hard, and trusting a team execute your vision is even more difficult. Go with your gut if someone isn’t working out. Don’t waste time thinking they’ll “get better.” Cut them as soon as you feel they’re not on course.

 

As a thank you to our interview and Protea’s commitment to more diverse and inclusive leaders, Protea will make a donation to Vital Voices. Vital Voices Global Partnership is a global movement that invests in women leaders who are solving the world’s greatest challenges. They are “venture catalysts,” identifying those with a daring vision for change and partnering with them to make that vision a reality. The scale and accelerate impact through long-term investments to expand skills, connections, capacity, and visibility. Over the last 22 years, we have built a network of 18,000 change-makers across 182 countries who are collectively daring to reimagine a more equitable world for all.

Tax Preparation Enablement

We provide your organization a true end to end solution to all of your tax needs. Tax season is year round to Protea – if you aren’t preparing daily, it’s too easy to get behind. We are always working with your organization to streamline your businesses tax management.

Accrual Accounting vs. Cash Accounting – What’s the Difference?

Accrual Accounting vs. Cash Accounting – What’s the Difference?

There are two methods for recording financial transactions in your books—the cash basis and the accrual basis. The primary difference between these two is the timing of when transactions get recorded.

Choosing a method depends on your business’s needs, and most wineries should use the accrual basis to value inventory properly. However, we’ll discuss both ways so you can see how each impacts a business.

Cash Basis Accounting

The cash basis of accounting records financial transactions when cash changes hands. When you receive money from customers, you record revenue. And conversely, when you pay your bills, you’ll record the expense. It’s that simple.

Although the cash basis of accounting generally doesn’t comply with Generally Accepted Accounting Principles (GAAP), it’s widely used by small businesses and new companies due to its simplicity.

And using the cash basis doesn’t necessarily require hiring an accountant with years of experience. A competent bookkeeper will easily be able to keep your cash-basis books.

Accrual Basis Accounting

Recording revenue when it’s earned and expenses when they are incurred is the basis of accrual accounting. When cash is received or used is irrelevant to the recording of the income and expenses

The foundation behind accrual accounting is the matching principle. This means that companies match expenses with related revenues to calculate profitability for a specific period.

For example, when you sell a case of wine, at the same time, you need to record the cost of the wine and any related selling expenses so, at the end of the day, you know your profit on the sale of that case of wine.

Accrual accounting will make use of accounts receivable and accounts payable to keep track of money owed to you and money you owe to others. These accruals allow you to match your expenses with the corresponding revenue.

For example, when you ship 20 cases of wine to your distributor with an invoice, those 20 cases’ sales price becomes a receivable to you. You earned the revenue by completing the sale but haven’t yet received payment.

The converse works for the money you owe to others. When you receive a shipment of glass bottles from your supplier, you incur the expense when you receive them. But you may not pay that invoice for 30 days, so you’ll have a payable on your books for the value of the bottles.

Accrual accounting is more complex than cash accounting but does provide a truer picture of the profitability of your business.

Most larger companies and companies with numerous owners are required to use accrual accounting to adhere to GAAP principles. In fact, the IRS also has requirement on when accrual accounting must be used, namely for:

  • most businesses with inventory,
  • C-corporations, and
  • companies with more than $25 million in annual sales.

Examples of Effects of Cash and Accrual Accounting

Effects on Income

Assume you sell 100 cases of wine for $1,000 to your top distributor and the total cost of making, bottling, and packaging that wine was $500.

Cash basis

You record the $1,000 in revenue when your distributor pays you.

You record the costs for the grapes, labor costs, bottles, etc. when you pay for those items, which was likely long before you sold the wine.

Gross profit reported at the time of receiving the cash from the distributor is likely to equal to the revenue.

Accrual basis

You record the $1,000 in revenue when you deliver the wine to the distributor.

You record the costs of the materials and labor at the same time that you record the sales revenue.

Gross profit reported at the date the wine shipped (or a different date depending on the shipping terms) and will be equal to sales revenue less the cost of the wine.

You can see how the cash basis doesn’t provide a good representation of profit when your revenue gets recorded long after the expense shows up on the income statement.

 

Effects on Taxes

Using the same example of 100 cases sold for $1,000 at a cost of $500, the tax effect creates a similar mismatch.

Cash basis

You probably (due to the length of the inventory cycle in wine) recorded most of your costs in previous years, making your taxable income lower in those years.

But this year, when you record the $1,000 in revenue, your taxable income will be higher because you don’t have the offsetting expenses.

Accrual basis

This year, you’ll be taxed on your $500 profit on this sale since you’ll record revenue and expenses in the same year.

You’re starting to see that the accrual basis creates more of a steady financial environment than the cash method’s peaks and valleys. Accrual accounting provides a clear picture of the profitability of a business as the income and expenses are matched.

Which is Better? Cash Basis or Accrual Basis

Choosing the correct accounting method will depend on your business’s specifics. Things to consider when deciding on a method include:

  • Do you think you’ll need bank financing in the future?
  • Is expanding the business to include more owners a possibility?
  • Will your books ever need to be audited?

Cash Basis

Pros
Cons
Simple and easy Inaccurate financial picture
Easy cash flow management No records of what you’re owed or what you owe
Good short-term view Doesn’t comply with GAAP

 

Accrual Basis

Pros
Cons
The better overall financial picture Requires more resources
Commonly expected in business The short-term picture can be skewed
Conforms with GAAP

Once you pick a method, you’ll want to stick with it for two reasons. Firstly, for consistency in your financial information. This way you’ll always be comparing apples to apples. Secondly, the IRS requires you to maintain the same method. If you ever want to change, you’ll need to ask for the IRS’s permission.

It’s best to consult with your accountant when selecting the accounting method that’s best for your winery and could be different for operational needs and tax needs. They can help you set up your accounting system and processes to ensure you’re recording your transactions correctly. You can also lean on them when you need expert help or additional hands to get the work done. Protea has decades of experience helping winery owners navigate the bookkeeping, accounting, and tax waters. Contact us today to see what we can do for you.


Why You Should Hire a Bookkeeper

Why You Should Hire a Bookkeeper

Running a successful winery requires you to manage numerous departments—production, processing, sales, and administration, to name a few. Often bookkeeping and accounting are some of the first areas neglected when there’s not enough of you to go around.

When you find yourself scrambling at tax time or with a pile of unopened bills, hiring a bookkeeper can help ease your burden. With a professional in charge of your day-to-day finances, you’re free to tend to the areas of your winery that need your expertise.

 

A Bookkeeper Will Allow You to Focus on Your Business

 

Great bookkeeping is the backbone of any successful business. Ensuring your bills and employees are paid on time, your taxes are filed, and your financial statements are current are just some of the things a great bookkeeper does.

While you may think that doing your own bookkeeping saves you money and allows you to better understand your business’s finances, every bit of time you spend crunching numbers is time away from building, managing, or expanding your business.

You didn’t get into the winery business because you enjoy accounting and administrative work. Your time is better spent working on producing wine.

Bringing in a professional to help with your bookkeeping can prevent you from being spread too thin and burnout. Stay focused on what you really love doing and leave it to the financial expert to handle the numbers.

 

A Bookkeeper Will Help You Better Understand Your Business

 

You know a lot about wine grapes, harvesting, and selling wine. Chances are you aren’t a skilled accountant.

You may know how much your grapes cost but do you know you receive a 10% discount if you pay your vendor a few days early? A bookkeeper will help you manage cash flow to ensure your business takes advantage of any money-saving opportunities.

As your winery grows, knowing how much cash you have in the bank isn’t enough. You’ll need to know how much money you have coming in and going out in the future. Keeping track of it in your head can lead to cash flow struggles.

A great bookkeeper will manage your accounts receivable and accounts payable to keep cash moving.

Having a bookkeeper who’s devoted to your winery’s books allows them to be able to spot irregularities early. Maybe a vendor is charging more or you are selling more than in the past, but you aren’t  collecting more sales tax. Addressing any inconsistencies from the start will save money and time in the long run.

An experienced bookkeeper can help streamline procedures too. They can help standardize how documents are retained or create a calendar to manage due dates of bills.

Tax Preparation Enablement

We provide your organization a true end to end solution to all of your tax needs. Tax season is year round to Protea – if you aren’t preparing daily, it’s too easy to get behind. We are always working with your organization to streamline your businesses tax management.

A Bookkeeper Will Help Keep Your Business Compliant

 

Taxes come in many shapes and sizes. Federal payroll and excise taxes. State payroll and income taxes. Sales taxes and business licensing.

Bookkeepers excel at organizing, recording, and filing. Experienced winery bookkeepers know the ins and outs of the various taxes your winery will need to pay. They will ensure processes are in place so that your taxes are filed and paid on time, preventing you from incurring penalties and reducing your anxiety.

State regulations govern the winery industry. Keeping on top of your winegrower’s license, wholesaler license, and your on or off-premise retail license is another area an experience bookkeeper can assist. They can ensure your licenses are renewed before they expire and can provide any necessary reports. 

If you have loan covenants to maintain or investor reporting to prepare, an experienced bookkeeper can manage this to ensure you don’t miss a deadline.

With a dedicated bookkeeper, year-end tax time can be less stressful. Your bookkeeper has kept your financial house in order throughout the year. This makes it easy to hand over your tax records to your tax professional.

 

A Bookkeeper Can Save Your Business Money

 

In addition to the compliance aspect of tax time, your bookkeeper is probably less expensive than your tax professional. Having a bookkeeper on staff who timely records your transactions decreases the amount of work your accountant has to do to prepare your tax return.

A high-quality, experienced bookkeeper will have a general idea of how much things costs. While they may not know specifics about the winery industry, they will know prices for office supplies, telephone service, and bank fees. This wealth of knowledge will prevent you from paying more than you should.

A bookkeeper will ensure your bills are paid on time so you avoid late payment fees or interest. These unnecessary expenses reduce your profits and may harm your business’s credit score.

Bookkeepers can also monitor your budget. They can provide reports comparing your budget with actual expenditures and will be able to zero in on any differences. With enough experience with your winery, they can also assist in developing future years’ budgets.

Even if you’re just starting on your business journey, hiring a bookkeeper early will prevent the stress and struggle that comes from DIY bookkeeping. And those further along the business path, now’s the time to consider the benefits a bookkeeper can provide.

Whether you’re looking to hire a bookkeeper as an employee or outsource it, having a professional in your corner makes sense. You’ll be able to focus on taking your winery to new heights.   

Why You Should Hire a Bookkeeper

Running a successful winery requires you to manage numerous departments—production, processing, sales, and administration, to name a few. Often bookkeeping and accounting are some of the first areas neglected when there's not enough of you to go around. When you find...

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Small Producers Tax Credits for Everyone!

Small Producers Tax Credits for Everyone!

‘Small Producers Tax Credits for Everyone!’ (Said in my best globally famous talk show host voice.)

So you’ve heard that the Craft Beverage Modernization Act was made permanent. And you operate a winery or you support operational reporting for a winery.  Now what?

 

Let’s Begin at the Beginning – Tax Class for Still Wine

Before you can figure out how to take a tax credit, you need to check the tax class.  The rates of tax for still wine can be found in 26 U.S. Code SECTION 5041 (c) or by clicking here if you really want to read tax code.  Effective January 1, 2021, still wine that is not more than 16% alcohol by volume (‘ABV’) is taxed at $1.07USD per gallon and still wine between 16% ABV and not more than 21% ABV is taxed at $1.57USD per gallon.  That means that while the tax rate has not changed, the ABV for still wines in a specific tax class did change.

If you produce still wine and you have removed it tax paid from the winery’s bond, the excise taxes owed are based on the rates listed above.  Still wine that is transferred from the winery’s bond to another bond (typically for storage or order fulfillment) and tax paid later is still eligible for the tax credit.  In short, if you pay tax on still wine of your own production you are eligible for the tax credit described below.

 

Side Note – Labelling Rules

TTB labeling rules for listing the ABV on wine labels did not change.  I received questions about this over the past two years and the listing requirements along with permitted tolerances, can be found HERE.

 

Tax Credit?  What Tax Credit?

Effective January 1, 2021, among other changes, the words ‘For Small Domestic Producers’ is removed from that same 26 U.S. Code SECTION 5041(c) mentioned above. This permanently establishes that the following tax credits are available to all wine producers and importers:

  • $1.00USD/gallon on the first 30,000 gallons produced in the United States or imported into the United States in a single calendar year
  • $.90USD/gallon on the next 100,000 gallons
  • $.535USD/gallon on the next 620,000 gallons

Up to 750,000 gallons of wine are eligible for some form of tax credit in a single calendar year.  Note that while the tax class changes only applied to still wine, the tax credits apply to all types of wine.

Excise Tax Class? Check.  Tax Credit? Check.  Where Do I Claim the Credit?

Before you can claim the tax credits listed above, you need to first tell the Tobacco Tax and Trade Bureau (‘TTB’) that you have removed the wine from bond to tax paid status.  If you work on the winemaking side of the business or support winery operations, you’ve probably heard the terms ‘702’ or ‘5120’, depending on your vintage in the industry.  Those terms apply to the TTB Report of Wine Premises Operations, found HERE on the TTB’s website. This report is where a wine producer declares how much wine they have produced, what winemaking activity (including bottling) occurs and, among other things, what wine is removed from bond during a given reporting period.  (Reporting periods vary based on production volume.) Just in case you’ve looked up the form and you’ve never filled one of these out before, there are two rows on the form where you list wine removed tax paid – Section A (Bulk Wines) on row 14 and Section B (Bottled Wines) row eight. Both rows have multiple cell options depending on the tax class and type of wine or hard cider that was removed, but those rows are where you specify what has been removed tax paid. Once wine has been reported as ‘removed taxpaid’, excise tax is owed on that wine.  After the operations report is filed, it is time to file and pay the excise tax for the wine removed from bond along with claiming available tax credits.

The TTB Excise Tax Return or TTB F 5000.24sm, is where you declare the taxes you owe and credits allowed.

 

Updated Forms Available

There are now forms available for winemaking activity prior to January 1, 2018 and activity from January 1, 2018 to present.  You can find the most common TTB forms HERE.

 

A Permanent Tax Credit is Not a Change in Tax Rate

Making these two changes permanent is great news for producers large and small.  What needs to be clear is that these are two different changes – one to the up to 16% ABV tax rate and the other allowing all producers to claim a tax credit that had previously been reserved for small producers.  While the net impact may be a reduction in taxes paid, it is not a reduction in a tax rate across the board.

For anyone who has read the relevant section of the 5,000 plus page document where these changes were made permanent, you will notice something missing from this post.  This post is directed at domestic wine producers and does not explain how it may apply to importers of wine in the United States.

 

Need More Information?

Cronbach Law Group PC is a law firm located in Napa, California.  Our focus is helping our clients understand the complex world of alcoholic beverage regulation –  50 states, 51 sets of rules. Let us be your guide and keep your busines priorities top of mind on along the way.  www.winedeal.law

 

 

 

 

Thank You From Protea Financial: This Is Just the Beginning

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The primary difference between these two is the timing of when transactions get recorded.

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Small Producers Tax Credits for Everyone!

‘Small Producers Tax Credits for Everyone!’ (Said in my best globally famous talk show host voice.) So you’ve heard that the Craft Beverage Modernization Act was made permanent. And you operate a winery or you support operational reporting for a winery.  Now what?...

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How to Calculate the Cost of Making Wine

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Financial Forecasting and Cash Flow Planning

While extremely rewarding, getting a winery up and running can be very difficult to do. Not only does it require a large amount of capital and resources to start with, but you also won’t even start selling wine until a few years down the line. It’s a large investment...

The Property Insurance Marketplace for Wineries

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Businesses Need to Do These Four Things Before 2021

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Bookkeeping Basics for Small Business – Why Bookkeeping Matters

Few of us like to think about bookkeeping and accounting. Without it though, you’ll find yourself in the dark about how your winery is performing. Bookkeeping is the backbone of all businesses. To know what’s happening at the most basic financial level, you’ll need to...

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How to Calculate the Cost of Making Wine

How to Calculate the Cost of Making Wine

To run a profitable winery, it is vital to understand how much profit you are making per bottle of wine sold. You will need to be able to determine and understand what you can sell your wine for and how much that wine costs to produce.

While the market will dictate how much you charge for your wine, you control how much it costs to make it, as long as you understand what is included in the costs and have a mechanism to track it.

An accurate calculation of the costs to make your wine increases the likelihood of operating a profitable winery. Although this sounds like a simple endeavor, there are challenges. From determining which costs to include, to tracking all expenses through the production process, getting to a final dollar value takes time and careful consideration.

The Basic Terminology

Before we can start discussing how to value your winery inventory, let’s define two key accounting terms.

Cost of Goods Produced (COGP) 

Commonly known as wine in process or cost of inventory, all costs involved in the process of making wine are included. This includes things like:

Raw materials
• Services
• Labor
Overhead allocations

Whether direct or indirect, all costs from planting through to bottling the finished wine are included in COGP.

Cost of Goods Sold (COGS)

The COGS is the cost of the wine sold in a specific period. You’ll need to match the cost of the inventory you sold to your revenue. A simple way to put it, for each bottle of wine sold, how much did it cost to make and get it into the hands of the customer.

Now that you understand the two primary accounting terms related to production, we need to dig deeper into the different ways to develop a value for your COGP, starting with the groups of costs involved.

Inventory Costs

Winemaking generally involves three main types of costs.

Direct materials
Direct labor
• Overhead allocations

Direct Materials in Winemaking

Calculating materials cost is reasonably straightforward. It is the cost, including tax and delivery fees, to acquire your materials and get them to your production area. This includes raw materials like grapes and packaging materials like bottles and boxes.

Segregating these costs makes the allocation of overhead (which we’ll discuss a little later) a little easier and more accurate. And it makes sense for blended wines. You’ll be better able to track the component costs.

While you may initially record the cost of grapes separately (if you are farming, this will be more complex than if you are buying grapes), it will be added to the other expenses, such as fermentation and cellar costs, to get to your bulk wine cost.

Direct materials don’t include materials consumed in production. For example, light bulbs or air filters in your production facility are manufacturing overhead.

Labor in Winemaking

Labor required to turn your raw grapes into a finished bottle of wine should be included in inventory costs. You’ll want to include not only salary and wages but also benefits and payroll taxes.

Owner or executive compensation is difficult to classify. While they are involved in the winemaking process, they also work in other areas, like administration and finance. For these individuals, determine how much of their time is involved in the winemaking process and apply the percentage to their total payroll costs. Using reasonable estimates is acceptable.

Overhead in Winemaking

Costs incurred to keep your winery operating but aren’t direct materials or labor are overhead. Overhead costs are usually aggregated into cost pools and allocated based upon the number of bottles produced.

Examples of overhead include property insurance and taxes, building repairs and maintenance, utilities, and administrative staff wages.

With your bulk wine value, adding expenses for your direct labor and overhead gets you to the total cost of the finished, ready-to-sell wine.

After you’ve tabulated the total inventory costs, you’ll need to consider how your wine inventory moves. This cost-flow is your inventory valuation method and impacts your COGS, income taxes, and balance sheet ratios for lending requirements. Choose the other that best suits your production process.

COGP/Inventory Valuation Methods

Specific Identification

This method involves tracking each item from the time of purchase through to when the wine is bottled. Meticulous record-keeping, data collection, and data segregation make specific identification highly accurate.

Starting with the calculation of exact juice or wine yields for each varietal vintage, even getting detailed down to which vineyard or vineyard block, you then track the juice into the individual barrels for each lot, parsing and combining as barrels get blended.

Weighted or Average Cost

When costs are intermingled and difficult to specifically identify, using the average cost method may work best. Using the average or weighted average for consumable supplies like yeast and sulfur or general costs like storage is appropriate.

First-In First-Out (FIFO)

Another valuation method is the FIFO method, which assumes that inventory moves such that the oldest stock (the first in) is the first sold (the first out).

Last-In First-Out (LIFO)

As you might guess, the LIFO method assumes the newest inventory items (the last in) are the first to be sold (the first out). This is unlikely the case in the wine industry since older vintages are typically sold before newer ones.

Specific identification and FIFO are the most commonly used valuation methods for wineries.

Using LIFO for tax purposes requires you to use it for financial reporting purposes. This can be achieved while still using the specific identification or FIFO method by recording a LIFO reserve on your books.

Recent changes in the tax code for expensing of certain winemaking costs make consulting with your CPA very helpful.

Regardless of which inventory valuation method you use, use it consistently. Consistency is required for U.S. GAAP reporting and makes spotting an error easier.

Valuing winery inventory is challenging and unique. It requires specialized knowledge acquired through years of experience. The professionals at Protea have decades of experience helping winery owners with complex accounting and tax issues. Reach out today to see how we can help you.

Financial Forecasting and Cash Flow Planning

Financial Forecasting and Cash Flow Planning

While extremely rewarding, getting a winery up and running can be very difficult to do. Not only does it require a large amount of capital and resources to start with, but you also won’t even start selling wine until a few years down the line. It’s a large investment with a substantial amount of risk – especially if you don’t plan accordingly.

In this article, we’ll discuss how you can use financial forecasting and cash flow planning to ensure that your winery is set up for success.

What Is Financial Forecasting?

Financial forecasting is the process of estimating your expected financial status in future periods. Usually, forecasting involves making use of existing data and is most commonly seen in income statements. However, more complete financial models will have forecasts for all of their financial statements, including the balance sheet, cash flow, and statement of owner’s equity.

Financial forecasting models vary from business to business. Some companies use historic figures and data as a basis for future trends, which are easier to calculate but not as reliable. Other companies favor studying expansion and inflation rates and other forecasted data, which can be more time-consuming but possibly more accurate.

Here are some of the most commonly used methods of financial forecasting to give you a better idea of how they work:

Straight-line Method

Arguably the easiest financial forecasting method, the straight-line method uses linear growth as basis for computation. If you were to chart the growth on a graph, you would notice a straight line moving up or down, hence the term “straight-line.”

To calculate using the straight-line method, all you need to do is calculate the growth rate of any relevant data you wish to forecast, such as sales. Then, multiply the current data by the growth rate to get the future amount. This process can be repeated indefinitely.

The main downside to the straight-line method is that it’s not a very accurate one, especially for smaller, more volatile businesses.

Linear Regression

Linear regression is a popular method of financial forecasting that makes use of trends and extrapolating forecasted data from them. Similar to the straight-line method, linear regression does involve lines, but instead of the values forming the line, the values are fitted into a linear equation.

Because of its accuracy, linear regression and its various sub-methods have become one of the most common ways to forecast financial data. Unless you have the knowledge and expertise, however, you may want to refer to professionals for an accurate analysis.

What Do I Do with Data from Financial Forecasting?

Once you have a predictive model of your financial data, you can then begin to make decisions to maximize gains or minimize losses. If you’re expecting more sales in the future, you can increase production now to gain even more profits. If sales are forecasted to go down next year, you may want to cut your losses by lowering your prices. The data itself won’t save your businesses – only you can.

What Is Cash Flow Planning?

Cash flow planning is a subcategory of financial forecasting. Instead of predicting all of your financial data, however, it focuses on the future inflows and outflows of cash in your business.

Cash flow planning is such an important tool because cash is the most liquid asset that drives nearly all transactions. A business that runs out of cash dies.

To make an accurate cash flow plan, you need to consider multiple factors. Here are some of the most important ones:

Regular/Operating expenses

This is by far the most important (and most predictable) outflow of cash. Every day, week, month, quarter, or year, you have recurring expenses that the business must pay to keep running. Common examples of this are payroll, rent, and utility bills.

Losses

Not everything goes perfectly in business. Sometimes, your business may incur losses that aren’t part of your regular expenses. These losses aren’t very predictable and can leave you with little to no liquidity.

Examples of losses include accidents (such as car accidents), natural disasters, and even spoilage. Since you can’t really predict when these events will occur during the year, some businesses set aside an amount that’s reserved for losses.

Price Changes

The market’s always changing, and so do the prices of goods. For wineries, this can be the difference between a large profit margin and barely breaking even. By understanding and taking into account the price changes of materials, ingredients, and even equipment, you’re able to more accurately determine your expenses and earnings for the period.

How Often Should I Make Cash Flow Plans?

Since cash flow plans involve your most liquid asset, they are best made on a month-to-month basis or even more frequently. A lot of businesses would benefit at looking at their expected cash position before making weekly payments so they can consider if delaying of payments are necessary or if they need to talk to investors or lenders to extend funds to get through high cash flow period (think about all the additional needs for cash during harvest).

Making cash flow plans for the next year is difficult, and often changing but most businesses need to plan more than a few months out, especially manufacturers, which would include wineries. At a minimum a business should be forecasting 3 months out but forecasting 1 year out will be very important to allow to make better decisions. 

After making a cash flow plan, you should now have a good idea of what to expect for the next few months, and whether or not you’re going to have sufficient funds to cover your current needs.

Conclusion

Financial forecasting and cash flow planning are useful tools to help you make financial decisions to maximize your profits and ensure your business never runs out of cash. Financial forecasting can give you an idea of the general direction your business is headed, whereas cash flow plans help you stay on top of your month-to-month operational expenses and assisting in making long term financing decisions..

By understanding how financial forecasting and cash flow planning works, you can guarantee the success of your winery for years to come.