Why Wineries Should Allocate Inventory Costs by Harvest Year

Running a winery is a labor of love that naturally follows seasonal rhythms — not the standard calendar year. Why? Because you typically invest resources in cultivating grapes, fermenting, aging, and bottling over several years. Still, many wineries default to calendar-year accounting because it's familiar. In my experience advising wineries at BBG and Iron Horse Vineyards, this practice skews costs and revenue, blurring the true financial picture of each vintage.

Thankfully, allocating winery inventory costs by harvest year offers more accurate projections. It aligns expenses directly with the harvest and vintage they reflect, creating a precise view of each vintage’s true profitability.

In this article, we explain why shifting to harvest-year cost allocation is beneficial for your winery. I cover the drawbacks of calendar-year accounting, the advantages of harvest-year alignment, and actionable steps to make this change. By the end, you'll understand exactly how this shift can clarify your finances and guide smarter decisions.

The Limitations of Calendar-Year Winery Cost Allocation

Grapes are usually harvested in the fall, wines often age in barrels for months or years afterward, and bottles may not hit the market until well into the next year. That lengthy production cycle means costs for a given harvest can span multiple calendar years and easily obscure the true cost of each vintage.

Many wineries unknowingly run into the following pitfalls when allocating winery inventory costs based on the calendar year:

• Delayed expense recognition. Significant costs from harvest and production might appear in your financial statements long after you spent the cash, giving you an inaccurate impression of low initial expenses and skewing your financial view.

• Distorted profitability reports. Expenses and revenue for one vintage get split across multiple years. One year's profits may seem artificially low due to high upfront costs, while the following year appears overly profitable. Neither scenario accurately represents your winery's financial health.

• Mismatched cash flows. Most expenses occur during harvest, triggering cash flow pressure. Meanwhile, income from wine sales tends to arrive later. Calendar-year reporting makes it harder to accurately plan for your cash needs, potentially leaving you unprepared for seasonal financial demands.

Why Harvest-Year Cost Allocation Is Better for Wineries

Harvest-year inventory management directly links expenses to the revenue they produce, highlighting actual performance. With this management method, costs and revenue tied to a specific vintage remain in one reporting period. For example, your financial report for Harvest 2023 would show every cost associated with that vintage alongside its sales revenue. In doing this, you follow a core accounting concept known as the matching principle, where expenses are recorded when the related revenue occurs.

With harvest-year allocation, you can confidently assess the success of each vintage without confusion from overlapping periods. Inventory valuation for wineries also becomes clearer, with each vintage carrying all associated production costs transparently on your balance sheet. Financial forecasting improves dramatically, too. Accurate historical cost and revenue data make it easier to predict future cash needs and set prices for healthy profit margins.

Let’s say your winery switches to harvest-year allocation. Previously, your financials may have fluctuated wildly, with one year showing losses after heavy investment, and the next revealing substantial profit when wines sold. Perhaps your 2021 vintage yielded significant profits, while the 2022 vintage, with higher costs, barely broke even. After transitioning, you can get consistent insights. Armed with this increased clarity, you can adjust your supplier and pricing strategies to make serious profitability gains in subsequent harvests.

Simply put, harvest-year allocation gives you insights to identify your wins and challenges. Instead of puzzling over unpredictable financial swings, you can strategically optimize your winery's operations, ultimately boosting revenue.

Key Steps to Transition From Calendar- to Harvest-Year Allocation 

Making the switch to harvest-year cost allocation requires planning and coordination. Here are the key steps to transition your winery’s accounting:

1. Define Your Harvest-Year Time Frame

Map out your production cycle and decide what 12-month period will serve as a full “harvest year” for accounting purposes. Ideally, this period starts just before an annual harvest season and ends before the next year’s harvest. For example, you might run your fiscal year from September 1 through August 31 of the following calendar year, if your grape harvest wraps up by early fall. Aligning your financial year with your vineyard and cellar schedule means each harvest’s activities are captured within one consistent reporting period.

2. Update Your Accounting Systems

Adjust your accounting software to the new fiscal year start date. Set up your bookkeeping to track costs by harvest — for example, tag transactions with the vintage year. 

Many winery management platforms let you allocate costs by specific lots or vintages to automate this process. Also, make sure your records label each wine with its harvest year so your inventory valuations and cost of goods sold stay accurate.

3. Implement Harvest-Based Cost Tracking

Train your team to tag every expense to the appropriate harvest year when entering transactions. If you buy bottles in March for last fall’s wine, assign that cost to the appropriate harvest’s records. Then, when you look at the financial report for Harvest 2024, it includes all expenses that truly belong to producing the 2024 vintage wines.

4. Work With a Winery Accounting Expert 

Work with a financial consultant who specializes in winery accounting to guide you through the transition. They can help you pick the optimal time to switch (often at a fiscal year-end or just before harvest) and make sure the change is handled correctly. 

If you officially change your fiscal year for tax purposes, extra filings may be required. An expert advisor keeps you compliant with tax laws and accounting standards and plans to review the first harvest-year results with you to fine-tune the process.

Financial Impact of Harvest-Year Cost Allocation

When expenses match revenues, you benefit from:

• Accurate winery profitability insights. You know exactly how profitable each vintage or harvest is. With all costs and sales for a given harvest in one report, there’s no guesswork about which wines make money and which don’t. You might discover your 2020 vintage had a 30% profit margin, while 2021’s vintage — with higher grape costs — came in at only 15%. Armed with this knowledge, you can make needed adjustments, such as raising prices, cutting unnecessary expenses, or doubling down on the more profitable styles to boost future margins.

• Smoother cash flow management. Harvest-year accounting highlights the timing of spending versus earning, helping you plan for the cash needs of each production cycle. Instead of being caught off guard by a post-harvest cash crunch, you can anticipate it and arrange financing or reserves to bridge the gap until wine sales ramp up. You can time your expenditures and financing more strategically, reducing stress on your cash flow.

• Better decision-making. When your financial data clearly shows which strategies pay off, you can make more informed business decisions. You might realize some costly processes (such as extended barrel aging) aren’t boosting your sale price enough to justify the expense, or that wines from a certain vineyard consistently yield higher margins. With these insights, you have the confidence to invest in what works and cut what doesn’t, steering your winery toward greater efficiency and profitability.

Adopt Harvest-Year Allocation for Long-Term Success

Allocating winery inventory costs by harvest-year allows you to align your financial practices with the reality of wine production, and get an accurate view of each vintage’s performance on your financial statements. 

Ready to see the difference harvest-year accounting can make for your winery?

Contact BBG today for personalized support in optimizing your inventory cost allocation strategy. Our team of winery finance experts can help you implement a harvest-year approach tailored to your business so you can focus on crafting great wine and keep your financial picture balanced and accurate.

Author: Eileen Vasko

Eileen Vasko is an accomplished Accounting professional with over 10 years of experience in financial management, cost accounting, and compliance. As a former Controller at Iron Horse Vineyards, she excelled at managing complex financial operations, including inventory cost accounting. As the Accountant Manager Team Lead at BBG, Eileen specializes in building highly efficient accounting processes including accounts payable/receivable, payroll, and tax reporting. Eileen is highly skilled in using advanced accounting platforms and tools to drive efficient processes.