Wine has a cash-flow problem
Spend money growing grapes.
Spend more harvesting them.
Spend more making the wine.
Bottle it.
And if you’re producing traditional-method sparkling wine, put it in the cellar and wait a few years before you can sell it.
There aren’t many businesses where the gap between spending the money and getting it back can be quite so long.
That’s why a profitable vineyard can still run short of cash.
And why we think cash-flow forecasting should be at the heart of the financial management of a wine business.
Profit isn’t cash
It’s an obvious statement, but an important one.
You can have a successful harvest, increasing sales, valuable stock in the cellar and a profitable set of accounts – and still have a cash problem.
That’s particularly true when the business is growing.
More vines mean more establishment costs.
More grapes mean more winemaking costs.
More wine means more stock.
More sparkling wine means potentially several years before some of that stock turns back into cash.
Growth can therefore increase the amount of cash your business needs before it increases the amount of cash it generates.
We want to know what that number is before it becomes a problem.
Your forecast should reflect the vineyard, not the spreadsheet
We don’t believe there’s much value in taking last year’s accounts, adding 10% and calling it a forecast.
A vineyard doesn’t work like that.
We build forecasts around what is actually happening in your business.
That might mean looking at:
- Expected yields and production volumes
- Still versus sparkling production
- Wine held for maturation
- Bottling and disgorgement schedules
- Stock already in tank, barrel and bottle
- Wholesale, trade and direct-to-consumer sales
- Tourism and cellar-door income
- Seasonal payroll and vineyard costs
- Duty and VAT
- Equipment purchases
- Planting programmes
- Debt repayments
- Tax payments
- Dividends and owners’ drawings.
The result should tell us something useful:
When is cash going to be tight?
And, crucially:
What are we going to do about it?
What if the harvest isn’t what you expected?
A forecast isn’t a prediction.
We don’t know what the weather is going to do next year and neither do you.
What we can do is understand the consequences.
Suppose your forecast assumes a particular yield.
- What happens if it’s 20% lower?
- Or 30%?
- What if sales grow more quickly than expected?
- What if a major trade customer disappears?
- What happens if you decide to retain more wine for sparkling production rather than sell it earlier?
- What if the new tasting room opens six months late?
We can model different scenarios before they happen.
That doesn’t remove the risk.
It means you understand it.
Planning an investment?
This is where forecasting becomes particularly valuable.
Perhaps you’re considering:
- Planting another five hectares.
- Building a winery.
- Buying a new press.
- Adding tanks.
- Installing a bottling line.
- Investing in frost protection.
- Developing a tasting room.
- Adding accommodation or events.
The first question shouldn’t simply be:
Can we afford it today?
It should be:
What does this investment do to cash over the next five years?
A £250,000 investment doesn’t necessarily create a £250,000 cash-flow problem.
There may be tax relief.
There may be grant funding.
Some equipment may be financed.
There may be existing stock against which working capital can be raised.
And the investment itself may eventually create additional cash.
We bring those pieces together.
Before you spend the money, talk to us
This is important. Too often, accountants become involved after the decision has already been made.
The equipment has been ordered.
The contract has been signed.
The deposit has been paid.
Then somebody asks:
“Is there a grant for this?”
Sometimes there was.
Likewise, the way an investment is structured or financed can affect the tax treatment and the cash required from the business.
So we’d rather have the conversation first.
Before you commit to a significant vineyard or winery investment, we’ll look at the project from four directions:
Cash flow. Tax. Grants. Finance.
Then we can work out what the investment really costs and how best to fund it.
Could somebody else pay part of the bill?
Possibly.
Vineyards sit in an interesting position when it comes to grant funding because they can potentially cross several areas of government support.
- Agriculture.
- Environmental management.
- Rural business development.
- Food and drink production.
- Tourism.
- Energy efficiency.
- Innovation and technology.
Depending upon the project and where the vineyard is located, funding opportunities can arise through national agricultural schemes, local authorities and other government programmes.
They change regularly.
And that’s precisely the problem.
We don’t think vineyard owners should have to spend their time continually checking government websites to find out whether a scheme happens to apply to something they’re planning.
We’ll help you look.
Where you’re considering a significant investment, we’ll check the funding landscape and establish whether there are relevant schemes worth pursuing.
We won’t promise you a grant.
But we’d be rather disappointed if you spent £250,000 without somebody checking first.
Then use the right money
Once we understand how much cash the business actually needs, we can look at where it should come from.
That doesn’t automatically mean a bank loan.
Different requirements call for different types of finance.
- A winery building might require long-term property-backed borrowing.
- A press or piece of vineyard machinery might be better suited to asset finance.
- A seasonal working-capital requirement may need an overdraft or revolving facility.
- And wine sitting in a cellar presents a particularly interesting problem.
It has value.
But you haven’t sold it yet.
Specialist wine inventory finance can potentially release working capital against stock while the wine continues its journey towards sale.
The important point isn’t choosing a particular lender.
It’s matching the finance to what you’re financing.
Grants first. Tax relief second. Finance third.
Not literally in every case.
But it is a useful way to think.
If you’re planning a £500,000 investment, we’d want to understand the whole funding picture before deciding how much you need to borrow.
Suppose part of the project qualifies for grant support.
The remaining expenditure may attract capital allowances or other tax relief.
Some equipment might be suitable for asset finance.
And only then do we arrive at the amount of capital the business itself needs to provide.
That’s very different from simply walking into a bank and asking to borrow £500,000.
Our job is to help you work out the most sensible combination of money.
Finance for wine sitting in the cellar
Traditional-method sparkling wine creates an unusual financing problem.
You’ve spent the money.
You’ve made the wine.
You own something with genuine commercial value.
But you may not be able – or want – to sell it for several years.
That ties up working capital.
There are now specialist finance providers serving the wine industry that can provide funding against eligible inventory.
For the right business, that can potentially turn stock into working capital without forcing the producer to sell the wine before it’s ready.
That doesn’t mean inventory finance is always the right answer.
It means it’s another option we should consider when building the financial plan.
Part of your annual plan
We don’t see forecasting as something that gets prepared for the bank and then forgotten.
For clients where cash flow matters, it becomes part of the financial planning process.
We’ll agree what needs monitoring, how frequently the forecast should be revisited and what future investments need to be built into it.
And when something changes – a poor harvest, a large equipment purchase, new planting or an unexpected opportunity – we can change the assumptions and see what it does to the plan.
That’s what we mean at Ascentis when we say:
Before your next big investment, talk to us
If you’re considering planting, expanding, building a winery, buying equipment or developing the visitor side of your vineyard, speak to us before you commit.
We’ll look at:
- what it costs
- what it does to cash
- what tax relief may be available
- whether grant funding exists
- how much finance you actually need
- and whether the numbers still work when things don’t go perfectly.
Then you can make the investment knowing what it means for the business.