The Ultimate Guide to Winery Accounting
From the first tender shoots in the vineyard to the satisfying pop of a cork, your winery embodies passion and hard work. With all the love and effort you put in, wanting to make a profit goes without saying. Accurate financial management is fundamental to running a thriving wine business.
This guide sheds light on winery accounting principles so you can keep an eagle eye on financial health and maximize profits. We offer practical advice on managing your winery’s finances with confidence and making informed decisions that support growth.
The Advantages of Accrual Accounting
Cash-based accounting might seem appealing for its simplicity — you track money when it comes in and when it goes out. However, for a growing winery, accrual accounting delivers a more accurate financial picture.
Let’s look at why accrual accounting gives you an advantage:
Snapshot of success: Winemaking has a long production cycle, making cash flow harder to manage. You invest in grapes, barrels, and labor long before a single bottle hits the shelf. Accrual accounting gives you a real-time look at what you've invested compared to what you expect to earn. A bank balance alone can't provide this level of detail.
Growth ready: Once you’re ready to expand your vineyard or buy new bottling equipment, you need to access lines of credit. Banks and investors want to see evidence that your winery runs profitably over an extended period. This is where accrual-based financial statements become vital.
Common Accruals for Wineries
An accrual is an accounting entry that records income you've earned but haven't received, or an expense you've incurred but haven't paid.
Here are some typical accruals winery owners encounter:
Property taxes: These often become due in one or two big payments, but they actually build up throughout the year.
Utilities: Your bills are based on what you use, not just when you pay them.
Grape contracts: You may secure grapes on contract, meaning you'll owe money for the harvest long before those grapes become a sellable bottle of wine.
Barrel leases: Many wineries lease oak barrels for aging their wines. The lease expense accrues over the lease term, even if payments occur less frequently.
Tasting room supplies: Think glassware, branded napkins, and spittoons. If you stock up, you accrue the expense at the time of purchase rather than spreading it out perfectly with usage.
Understanding the principles of accrual accounting gives you a solid foundation in better winery accounting. Now, let's explore a concept that can significantly improve your financial insights — managing production accounts.
Managing Production Accounts
Production accounts track all the costs that go into making your wine. Managing them strategically gives you a crystal clear picture of your winery's financial health. To gain this clarity, we recommend using a two-step system.
First, create temporary accounts within the “other expenses” section of your profit and loss (P&L) statement.
These might include:
Grape costs: Track everything involved in getting those grapes into your cellar, including grower contracts and transportation.
Bottling and packaging: Include the cost of bottles, corks, labels, and the bottling process.
Direct labor: Record the wages of your dedicated cellar and viticulture team directly involved in the winemaking process.
Production overheads: Add indirect costs such as cellar equipment maintenance and storage facility rent.
Throughout the year, as you pay for grapes, receive invoices, and process payroll, allow those expenses to accumulate within these temporary accounts.
Now for the second step. To calculate COGS, periodically transfer the accumulated totals from these temporary 'other expenses' accounts on your P&L to the appropriate inventory accounts on your balance sheet. For example, “work-in-progress” for aging wine, or “finished goods” for ready-to-sell bottles.
Think of this process as building your wine inventory over time. Each expense — grapes, bottles, and salaries — gets tucked into a “other expense” account. Once you’ve produced the wine and it’s ready for sale, recalculate the cost of making it and move those costs into the inventory accounts. This gives you a highly accurate picture of your winery's assets.
If you’re considering hiring a bookkeeper to prepare your financial statements, be sure to know what to consider when selecting one.
Utilizing Classes and Tags in QBO
Classes and tags in QuickBooks Online (QBO) accounting software give you X-ray vision into your winery's finances. Over time, they reveal hidden insights that lead to smarter business decisions.
For example, classes can highlight whether your website or wholesale distribution is more profitable so you can invest in the most successful channel. Or, a tag can show you which marketing event makes the most money.
Here’s a quick definition of each:
Classes: Create classes for different sales channels, vineyard locations, and grape varietals.
Tags: Tags add another dimension of detail, letting you label transactions for specific events, promotions, and anything else you want to track.
The beauty of classes and tags lies in their adaptability to your winery. Here are some examples to show how customizing them can transform financial analysis:
Best sales channels: See at a glance whether your tasting room, online store, or wholesale distributors drive the most revenue using classes.
Highest profit grape varietals: Use classes to discover which grape varietals are your biggest moneymakers by tracking income and expenses for each.
Most effective marketing efforts: Did that wine dinner you hosted translate into increased sales? Which promotions bring in new customers? Tags reveal the answers.
Best time of year to buy: Tag expenses with "harvest" or "bottling" to see how costs ebb and flow seasonally so you can proactively manage cash flow.
With thoughtful use of classes and tags, you'll gain an unprecedented understanding of what drives your winery's financial success.
Best Practices for Handling Billbacks
Billbacks are conditional bonuses. They’re often tied to your distributor or retailer achieving specific sales goals. While tempting, avoid recording billbacks as income the moment you receive them. Why? If you don’t meet sales targets, you might have to repay them.
The key to accurate billback accounting lies in deducting them directly from your gross sales before calculating COGS. Accounting for the potential cost of having to repay billbacks provides an accurate view of your winery's income and overall financial health. By doing it this way, you avoid nasty surprises that could eat into your hard-earned profits.
Here's why:
No illusions: Inflated revenue numbers might look good on paper, but they don't help you make smart business decisions. Factoring in potential billback deductions shows you an accurate picture of your winery's income.
Cash flow confidence: Unexpectedly having to repay billbacks can seriously dent your cash flow. Accurate accounting empowers you to proactively manage your finances and avoid cash crunches.
Strategic growth: Understanding your actual profitability helps you identify opportunities for sustainable growth. You can confidently invest in equipment or new wine ventures.
It’s better to be prepared than blindsided by unforeseen costs. With laser-accurate winery accounting, you can base decision-making on facts instead of guesswork.
Empowering Your Winery Through Knowledgeable Accounting
Knowing about strategies such as accrual accounting and smart production account management helps you make confident financial decisions, fueling your winery's success.
When you confidently understand your numbers, you can:
Identify your most profitable wines, sales channels, and opportunities for margin improvement
Anticipate seasonal variations in expenses and plan accordingly to maintain a healthy cash flow
Make informed decisions about investments, expansion, and new ventures
Ready to elevate your winery's financial management to the next level? Balanced Business Group is here to support you. Our expertise in winery accounting empowers you to make the most of your financial data.
Contact Balanced Business Group today to learn more about our personalized consultancy services.
