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What Receipts Does the IRS Require You to Keep?

What Receipts Does the IRS Require You to Keep?

When you deduct business expenses on your income tax return, you can usually refer to your records to support the expense. However, you must keep records that meet IRS record-keeping standards in case of an audit. We aim to explain what receipts the IRS requires so that you don’t miss anything when filing your taxes.

The IRS will probably ask for a receipt or another expenditure record if you use cash for business expenses other than wages, depreciation, or car expenses. The rules are more lenient if your business is a sole proprietorship, and all its expenses are subject to the personal property deduction. Here are some of the most important receipts you should keep for your business.

 

Receipts for All Business Expenses Over $75

The IRS requires a written record of all business expenses exceeding $75. In most cases, you must have a receipt for these expenses.

  • If you make a payment that does not require a receipt, you should keep a written record of the payment. The written record can include a computer log, a spreadsheet, or a diary. It must show the payment amount, the business reason for the payment, the business name and address (if different from your own), the date of the payment, and the name of the person or company that you made the payment to.
  • Keep records of all expenses relating to your automobile, such as gasoline, oil changes, repairs, insurance, tires, and maintenance. Business miles driven should be kept separate from personal miles driven. If you drive a car that you own, you can deduct the business miles driven and your actual expenses (gasoline, oil changes, repairs, and maintenance). If you drive a car that you lease, the lease payment and business miles are considered a business expense. If you drive a vehicle that you rent, you can deduct only the business miles driven.
  • Keep records of all expenses relating to your home office, such as electricity, heating fuel, cleaning supplies, telephone, internet, and insurance. You can also deduct the cost of a separate telephone line with a business message on your voicemail. If you have a home office, you must determine whether the office is a deductible expense.

 

Travel and Entertainment

The IRS requires receipts for travel and entertainment (T&E) expenses, such as airfare, hotel bills, meals, and car rentals. The rules are different if the T&E is associated with a business event that meets one or more of the IRS’s T&E rules.

You do not need a receipt to support the T&E expense in these cases. Instead, you must keep a log of the expenses and the business reason for the T&E. You must also keep track of the business purpose, who was present at the event, how much each person spent, and how long the event lasted.

Protea Financial Small Business Receipts

Advertising and Marketing

The IRS requires receipts for all advertising and marketing expenses and some research and development costs. Advertising and marketing expenses include the cost of printing, designing, and mailing promotional materials such as brochures, catalogs, and newsletters.

These also include the cost of internet advertising, website design, and fees for public relations and advertising consultants. Research and development costs include the cost of product testing and experimentation to determine if there is a need for new products and the level of customer demand for existing products. They also include the cost of developing prototypes and formulas.

 

Depreciation

Businesses that use an accrual method of accounting must keep all records. Depreciation records must show the date the equipment was placed in service, the equipment’s original cost, and the depreciation amount each year.

If your business owns its assets, you must depreciate them over a certain period. Real estate records must show the date you purchased the property and the amount of any mortgage. You must keep records of the cost of improvements and repairs to the property.

 

Business Gifts

The IRS requires receipts for all business gifts. Keep records on the following:

  • The date and location of the gift
  • The name of the person receiving the gift
  • The value of the gift
  • The name of the person who gave you the gift
  • The business reason for the gift
  • The business relationship with the person giving you the gift

If you receive a gift, keep records of the gift, the business reason for the gift, and the business relationship with the person who gave you the gift. You must report gifts of more than $25 on your income tax return.

 

Computer Equipment and Software

Businesses that use computers to process their financial data or orders of products and services must keep records of the acquisition cost and depreciation. Computer-related expenses that can be deducted from your income tax return include the cost of:

  • Computers
  • Printers
  • Modems
  • Software
  • Internet service
  • Repairs, upgrades
  • Depreciation

These also include monthly payments for a computer and internet service, computer repair fees, and computer rentals for employees who do not have their own computers. For any software titles, it is best to also add a note as to what it was used for and who used it, in case you ever need to know down the line.

 

Office Supplies

Keep records of the purchase price of all office supplies that you deduct on your income tax return. These include paper, pens, pencils, notebooks, file folders, cleaning supplies, toner for printers, pens, pencils, paper clips, and computer paper and toner.

Warranties for office equipment such as computers and printers are also deductible. You can also deduct the cost of copying and printing services.

Protea Financial Small Business Office Supplies

Mileage and Vehicle Maintenance

Keep records of all vehicle-related business expenses, such as gasoline, new tires, oil changes, necessary repairs, insurance, and all vehicle maintenance. Also, keep records of the business miles driven.

You must keep a mileage log for each business trip and every business-related trip from home. You must report all business miles driven on your income tax return.

 

Outsourced Assistance for Your Business

The IRS requires receipts or written records for all out-of-pocket expenses. You also must keep records of any payments made to independent contractors or outsourced service providers.

In addition to written records, you must maintain a written contract with any individual or company that you hire to perform any part of your business. Keep these records also to protect yourself should an issue come up with those contractors or providers in the future.

 

Let Protea Financial Help You Determine Which Receipts Are Best to Keep for Your Business

The IRS will examine your business expenses if you claim them on your income tax return. You must keep records of all business expenses to prove that they were legitimate business expenses.

Keep records in a way that makes sense to you so that you can quickly identify and locate the information when you need it. This will make tax time much easier.

You should keep these records for as long as you own the business. If you sell your business, you must keep the records for at least three years after the date you sell it.

Are you looking for more information? Contact Protea Financial today and let us help you organize your finances, straighten out your receipts, and be ready ahead of the next tax deadline.

Protea Financial Can Help You Keep the Right Receipts for the IRS

When you contact Protea Financial, you get a team of professionals who can help you with many aspects of your financial record keeping, including knowing which receipts are best for you to keep for tax time. Call now – we are here to help!

The Pros and Cons Of Bookkeeping in QuickBooks Online For Small Businesses

The Pros and Cons Of Bookkeeping in QuickBooks Online For Small Businesses

Are you thinking of using QuickBooks Online to manage your business’s bookkeeping? If so, you’re not alone. In today’s fast-paced digital world, no business can afford to lag behind, making software an essential component of success. Small businesses, in particular, must be agile to succeed. Fortunately, technology makes it easier than ever for small businesses to connect with potential customers and streamline operations.

Many businesses use QuickBooks Online for their accounting and bookkeeping needs for good reason. It can be an excellent program for managing financial information, streamlining processes, and reporting on performance.

However, there are pros and cons to using QuickBooks Online as your business’s bookkeeping solution. Let’s discuss the advantages and disadvantages you should consider before deciding to use QuickBooks Online for your company’s bookkeeping needs.

 

The Pros of Bookkeeping in QuickBooks Online

There are many advantages to using QuickBooks Online as your financial platform. Here are just a few of the biggest pros to using QuickBooks Online:

  • Easy setup – QuickBooks Online has a simple setup process that can be completed in a matter of hours. You should spend plenty of time setting up the system so that it is optimized for your business. The process is straightforward, and plenty of resources are available to help you make the most of your setup.
  • Excellent user interface – One of the best parts of QuickBooks Online is its user interface. It makes using QuickBooks Online easier and more intuitive.
  • Powerful reporting tools – A good accounting solution should allow you to view your financial situation, as well as that of your customers. This can be especially important if you have a subscription-based business model. QuickBooks Online reporting tools allow you to view critical information quickly and easily, allowing you to make smart decisions quickly.
  • Data security – Unfortunately, data breaches are a real problem in today’s business world. QuickBooks Online provides plenty of security features to protect your data. This can help you sleep better, knowing your data is safe from malicious actors.
  • Affordability – QuickBooks Online is one of the more affordable options on the market. If you want to be able to use bookkeeping software that is not going to cause your finances to struggle, this is likely the best option for you.

Protea Financial Bookkeeper with QuickBooks Experience

The Cons of Bookkeeping in QuickBooks Online

Despite the advantages of QuickBooks Online, it isn’t the perfect solution for every business. There are drawbacks to using QuickBooks Online for bookkeeping. Here are a few of the cons to using QuickBooks Online:

  • It is not always the best for growing businesses – While QuickBooks Online is a great solution for small businesses, it may not be the best choice for growing ones. You may need to upgrade your accounting solution as your business grows and expands.
  • Data limitations – While QuickBooks Online has robust reporting, you cannot always use all of it. You cannot use certain features if you have customers governed by specific data laws.
  • Feature limitations – Some small businesses will find that QuickBooks Online lacks features. For example, if your business relies on eCommerce, some features that can help you track purchases may be missing.
  • It doesn’t integrate with everything – Not all software integrates with QuickBooks Online. Some services you may want to use won’t work well with QuickBooks Online, which can create issues for some small businesses.

 

Should You Use QuickBooks Online for Small Business Bookkeeping?

If you are still on the fence about whether QuickBooks Online is the right solution for your business, here are a few factors to consider. Accountants recommend that companies keep their books for at least seven years. If your business is new, it has no history to report, making a new software title a viable option.

If your business is growing, you may need a better solution than QuickBooks Online. If you are unsure if QuickBooks Online is right for your size business, consider reaching out to a bookkeeping specialist here at Protea Financial. Our experts can help you decide whether QuickBooks Online is the right solution for your business today and in the future.

Turning to an experienced bookkeeper can get guidance on reading the different reports and accessing the various financial reports QuickBooks Online offers. Should you decide to use the QuickBooks Online platform, you can either go through the process of setting it up yourself or turn to an outsourced bookkeeper with QuickBooks Online experience for help.

Protea Financial QuickBooks Online

Tips for Deciding if QuickBooks Online is Right for Your Small Business

Here are a few tips to help you decide if QuickBooks Online is the right solution for your business.

  1. Do your research – When you decide to use a new accounting solution, you put a lot of trust in that solution. You want to make sure you’re putting your trust in the right place. Make sure you do plenty of research before settling on QuickBooks Online.
  2. Ask questions – If you are in the process of deciding whether or not QuickBooks Online is the right solution for your business, don’t be afraid to ask questions. You can’t make an informed decision unless you have all the necessary information. Be sure to ask any question you may have to make sure you have all the information you need.
  3. Pick the best option – There are many variations in bookkeeping software, including QuickBooks Online. If you are unsure if the one you are looking at will fit, explore the possibilities. Look at each feature and add-on before deciding on any software title.

You can do a few things to ensure success if you choose to go with QuickBooks Online for your company’s bookkeeping needs.

  • Make sure the data you input is accurate. This can help you make intelligent financial decisions faster.
  • Make sure everyone who needs access to the system has access. This can help reduce the time spent managing the system and allow you to focus on more important things.
  • Make sure QuickBooks Online is integrated with as many services as possible. This will help reduce headaches and keep things running smoothly.

There are many valuable tools within QuickBooks Online. Make sure you take the time to explore it properly to get the most value for your money.

 

Let Protea Financial Help Your Small Business Succeed

Deciding on one specific software for your business can be a daunting task. Thankfully, you do not have to make the decision alone. Turn to the financial experts here at Protea Financial today. We can help guide you toward the best possible bookkeeping software for your business.

You can also turn to us as virtual bookkeepers so you can focus on your business while we track your financial information for you. Put our years of experience to the test. Contact Protea Financial today so you can get your business on the right track.

Protea Financial Can Help You Learn QuickBooks Online for Small Businesses

Here at Protea Financial, we understand that finding the right software solutions is not always easy. If you are considering QuickBooks Online for small businesses, then reach out. We can help!

Is Your Small Business Ready for the Recession?

Is Your Small Business Ready for the Recession?

Small businesses are often hit the hardest when the economy takes a downturn. With fewer customers spending less, many small businesses must cut back in order to stay afloat. In these times, it is more important than ever for small businesses to be as frugal as possible and have a plan for staying afloat during recessions.

Whether your business is just starting out or you’re looking to revamp your company before things get worse, our goal here at Protea Financial is to help you get ready for challenging times ahead. Get acquainted with some common risks that small businesses face during recessions, and learn strategies to safeguard yourself from potential pitfalls. Here are some practical tips on keeping your business safer through this period of instability.

 

What a Recession Can Do to a Small Business

A recession is a time when the economy slows down, and companies experience reduced sales, fewer customers, and higher costs. One of the most common effects of a recession is that it can harm small businesses, and this is because smaller companies may not be able to absorb the impact of reduced sales, so they may have to make significant cuts in their workforce.

If this happens, some employees may leave the company, which could lead to further reductions in staff numbers. Furthermore, if a small business goes through a period of financial difficulty, it may be tempted to take on more debt.

However, when the economy improves, this debt may make it harder for the company to repay its loans. Therefore, it could end up with even deeper problems than it started with.

Protea Financial Getting Ready for the Recession

Protect the Assets That Matter Most to Your Business

If you want your business to weather a recession, you have to be ready for one in advance by maintaining a tight ship. This means cutting discretionary spending so you have a healthy cash flow. You can cut out company-paid snacks, or put someone in charge of finding vendors that may offer better prices.

Carefully track your expenses so you know where your money goes and you can be sure you are not spending unnecessarily. Tracking your business expenses is often best left to your bookkeeper, as they can do it in less time and with more accuracy than you likely can.

Other options you have to protect your assets include:

  • Bolster your relationships with your customers. This can keep business coming in, and sometimes even attract new customers during this unpredictable time.
  • Get insurance policies that can help keep your business safer in the event of an unexpected event or emergency.
  • Place the money you save into a savings account so you have cash reserves should you need them.
  • Keep your company’s employees happy. It costs far more to bring in a new employee than it does to keep your current employees. Turnover is expensive, so make sure you offer options like competitive salaries and health benefits to keep employees with you during these tough times.
  • Protect your company on all fronts, including making sure you have cybersecurity protection in place, as well as proper backups. The expense of losing data is much higher than replacing an up-to-date backup.
  • Always maintain the highest reputation that you can. This allows you to build and maintain strong relationships with customers, who will typically keep buying from the companies they know and trust.

 

Save Where You Can

As you prepare your company for a recession, one of the best ways to stay afloat is to save where you can. This includes cutting unnecessary expenses and setting up automatic savings plans to save for the future.

Start by making a list of your business’s expenses and cutting any unnecessary ones that you can. Look for any areas where you can save, such as by reducing your energy use during business hours or by outsourcing some services if they are not absolutely necessary.

Another way to save money is to open up a savings account where you can store away money for a rainy day. You should also open up an emergency fund where you can store money to help pay for unexpected expenses such as repairs or to help meet payroll when cash flow is low.

 

Stay Flexible

A recession can often come out of nowhere, and it can be easy to be unprepared if you are not keeping an eye on the economy. As you prepare for a recession, you must keep an eye on any potential warning signs that one may be approaching. This includes monitoring major economic indicators and listening to what analysts and experts have to say about current events.

When a recession does hit, one of the most important things to do is to keep working. It’s easy for small businesses to get overwhelmed and paralyzed when a recession hits. By continuing to work, you can ride out the storm and be in a better position to emerge on the other side once the recession is over.

Protea Financial Is Your Business Ready for the Recession

Learn More About Your Finances to Protect Your Small Business

Every aspect of a small business is vulnerable to financial loss, especially during the uncertain times of a recession. Your cash flow, sales, inventory, and more can be affected by unexpected expenses, including the costs of an emergency. Understanding your business’s financial health allows you to protect your business from potential financial losses better.

You can use several tools and financial reports to assess your financial health and identify areas for improvement. Some examples include:

  • A cash flow forecast that shows expected incoming and outgoing cash flows over time.
  • An income statement that shows revenue and expenses over time.
  • A balance sheet that shows assets, liabilities, and owner equity in a single snapshot.
  • A profit and loss statement that shows income and expenses over time.

Watch Your Cash Flow

If your business is tied to the economy’s health, you’ll want to keep an eye on your cash flow. When the economy takes a downturn, customer spending decreases, and you can expect less revenue to come into your business as a result.

It’s important to keep a close eye on your cash flow during these times and make sure you have enough cash on hand to get you through any rough patches. This includes having enough in your savings account to cover payroll and other expenses. It’s also a good idea to have a line of credit or business credit card available in case of emergencies, like sudden drops in revenue.

One important thing to keep in mind is that your customers’ payment timelines may also change during recessions. Credit card companies often extend payment deadlines and give users more time to pay their bills. Your customers may also be more likely to pay in cash during tough times, so you should factor these changes into your business’s cash flow projections.

 

Protea Financial Can Help You Learn Ways to Get Ready for the Recession

A recession can be a trying time for many small businesses. Make sure you are ready for one by keeping a close eye on your expenses, protecting your cash flow, and saving money whenever possible.

Stay focused and keep working during tough times; your business will be better positioned to emerge stronger once the recession ends. For help learning about how you can improve the health of your business or understand where your business stands, contact Protea Financial today!

Get Ready for the Recession with Protea Financial As Your Guide

Getting ready for the recession is a must for small businesses that want to survive. Let us help guide you. Contact us now and let us help!

What Goes Into the Cost of a Bottle of Wine

What Goes Into the Cost of a Bottle of Wine

You may not have thought about this, but it is a common question among winery and vineyard owners, not to mention wine aficionados. Customers always ask vineyard and winery owners why wine is priced the way it is. If you have ever wondered how your favorite bottle of wine is priced, or you are thinking about changing the price of your wine, here is a go-to guide on wine pricing.

 

The Cost of the Grapes Themselves

One of the largest expenses wineries have when they make a bottle of wine is the cost of the grapes themselves. Each grape variety has a price tag, usually measured in tons. For example, the Caberlot grape, an extremely rare wine grape that is only cultivated in one area of France, is extremely expensive to purchase. By comparison, the Pinot Grigio grape is much more cost-efficient, not to mention versatile. No matter which grape variety you use, a lot of wine can come from a ton of grapes. Wineries can make about 2 barrels of wine from one ton of grapes, which equals 720 bottles of wine from one ton of grapes.

Of course, when you buy grapes by the ton, you aren’t just paying for the grapes. You are also paying for the cost of growing the grapes, including the grape seed, organic fertilizers and pesticides, the labor needed to harvest the grapes, and even the startup costs for grapevines. Since it can take up to four years to produce the perfect wine grape from the original grapevine, it’s no wonder a ton of grapes isn’t cheap.

 

The Cost of the Barrels and Tanks

Wine production can’t happen without wineries aging the wine in barrels or barriques. Whether you call them barrels or the French barriques, your winery has to pay for the wine to age. The cost of the barrels used to age wine vary depending on the type of wood used, and each winery has a preference for which wood ages wine the best.

In many areas of wine production in the United States, white oak is used for wine aging barrels because it is porous and works to age wine quickly. However, winemakers may prefer several other kinds of wood over white oak to age wine, such as hickory, redwood, maple, French oak, walnut, cherry, or chestnut. All of these types of wood may be used by wineries for aging, and each wood adds flavor properties to the wine. For example, a winemaker may love the redwood barrel for aging wine because it adds a note of dark spice especially coveted by some red wine drinkers. No matter which type of barrel you choose, you’re going to pay a pretty high price for a barrel. French oak barrels are extremely expensive, with some barrels made from French oak selling for $3000.

Fermentation tanks for wine is also an extremely viable solution in terms of aging your wine. These tanks are typically controlled by a computer to give each batch the ability to stay at a previously regulated temperature. While Stainless Steel tanks are going to be more expensive than a traditional barrel, the fact that they tend to deprecate slower, easier to clean, and allows you to roll the deprecation costs into your bottles of wine at a much more accurate rate.

Protea Financial Wine Barrels

 

The Costs of Wine Production

Winemaking doesn’t end with the barrel, of course. There is a lot to be done once the wine finishes aging in the barrel. You have to figure in the cost of personnel needed to bottle the wine and those costs of production.

Wineries have to have machinery for bottling the wine or, in some instances, personnel to bottle the wine. All of those production costs which is going to include:

  • Labor costs for employees of the company
  • Utilities
  • Building costs such as rent, lease, or mortgage payments as well as maintenance.

For some companies, the points mentioned above might not apply, especially if you have a wine making agreement with another company or manufacturer. In these agreements, you’ll typically be charged a flat monthly rate or a per gallon rate to produce your wine, making it easier to incorporate that cost into your per bottle pricing.

Wine production costs can vary greatly depending on the size of the winery. If you have a small vineyard of about an acre, you are bottling around 720 bottles of wine each year. Your wine production costs will be much smaller than a huge winery with tens of thousands of acres of grapes to pick, age, and bottle. However, you cannot always assume the larger production of wine equals less expensive wine. There are small vineyards where more expensive grapes are grown, and the wine is small-batch, but the cost of the bottle is extremely high because the wine is in demand. Demand for a particular wine vintage can drive up wine pricing.

 

Bottling Costs to be Considered

There is so much that goes into bottling wine that each area that oftentimes some aspects of it get overlooked or estimated so hastily that you be losing out or wasting money. 

Glass Bottling

Besides production costs, wine pricing includes the price of the wine bottle. Wine bottles have been used for centuries to bottle wine. Usually, winemakers favor clear glass or green glass for making bottles. Of course, the fancier the bottle, the more expensive the wine will be. Pricy crystal wine bottles have been used for aging expensive wine. Also, more expensive wine bottles have a thicker glass with indentations on the bottom of the wine bottle for better aging. The most important factor for wine bottles is their ability to keep out oxygen so the wine can be flavorful for decades.

 

Closures

The tree bark used to make corks is nearly as old as the bottles themselves. Like wine barrels and bottles, many winemakers favor particular types of cork. Most winemakers favor oak corks, but specialty winemakers would rather have French oak or redwood corks. This doesn’t even include synthetic options that are available. The fact of the matter is, with the large variety in closure options available and how each type can affect your wine, this pricing segment typically gets special consideration.

 

Labeling

Wine labeling can also be pricey, depending on how much the wine labels cost to produce. Also, you most likely did not come up with the label yourself. One aspect of marketing that is often overlooked is branding with labels. You have to come up with a visual representation of your wine brand. Simple black and white wine labels are the least expensive, while full-color, gold-edged wine labels are the most expensive.

Protea Financial Cost of Grapes

Other Costs You Need to Consider

Just because you have figured out the costs of wine production so you can price your bottles doesn’t mean that is the price your customers actually pay for that bottle. If you only price your bottles for sale in your winery, you don’t have to worry about the differences between wholesale and retail margins. However, when you sell your wines to liquor stores and restaurants, you need to understand your wine bottle will undergo a markup. The wholesale price markup is usually your profit margin, and the retail price markup represents the profit margin for the store or restaurant. Usually, there is between a 30% and a 50% markup for a bottle of wine. If you sell a bottle of wine to a retailer for $20, it will most likely sell for $30 to $35 a bottle at a liquor store.

Restaurants and bars also mark up bottle prices, whether they sell the wine by the glass or bottle. In fact, a glass of your wine at some restaurants could be as much as the wholesale price of the bottle of wine. Both wholesale and retail pricing for wine depends on the demand for the particular wine vintage.

 

How Should I Price My Wine?

It can be challenging to price a bottle of wine from your winery. You have put your heart, soul, blood, sweat, and tears into your passion for winemaking, and you want to price the wine according to the effort. However, when you price a bottle of wine, you need to consider a number of factors. All of these questions translate into numbers for wine pricing for your business.

  • How much did the wine production cost?
  • How much did the wine cultivation cost?
  • Is the wine vintage in demand, or is it exceptionally a rare vintage?
  • Is the wine small-batch aged?
  • How much did marketing and sales cost you?
  • Who do you primarily sell to?
  • Is your vineyard and winery in demand?
  • What type of grapes did you use?

 

For Additional Help Costing Your Wine Contact Protea Financial Today

Many factors go into pricing a bottle of wine, and it can be complicated to determine a pricing strategy for your wines. The numbers can float around your head in a confusing swirl of numbers. However, keep in mind that pricing should not be an emotional issue, no matter how much love you put into the bottle. You need to make sure your pricing strategy is based on solid numbers. If you need help pricing your wine for sale on the wholesale or retail market, you need to consider Protea Financial. We have bookkeepers, accountants, and inventory managers who understand the vineyard and winery business because that is their specialty. When you need help with the financial end of accounting and bookkeeping, we can help get you organized and help you reach your business goals. Contact Protea Financial today.

Protea Financial Can Make Figuring Out the Cost of a Bottle of Wine Easier

Costing out a bottle of wine can be a complicated endeavor. Turn to the financial experts here at Protea Financial today and let us help! 

Costing Methods for Wine

Costing Methods for Wine

As a winery owner, you are probably far more concerned with wine production than wine pricing. That’s understandable because if the wine isn’t good, it won’t sell regardless of price. However, you need to get a fair price for your wine to recoup your production costs and stay in business. Wine pricing can be tricky. To ensure you have priced your wines at a price point that will both make you a profit and sell your wine, you need to understand costing methods. Here are the most common costing methods and which costing methods are appropriate for wineries to use.

 

Important Definitions

Before we can begin discussing costing methods for wineries, you need to understand the cost definitions for product producers, including wineries.

A fixed cost is easy to understand. Fixed costs are costs that do not change from month to month. Fixed costs include rent or mortgage on the winery buildings and land. Taxes, such as employee payroll taxes and property taxes, are also examples of fixed costs. Usually, you know exactly how much your fixed costs will be. You receive notices for property taxes yearly, and state or federal governments designate payroll taxes.

While fixed costs are the same for months or even years, even fixed costs change over long periods. Your property taxes will eventually rise, for example. But generally, fixed costs do not change month to month. If this is confusing, you can keep in mind that fixed prices don’t change with an increase or decrease in your wine production.

The opposite of fixed cost is a variable cost. Variable costs vary by the number of products you produce. Usually, the more wine you produce, the higher your variable costs will be. For most wineries, the highest variable costs are materials costs for wine production, such as barrels, corks, bottles, and labels. While your fixed costs will not change monthly, your variable costs will change monthly.

Total cost is much easier to understand. When calculating your total costs, you are adding all of your fixed and variable costs together to come up with the total cost of production.

You’ll need two more definitions of cost before we move on to costing methods for wine. There are direct and indirect costs of production. Direct costs are the costs of all the materials involved in the production of the wine, as well as the cost of labor you have used to produce the wine. An example of a direct cost would be the salaries or hourly wages you pay your bottlers at the winery.

Indirect costs are sometimes referred to as overhead. An example of indirect costs would be the utilities for the winery. Those utilities would include the electricity for your bottling area and a wine-tasting room with a retail outlet. Because the utilities are for the entire operation, rather than just the bottling area, they are counted as an indirect cost.

 

Types of Costing Methods

Now that you understand the costing method definitions, we can talk about a couple of common costing methods for wine that you should be aware of.

Protea Financial Standard Cost Model

Standard Costing

Many wineries use the standard costing method. Standard costing is excellent for companies trying to establish a workable budget. In standard costing, businesses make estimates for their production costs. Fixed costs are easy to estimate because they don’t change from month to month. Direct labor costs, such as payroll, are included in the production costs. There are variable costs as well within the standard costing method. The cost of materials is the most important variable cost that needs to be estimated in the standard costing method.

Using the standard costing method will be easier if you have been in the winemaking business for a while because of the variable costs. It is much easier to estimate costs for your wine bottles each year if you have been buying them for years for your winery.

There are advantages of the standard costing method. First, standard costing is very efficient. Using the per case method, you can look at the estimated projected costs for your business for an entire year on one simple sheet. Also, standard costing allows you to manage your business budget more effectively because you will be able to check monthly if your expenses are staying close to the budget or if the expenses are constantly running over budget.

Many wineries use the standard costing method for several reasons. First, because many wineries sell wine by the case, using the standard costing method simplifies the accounting and budget process. The numbers in standard costing are easy to understand. Also, the accounting costs for wineries when they use the standard costing method is less expensive. Finally, using the standard costing method allows wineries to analyze the difference between the actual costs of the wine and the standard costs predicted for the year. A year-end examination allows wineries to dig into what led to the variance between costs so that they can produce more accurate costing methods each year.

 

 

Specific Item Costing

In addition to standard costing, many wineries also use specific item costing. In specific item costing, costs of production are accounted for in each bottle or case of wine. If you own a small winery, specific item costing may be perfect for your business. Specific item costing is also great for wineries with high-dollar values or vintages. 

For example, when you price a case of wine or a bottle of wine, you use the item number to assign all the costs that figure into the price of the case or the bottle. So in that bottle of wine, you have all the direct costs (materials, labor) and indirect costs (rent, utilities, and insurance) needed to make the wine.

Specific item costing may make more sense for your winery, especially if the costs of your bottles of wine continues to increase dramatically. Also, many wineries like specific item costing, as it allows them to figure out how much to price their wine for on the market.

 

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Which Costing Method Would Work For Me?

Before you decide which kind of costing method works well for your winery, there are a few factors you need to consider. You will want to choose the best costing method possible for you and your business. If you have friends, family members, or business acquaintances in the wine industry, you may want to talk to them about which costing method they prefer.

First, consider the size of your winery. For this example, we’re only going to focus on one critical aspect, SKU management.

 

  • How many different SKUs do you have?
  • How many different components are tethered to each individual SKU?
  • Which of these components are used for multiple SKUs?
  • How are you currently tracking each of your SKUs?

 

When you look at the potential avalanche of information from this one component of your business, it’s clear why there are several different costing methods. One costing method may work better than another for your business. A larger winery may want to use standard costing, while a smaller winery may want to use job costing. Again, there are advantages and disadvantages for each method you use when considering the size of production.

Second, you need to consider the price of your wines. Brand recognition plays a critical factor in your pricing model. For example, if your brand is synonymous with the quality standards of high society, your pricing model will be much higher than a smaller, lesser-known brand.

You also need to think about the demand for your wines. For example, if you are currently struggling to keep up with the demand for your wine, it is likely time to consider increasing the cost per bottle. If you’re on the other side of the spectrum and have more bottles of wine sitting in storage verse on the shelves and in people’s glasses, it may be time to consider reducing the costs of your wines to find a better balance.

 

Turn To Protea Financial for Bookkeeping Help Today!

Protea Financial can help you with bookkeeping, accounting, financial management, and inventory issues. We specialize in wineries, and we know we can help you grow your business. Find out how we can help. Contact Protea Financial today!

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Cost methods for wineries is more complicated than most other businesses. For help keeping the documentation straight, give us a call here at Protea Financial!

Difficulties of Cash Management for Wineries

Difficulties of Cash Management for Wineries

Small businesses often have cash management issues. In fact, over 60% of small business owners have cash flow problems from time to time. Over 40% of businesses have had cash problems so severe that they missed vendor payments, payroll, or leases. Controlling your cash flow is vital to the success of any business.

The wine making business, in particular, is a difficult one to manage cash flow for because of the nature of wineries. Here are some reasons wineries present a particular problem with regard to cash flow management, and here are some tips for keeping your wine producing in the cash-positive column.

Cash management is difficult for any business, but it is especially difficult for wineries because of the nature of the business. Here are some reasons why it is so difficult and also some tips for keeping your winery cash-positive.

 

Why Wineries Are A Special Challenge for Cash Management

Wineries are a special problem with regard to cash management for several reasons. First, wineries can be considered an agricultural crop if you have vineyards. Agricultural crops present a problem regarding cash flow because there are many costs that are difficult to predict. For example, you have a bumper crop of grapes growing this year. While you’re thrilled at the predicted crop yield, you realize you may need to hire more labor to get all of the grapes harvested. Contract labor is usually cash labor, which means your cash reserves are going to dip. Because wineries with vineyards are both an agricultural crop and a beverage, cash flow can be challenging.

Another reason cash management is a problem for wineries is because of the growing season. In general, from the time you begin with grapeseed until the time you harvest the grapes is approximately four years. Most agricultural crops begin and end within a calendar year. Because grapes for wine making have such a long growing season, unexpected expenses can crop up more than once. It can be difficult to control cash flow for wineries because there are both short-term (such as extra organic pest control) and long-term (such as an increase in barrel prices) costs.

Protea Financial Winery Cash Management

Why Is It So Hard to Manage Cash Flow in the Winery Business?

Wineries can find it hard to manage cash flow no matter how successful their wineries are. Here are some of the top reasons managing cash flow is more difficult at a winery than any other business.

First, wineries are both short-term and long-term businesses. In the short term, you have bottled wines for sale to customers. However, you also have wine aging in barrels and bottles that still count as inventory but are not for sale at the moment. The wine business isn’t like a convenience store, where the store owner buys products and then sells them to customers with a very quick turnaround time. Managing cash flow is difficult when you don’t have an end date in view.

Another reason wineries present a special problem regarding cash slow is a common one among all small business owners. Many small business owners, regardless of business type, don’t plan for emergencies. Even though cash management brings to mind stacks of cash in a safe, the term cash management refers to cash on hand, either in your business or in the bank. You will want to have an emergency fund at the bank for those business emergencies that always seem to happen at the least convenient time. For example, one of your employees accidentally drives a forklift over another employee’s foot. Do you have the money for a workmen’s compensation claim and the medical bills? It’s important to think ahead and plan a fund for life’s accidents.

When you own a small business such as a winery, you may have started with one employee at your backyard vineyard–yourself. Over time, however, your business has grown into a thriving enterprise with dozens of employees. You may still be thinking like a sole proprietor in terms of managing your accounts payable (expenses) and receivable (your income). If these aren’t regulated, it can lead to an overextension of your cash.

One of the largest reasons wineries have had difficulty with cash management is because of the stressors caused by the Covid-19 pandemic. The logistics for nearly all businesses have become difficult to predict. Delivery times for wine barrels, bottles and labels have been repeatedly pushed back. The cost of your raw materials themselves, such as cork, have increased as well due to higher transportation and delivery costs. Because wine production is such a specialized process, the number of vendors for corks and wine barrels are small, and the demands are sometimes large.

 

How to Manage Your Cash Flow Better

While it can be stressful to try and manage your cash flow for your winery, there are some steps you can take to improve your cash management.

First, it’s time to start making better budgets. If you are doing your own budget for your business, you need to begin to make expense categories for your winery. Although there are typical expense categories for businesses, you can make your own categories as well. You may want to have one column just for the costs of bottles and corks, for example.

Second, it’s time to watch your capital expenditures. Vineyards have a ton of capital expenditures at startup. You need equipment to farm grapes, and you may have purchased acreage for your grapevines. All of these capital expenditures come with financing, which means monthly payments. If you overspend on large capital expenditures, it may be difficult for you to manage your monthly cash flow.

You can also do weekly check-ins on your cash flow. Make a time each week to go over your books and look at your cash position. That way, if you have a massive increase or a massive decrease in your cash position, you can prepare for it, so there aren’t as many surprises.

Speaking of cash flow position, every small business needs an emergency fund. If you are nervous about keeping an emergency fund because you are on a tight budget, think about putting ½ % of your net profit toward an emergency fund. That way, no matter what emergencies come your way, you’ll be ready.

One of the best ways to manage your cash flow is to make sure you are collecting payments from customers in a timely manner. It can be particularly hard for wineries to apply revenue because they may sell wine by the bottle as well as the case. Usually, bottle sales are retail sales to individual customers, while case sales are to other businesses, such as restaurants and bars. In addition, you may sell barrels of wine to specific customers as well, so inventory management is just as important as cash flow management.

If you have an accounts receivable team, make sure they stay on top of incoming invoice payments. If you have been handling your receivables by yourself, it may be time to call in some help, even if you only pay them on a part-time or contract basis. By ensuring your receivables are coming in promptly, you will have incoming cash on a regular basis.

Protea Financial Cash Management for Wineries

Protea Financial Is Here to Make Cash Management Easier for Your Winery

There is an old saying about wine that states, “Beer is made by men, wine is made by God.” Any vineyard or winery owner would agree with that statement that it takes a special person to make wine. We would argue that it also takes a special person to handle all of the headaches that come with cultivating and producing wine.

As with many aspects of winemaking, nothing is ever simple or straightforward. However, if you remember these tips as a winemaker in the wine business, you’ll be able to get a handle on your cash flow management issues.

  • Try to enter all of your business expenses as quickly after a purchase as possible. This will help you keep your cash flow current.
  • You may want to categorize common expenditures in one general category. For example, all of your utility expenses could be categorized under overhead.
  • Pay your bills on time. Not only will that help your business credit rating, but it will also keep you in good standing with your vendors. You need your vendors to supply your business, so keeping them happy is helpful.
  • Seek out new ways to bring in additional revenue. What if you had tasting events at the winery, for example, with specific themes to add to the fun of wine tasting? The more customers you bring in, the more wine you’ll sell.
  • Make handling your cash flow a top priority or a business goal. If you focus on cash flow, your management of business expenses should become less of an issue.

Feeling a bit overwhelmed by your cash management issues? Need help with managing your finances for your winery? You should contact Protea Financial. We have been working with vineyards and wineries for nearly two decades. In fact, wine bookkeeping, accounting, and inventory management are our specialties. We can even provide contract high-level financing help, such as a constructive cash flow analysis. Why not contact Protea Financial today, and let us help you grow your wine business?

Protea Financial Is Here to Help with Cash Management

Cash management for wineries is more complicated than most other businesses. For help keeping the documentation straight, give us a call here at Protea Financial!