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?

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!