by Wine Alliance Treasurer Mike Stubbs
This is my second article on the subject of record keeping and your wine operation.
In my first article, I addressed several reasons for recording all financial expenditures for your proposed private wine making operation. I will now expand on this issue whereby you have now decided to make your wine operation a business. First, and here is where the Yucaipa Valley Wine Alliance can be of help, you must address the necessary Governmental agencies that control and/or regulate the wine making business. Some of the important things that you must have in place to be a legal winery are as follows; The approved and licensed location for your sales outlet, the actual bonding of your winery, the approval process of your labeling on each varietal as well as City business license, State sales tax licensing, Department of Agriculture reports and so on.
As I stated in my first article, if you keep track of ALL of your expenditures right from the beginning, you will be able to determine when your operation is making a profit. Keep in mind that in the beginning, your capital outlay will be significant. Try to plan for where you would like to be in 3 to 5 years. This is important because based on your forecast of volume of production, it is far better to acquire the correct type and size of equipment right from the start. It will save you dollars if you do not need to upgrade the size of your equipment. For example, you find that you are crushing several tons of grapes with a crusher that is far too small or storing filled wine barrels somewhere that needs a temperature controlled environment when you have no space.
You should start a Job sheet or ledger for each varietal where you charge out ALL costs for that Job. Meaning, cost of grapes, chemicals, testing fees, any outside labor, and the cost of bottles, corks and labels. When the Job is complete, you are then able to divide the number of produced bottles for that Job into the TOTAL for that Job Cost Sheet. This will give you your COST per bottle and allow you to better determine what to charge your customers.
At the end of each month, quarter or especially the end of your accounting year, you need to be able to produce an Income Statement which lists your Sales, Cost of Sales, followed by your indirect expenses. Some examples of those expenses are Equipment Depreciation, Electricity, Water, Licensing Fees, Advertising, Maintenance, General supplies and so on. All of this will be needed for your Schedule “C” Business Tax Return for the IRS and the FTB. Again, this is why I emphasized tracking ALL expenditures right from the beginning.
In the space of our Wine Alliance Newsletter, I can only touch on the main points for creating a profitable and controlled wine business. I am able to give a more detailed analysis if you might be interested as this is only one of several subjects that The Alliance is able to provide for its members.