Posts tagged ‘financial forecasts’

Effective Winery Business Plans

I was fortunate enough to take part in a great discussion recently about business plans in the wine industry and what constitutes a good one (or doesn’t for that matter).  Keep in mind I was in a room with well-seasoned wine industry professionals, many of which own or operate as executives at a winery.  I am highlighting the key points of our discourse below.

  • The finance contingent of the group, representing commercial banks and private equity and debt investors, all agreed that they don’t often see a complete, detailed business plan in the wine industry.  When they do, these plans usually do not include an analysis of the industry or market or contain detailed marketing and development/production plans.  While most of the winery executives represented have a budget or financial plan, rarely do these forecast beyond two to three years in a detailed, financial model that addresses income statement or balance sheet metrics, such as a proper calculation of cost of wine sold. 
  • The process of creating a detailed, written business plan is an onerous one, especially in light of the need for integrated marketing, production and financial plans.  However, future success is often associated with the work and thought considered during the business planning process. 
  • The discussion of long-term forecasts centered on the discipline and intellectual exercise of the process rather than the success of meeting long-term targets.  This discipline presents the winery owner with the opportunity to understand key revenue drivers, optimal cost structures and financial levers when managing their business over time.
    • This understanding of key business metrics in the current economic downturn and constant revisiting of the plan on an annual basis will allow a winery to capitalize on its successes.  Simultaneously, the winery can learn from its failures, identify opportunities and avoid overreaction to market gyrations.
  • There is significant value in creating a 5-year (at a minimum) financial forecast model because it forces the winery to consider the effects of the industry’s multi-year operating cycles and make decisions now that will affect its business 3-5 years in the future.
    • Similar to writing a comprehensive business plan, the discipline and process of Management analyzing their business can help identify key issues and quickly serve as a warning in case anything goes wrong.  This could be the difference between surviving (or thriving in) the current economic downturn in the wine industry and possible dissolution.
  • Successful financial models incorporate the following characteristics:
    • Done on both a cash and accrual accounting basis
    • Tracked against a budget and updated on a consistent basis, but not changed entirely to continually start over (to always hit your budgets)
    • Includes all facets of your business (accounting policies, revenues, costs, inventory, financing, sales channels, etc.)
      • Need to consider how sales grow and where customers will come from as well as incorporating a marketing plan or strategy into your model
      • Don’t plan on borrowing more than a projected borrowing base will allow
    • Show your model to others – CPAs, consultants, bankers
    • Plan for a worst case scenario – maybe an obvious statement now, but not so obvious two years ago
  • It’s never too early to think about or plan for a potential exit, whether that is a sale, cashing out current investors or a generational transfer.  Successful transactions often involve wineries that started the transaction readiness process sooner rather than later, ultimately maximizing value or at a minimum, achieving liquidity.

For your benefit, this link provides a list of some very helpful resources for writing/updating winery business plans.  In terms of financial forecast models, we develop those for many winery clients at Frank, Rimerman + Co. so please contact me directly at with any questions or requests for our assistance.