Financial Forecasting and Cash Flow Planning

The costs involved with starting and owning a winery are substantial. In addition to purchasing land and equipment, it can take years before you are able to sell your first bottle of wine. Proper cash flow management is crucial to success in the wine industry.

While most owners of wineries agree that having great wine is paramount to the success of their winery, great wine can only take you so far. You need to be able to sell your product in order to make your investment worthwhile. Storing large inventories of unsold wine is one of the fastest ways to run out of money. This is why it’s so important to establish reasonable sales targets and reliable sales distribution channels early in the process. Doing so is the foundation of any successful winery business plan.

In addition to monitoring profitability, you need to ensure you carefully monitor your cash flow. Wineries can experience intense fluctuations in cost from season to season. This is especially true for wineries located in areas with extreme weather conditions and/or drought. It’s important to take these fluctuations into consideration when developing your cash flow plan.

Creating a Cash Flow Plan

A cash flow plan is a strategic document that forecasts a business’ cash inflows and outflows over several periods. Basically, it provides a detailed projection of all of the money coming in and money going out of a business. A properly prepared cash flow plan also provides an easy way to compare actual cash flow with financial forecast.

In order for your cash flow plan to be effective, you need to take the following into consideration:

  • Normal operating expenses
  • Seasonal expenditures
  • Capital expenditures
  • Costs involved with planned increases in production
  • Changes to crop yield and/or selling prices

Typically, a cash flow projection is a month-to-month spreadsheet of projected cash inflow and outflow. It’s important to factor in as many variables as possible when creating this plan. Once you’ve entered all of your projected profits and expenses, you should have a general idea about whether each month will be profitable or not. When done right, cash flow planning provides valuable insight and allows you to plan ahead for periods when cash reserves are low.

For best results, we recommend that wineries create a one-year budget and five-year forecast cash flow plan. This plan should be constantly monitored and adjusted as needed. Every time you end a month, you should add a month to your plan. This is the best way to stay on top of your financial planning.

Wine Industry Accountants & Advisors

Allen Wine Group has over twenty-five years of winery financial experience. We understand the unique challenges winery owners face today. If you need assistance with financial forecasting or cash flow planning, we can help! Please contact us for more information about our services.