There's a saying in the wine industry that is often repeated: if you want to make a small fortune in the wine industry, start with a large one!

There's no question that the industry is capital intensive and that returns are rarely quick. After you have included cost of land, vineyard establishment, winery infrastructure, cost of production and all of the associated on-costs and costs of sales you will find that financial management will need to be precise to ensure an adequate return.

Irrespective of these costs - and they differ considerably for each wine producer depending on individual circumstances and requirements - the establishment of a cellar door facility attracts its own set of costs. First and foremost is the capital cost of establishing an appropriate facility. For some this may mean adapting existing premises or it may require starting from scratch. Either way, the decision must be made in the context of 1) available cash and expected Return On Investment (ROI) and 2) desired image.

Capital Costs
The "cheap" option of adapting existing premises may prove more costly in the long run because of early compromises, and it may not be conducive to building your brand image. Like any building project, you will need to work within council guidelines, so it's important to gain a thorough understanding of the development code for your region to ensure your plans comply. Otherwise you could encounter costly delays that impact directly on your bottom line.

One Australian winery learnt the hard way when it was closed down after just five days trading because it had apparently failed to meet some of the conditions of consent. The winery was closed for a total of twenty weeks while a turning lane was constructed off the main highway to the winery, resulting in substantial additional capital costs and tens of thousands more in lost revenue.

Capital costs are not confined to the building itself. Fit-out can also be incredibly expensive, depending on the style and range of materials you choose. Once again, this will be determined by your desired brand image and the requirements of your visitors. Landscaping, signage, amenities, car parking and external facilities also need to be factored in, as these play a key role in establishing and reinforcing your brand and attracting and retaining visitors.

Useful Technology
Then there's technology. Effective businesses simply cannot exist and compete without access to (and a presence on) the Internet, plus email, software programs, merchant facilities and the computer hardware required to drive it all. If the budget allows, an investment in a fully integrated system that incorporates point of sale (cash registers) with accounting, database and distribution programs will pay huge dividends in the long run, potentially generating considerable cost savings in human resources. And whilst you - or your staff - will certainly need to be fluent in the operational aspects of the programs, the really technical stuff can be contracted to experts who are just a phone call away.

Cash Flow & ROI
Even the smallest business should at the very least operate a Cash Flow budget. Planning appropriately for difficult cash flow times can save enormous stress and finance costs. Equally, planning for cash surpluses means you have the opportunity to maximise the benefits of spare cash by reducing debt, pre-paying invoices at a discount, or timing purchases to minimise overdraft or borrowings.

Equally important is the overall ROI you expect to get. Your invested capital should be returning you an income - eventually, anyway. Otherwise, you may be better off just putting it in the bank.

And don't forget to allow for changes in interest rates on your borrowed funds, unless you are locked in for the long term.

Use the Cellar Door Spreadsheets to create your Cash Flow budget and ROI scenarios. For further advice or information contact your Accountant or Wine Food Tourism Strategies Pty Ltd who generously provided these templates.