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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.

Bookkeeping Basics for Small Business – Why Bookkeeping Matters

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 have a great bookkeeping system. 

Today, learn why bookkeeping is essential for a small business and how it prepares your business for continued success.

Understand the Who, What, and Why

Accurate and timely bookkeeping lets you know who owes you money, who you owe money to, and how much you own. 

Accounts Receivable

Your bookkeeping will allow you to know:

1.    Who owes you money,

2.    What they owe you, and 

3.    Why they owe you.

You’ll have receivables if you’re making sales on account. And without good bookkeeping, you won’t know whether you’ve been paid for all of your sales. 

Keeping on top of your receivables will help you maintain your cash flow and avoid charging late fees and chasing collections.

 

Accounts Payable

Tracking the who, what, and why with bookkeeping helps you with payables too. 

You want to know who you owe money to and how much you owe them. Paying your vendors and suppliers on time avoids paying late fees and helps to maintain a strong working relationship. Plus, these vendors could provide trade references when you’re applying for credit with another supplier or a loan from a lender.

 

Equity

Great bookkeeping lets you know how much equity you have in your business.

Your equity is more than just the cash you invest. It’s also the assets, liabilities, and accumulated profits of the business. Equity calculations are important when applying for loans or taking on new investors. If you don’t know how much equity you have in your business, a lender or an investor won’t be comfortable giving you money.

 

Improve budgeting and planning

Proper bookkeeping is essential for budgeting and cash flow management. 

When you keep track of your receivables, you can manage your cash flow better. You want to ensure that money is flowing in on a consistent basis to offset the money that goes out each month. If you let several customers become past due, you’ll need to use other resources, like delaying payments to suppliers or using your own capital, to make up for the cash shortfall. 

Keeping on top of your bookkeeping and cash flow will let you budget effectively. Budgeting is an essential process for anyone in the beverage industry. It allows you to allocate money to processes critical for your business’s success and prioritize spending. 

Without a solid budget, you will feel like you’re just running in a circle, never knowing if you’re meeting your goals. Investing a little bit of your time now to get your bookkeeping in line to prepare your budget will free up your time and energy. 

Elevate analysis and decision making

Great bookkeeping will produce essential reports you’ll need to make decisions for your business.

Although you may be in the winery industry for your love of wine, you’re also in business to make money. You’ll need an income statement, also called a profit and loss statement, to know whether you’re turning a profit. The income statement will show you profit margins and where you’re spending money on overhead expenses.

With a current income statement, you’ll be able to make decisions on whether it’s necessary to cut costs or if you need to grow your sales revenue. 

The income statement receives most of the attention of business owners, but the balance sheet is just as important. Here you’ll be able to see everything you own and owe in one place.

This is where you’ll see if you’ve kept on top of collecting on your receivables and how much inventory you have on hand. The balance sheet is also where you’ll see your equity amount. 

Streamline Tax Planning and Prep

Do you find yourself scrambling each year to get your company’s financial affairs in order for your tax preparer? Although some last-minute calculations for things like depreciation are common, most of your financial information should be up-to-date at year-end. 

Your bookkeeping is essential to preparing your financials for tax time. It will ensure you receive the maximum deductions and credits.

And when your books are organized, you’ll likely receive fewer questions from your tax professional.

Access to accurate financial data will put you on the path to success. And if you need help with your bookkeeping needs, start by asking us how we can help.At Protea, our dedicated and experienced staff are industry experts in the winery industry. Let us help with the day-to-day finances so you can get back to making great wine. Our team works hard to make sure you’re positioned on the right path. Reach out today for an evaluation to learn what Protea can do for your winery.

4 Benefits of Outsourced Accounting For Wineries

4 Benefits of Outsourced Accounting For Wineries

Accounting and bookkeeping are the heartbeat of the business side of your winery. Unfortunately, these critical functions are too often overlooked by busy owners. While it’s tempting to take shortcuts, or simply rush through the tasks, that can lead to inaccurate financial statements. That’s why Protea Financial offers outsourced accounting services.

While it’s certainly understandable – you have your plate full with so many other business tasks – errors in your accounting and bookkeeping can derail your business. And often without warning.

In 2019, it was reported that 82% of small businesses fail due to cash flow problems. And this infographic from SmallBizTrends shows that 30% of all small businesses are continually losing money due to poor financial management.

With business growth, wine sales and general management stealing your focus, you may consider outsourcing your accounting to ensure financial accuracy and promptness. Outsourcing your winery accounting can help reduce your workloads and divert some, or all of your financial tasks to qualified, highly-skilled accountants. The results will be evident. Once you have outsourced your winery’s financial tasks to an experienced accountant, you can rest assured that your business accounts are in safe hands.

Don’t believe us? Consider this: A survey in 2018 showed that over 80% of businesses outsourcing their accounting function would recommend their accountant to other businesses. If you’re not yet convinced, we’re going to tell you about all the benefits of outsourced accounting.

What Can an Outsourcing My Accounting Department Do for My Business?

Outsourced accounting can take some elements or even the entire function of accounting outside of your business. This will make room for other tasks – especially those that are particularly time-consuming. Whatever your current accounting situation, outsourced accounting can offer you a far more comprehensive solution. Here are 4 of our favorite benefits of outsourced accounting.

1.     Accounting Firms Are Made For This

Wine accounting is a complex and challenging task. Not only does outsourcing your accounting take the work off your shoulders, but it places it in the competent hands of highly trained and experienced accounting staff. That’s right, with many accounting firms, you’re no longer relying on one person to manage your books, often you’re getting a whole team.

2. You Can Cut Your Overhead

When you outsource accounting, you will only pay for the work done. In the USA, worker illness and injury cost businesses a total of $225.8 Billion. You need not be one of them. By outsourcing your winery accounting needs, you skip the hassle of payroll taxes, sick leave and vacation time. Therefore, significantly improving your winery’s profit margin. You also eliminate the risk of suddenly losing staff – an issue that most businesses face when someone goes into long term sick leave or quits without notice, leaving you and your books high and dry.

3. Trained Accountants Are Meticulous and Logical

There’s nothing quite so analytical and precise as the mind of an experienced accountant. By nature, accountants are highly logical and willing to deep dive into the details in order to produce the best outcome. Often, accountants utilize highly complex software in order to manage your accounts and to produce the most accurate results possible. One of the many benefits of outsourced accounting is of course, the accountants themselves.

4. You’ll Save Money

While paying someone to do a task you managed yourself might not seem like it would save you money, it definitely will in the long run. You are now free to take care of your business in other more effective ways, or to hone your focus into one element of finance such as bookkeeping and redirect the rest. So the fee your business pays to an outsourced accountancy firm will pale in comparison to the profits from a more active business. In fact, around 30% of businesses outsourcing their accounting functions have been able to increase profit with the guidance of their new accountant. 

How Protea Financial Will Bring You All the Benefits of Outsourcing Your Accounting or Bookkeeping

To remain successful, wineries need business leaders to run fast while remaining agile, as well as access to accurate financial data. The opportunity cost of not having superlative accounting is potentially enormous. Protea is here to empower you to cultivate business growth, while your outsourced accounting team manages your financial back office.

Our clients enjoy the benefit of having a team structured around your business needs. The strategic benefits of outsourcing accounting start with the savings. It’s the stack of talent that works with you around the clock to maintain the integrity of your company finances. No matter what happens, your Protea team will have your back and strive to make your job easier.

Begin your journey with Protea by requesting an evaluation today. Our goal is to design a winery financial strategy that allows you the freedom to scale at the pace you desire.

Accountant vs Bookkeeper

Accountant vs Bookkeeper

As wineries search for growth in today’s digital world, the accountant vs bookkeeper debate has become all the more relevant. Innovation, technology, and eCommerce have made traditional marketing strategies for wineries nearly obsolete. 

As RaboBank recently highlighted, only those wineries who respond to market changes with the needed urgency will thrive, and wine businesses that have leveraged the power of eCommerce have already seen massive returns. In this effort, the need for winery accounting and bookkeeping management has also risen.

Accountant vs Bookkeeper: Who Does What?

Before we get into which professional is right for your winery, it’s important to highlight the differences between them; each specializes in different responsibilities between financial and operational management within your winery business. 

An accountant is responsible for recording and presenting the financial well-being of a business. The most pertinent profiles for Ecommerce wineries are management accountants and tax accountants. 

Management accountants take charge of representing the financial performance of your digital business through drafting budgets, reconciling balance sheets, and analyzing financial reports stored on your eCommerce platform, among other actions. 

On the other hand, a tax accountant does tax reporting management. That includes calculating your business taxes and offering counsel on your business strategy to minimize tax audits and lessen the possibilities of tax law breaches. 

Unlike accountants, a bookkeeper records any and every financial transaction that your winery does. They are important team members, as they are responsible for identifying, recording, and labeling the purpose of every financial transaction in your winery.

Is an Accountant or a Bookkeeper Right for my Winery? 

The Ecommerce winery business model calls for both management and tax accountants. Management accountants are important as they provide you with the financial insight you need to gauge the effectiveness of your business strategy and make better financial decisions. While some winery executives feel that they can handle finances on their own, doing so will take them away from other important areas of business development, like sales and digital marketing.

Similarly, tax accountants are all the more important now than ever as winery businesses now need to enter into unchartered waters of eCommerce. Onboarding an accounting professional who has the right legal and tax knowledge in the digital field will steer you away from possible tax infringement. 

Bookkeepers take care of major responsibilities. However, practice shows that they are often too bogged down by data entry tasks that they don’t have the time to deal with possible financial issues, or provide actionable analysis and insight into the business’s key performance indicators (KPIs). While accountants can absorb the role of a bookkeeper, they tend to be overqualified and too expensive for the role. Furthermore, hiring all three professionals individually is too costly for most wineries, and the winery owner or executive is still responsible for making sure all three individuals work together seamlessly.

Luckily, the solution to this financial dilemma can be solved by getting in touch with Protea Financial.

Protea Financial: Ultimate Winery Accounting & Bookkeeping Services

Protea Financial is an accounting and bookkeeping firm that designs and implements customized accounting solutions for businesses. We are not a tax preparer, but we support businesses of all sizes in managing their finances so that they can focus on other facets of their business development. 

Our services include tax schedules, managing financial accounts, preparing accounting documentation, and bookkeeping

For wineries, we have an all-inclusive service that covers responsibilities needed for tax and financial management and bookkeeping, and our services are significantly less expensive than if a winery were to individually hire each professional. 

By housing all professionals under one team, we deliver the same services at a rate that’s below the average marketing-price while maintaining premium quality and accuracy. Furthermore, the winery’s leadership does not need to spend time training, overseeing, and making sure unrelated financial professionals are working together productively. 

Our team, led by Zane Stevens, consists of almost 25 accountants that, together, bring decades worth of accounting and financial managerial experience to our projects. We are poised to assist you in driving your winery business to success.

Get in touch with us to set up a consultation for your winery accounting and bookkeeping needs. We will conduct a thorough evaluation of your winery financial life-cycle to develop and propose a strategy that will lead you to financial freedom. 

Set up your evaluation today.

What are the differences between a Bookkeeper, a Management Accountant, and a Tax Accountant?

What are the differences between a Bookkeeper, a Management Accountant, and a Tax Accountant?

Many of our clients ask us why we talk about bookkeepers, management accountants, and tax accountants, and not just accountants.

A bookkeeper keeps track of all your daily financial transactions and assists in keeping your business organized. Receiving and paying bills, issuing invoices, categorizing expenses, taking inventory, and reconciling bank accounts are some of the daily and weekly tasks that form the core of a bookkeeper’s responsibility.

A management accountant leads the effort to provide insight into your business’s financial performance. Drafting budgets, tracking actual performance against budget, reconciling balance sheets creating cash flow forecasts, and performing inventory costings are among the duties of a management accountant to assist you in making decisions for your business.

A tax accountant provides a very specific service to calculate your taxes, minimize your chance of an audit, and guide your strategy, particularly when acquiring or selling a business or investing in assets, to minimize your potential tax liabilities.

Read About Protea Bookkeeping Services

Bookkeeping is More Than Just Crunching Numbers

While bookkeepers do a fair amount of data entry and receipt tracking, the heart of the process is labeling expenses, indicating which suppliers you paid and how much, as well as keeping a record of receipts. Your bookkeepers may also do double duty in payroll and work to prepare and issue invoices.

Even though bookkeeping work can be notably detailed, bookkeepers can be the foundation of surviving an audit. Business deductions are a huge IRS tax audit trigger. They set off alarms, which can be silenced with legal and meticulous record keeping.

What a Tax Accountant Does

Accountants perform a variety of accounting functions and are typically certified by national and professional associations. Accountants must a have a four-year college degree in accountancy. And additionally, depending on their specialty, they may have to spend up to a year earning a certification in their home state.

Tax accountants provide specialized tax advice. They calculate tax liabilities and provide strategies for legally lowering their clients’ tax liability. Business tax accountants typically have advanced degrees and help their clients with high-level strategic financial decisions.  Senior-level tax accountants take more of a theoretical approach to their clients’ overall tax strategy, helping with business plans, individual financial plans—trusts, etc.—with the goal of taking full advantage of the tax code.

What does your business need: a Bookkeeper, a Management Accountant or a Tax Accountant?

In our opinion, small businesses such as wineries need all three, and should seek specialists in each field.  Tax Accountants and Management Accountants can do your bookkeeping, but they are over-qualified, and you would be paying too much, as bookkeepers are the least expensive.  However, bookkeepers need oversight, and a good management accountant can oversee and check a bookkeeper’s work to ensure accuracy, and then provide additional insight (that a bookkeeper isn’t trained to furnish) into your business to help you make better financial decisions.

Tax accountants are typically more expensive than management accountants, and their focus is on creating an accurate tax return that will minimize your tax liabilities and risk of an audit.  They are more focused on providing an accurate report to the government than on developing recommendations for you to operate your business more efficiently.  Management accountants are focused on helping you operate your business.

Protea Financial is Your Outsourced Bookkeeping and Management Accounting Services

We match our solutions to the needs of the customer. Do your bookkeepers need extra help during end-of-year closeout?  Is your tax accountant asking you to assemble better financials in order to reduce the time they have to spend preparing your return?

Protea Financial can support you with everything from bookkeeping services, order processing and inventory tracking to handling management accounts and tax schedules in order to support your tax accountant prepare your year-end financial statements. Protea’s goal is to provide, at costs below the market average, timely, accurate, and high-quality financial information on which a business can act.

We can work with you to provide an evaluation and find the best solution for your business.