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Starting a Winery



starting a winery

Starting a winery is not for the faint of heart.  A winery has multiple challenges that a typical business doesn’t face such as the growing, manufacturing and retailing all at the same time.  A winery owner is part farmer, part scientist, part marketer and part retailer.   A winery is also a business that typically has very low profits and requires a ton of work, not to mention the oversaturation of wine labels on the shelves.  What draws people to owning a winery is the romance and passion, not the necessarily the return on investment.  When it comes down to it, a small winery is basically a miniature manufacturing plant, and manufacturing is very expensive.  All of that expense will not determine your success, unlike other types of businesses.

The thought of establishing a winery can be extremely romantic with the images of beautiful landscapes, celebrations and a simpler lifestyle.   The reality is that a successful winery is the product of a great deal of determination, technical expertise, hard work, persistence and good luck, or at least a notable lack of bad luck.  Many people see just the romantic side of a winery and don’t realize it is a business!

A winery is very hard to start especially with a vineyard.  Having a vineyard and winery are like having 2 jobs and both are equally important to the end product.  Another problem you have is that you are looking at 3-5 years before the grapes mature to the point of being able to harvest for any reasonable quantity of juice.  Unless you have juice or grapes trucked in you could be looking at a significant amount of time with little to no capital coming in. The second point to note is that your winery will live or die by cash flow. You need to develop a good understanding of your cash inflows and outflows before starting your business. It’s OK to be unprofitable for four to five years in a growing business; if you have correctly priced your product and have structured your debt and equity financing to provide sufficient cash to cover expenses, you will become profitable. Conversely, a business which is profitable and growing rapidly, will be dangerously cash poor if adequate capital structuring is not in place. The expense of obtaining large amounts of short term financing for costly expansions can quickly eat up profits and destroy a business.

Most starting wineries initially begin by purchasing the juice or grapes from vineyards until their grapes mature.  One advantage of NOT producing your own fruit is that you can buy premium quality fruit, instead of having to settle for what you were able to produce. Another advantage is they buying grapes from an established vineyard will allow you to focus on the winery. A vineyard is really a full-time job if you are going to do it right.  You can also switch gears easily, choosing the varieties that you want to blend for your wines. One of the secrets that some of the larger wineries have is they truck in all of their grapes and/or juice and use the vineyard for demonstration purposes to give the appearance of a fully functioning vineyard.  It’s hard to get that authentic winery feel without the vineyard.

Some wineries also pass by the entire manufacturing process and have their wine custom contacted.  While it won’t work in all states to outsource the fermenting and bottling process and open a tasting room or sell at retail, it’s an easier way to ease into the winery business.  Like any farming operation, vineyards are a lot of work and tending to a vineyard you have to be constantly pruning, watering and spraying the plants.  Then you hope the disease or bad weather doesn’t destroy your crop.  In short there are a lot of things that can go wrong on the farming side, especially if you don’t know what you are doing.   The custom contracting is also a good option starting out to see if you really enjoy running a winery and only have a minimal investment.  It’s cost effective until you go much over 1,000 cases, but if you make it that far, you have a good chance of success and investing to a full-fledged winery makes more sense.  Selling 1,000 cases a year can be done part-time and on the weekends but you will be really busy.

To conclude, a winery is going to be an expensive business and complicated business to start.  Many people have started a winery with all their retirement money with the notion of how much fun it would be to own a winery.  Then it became a nightmare with all of the licensing, taxing, farming, producing and selling.  The best advice to starting a winery is try to start off small and see if you like it first.  Another option would be to go work at a winery to get a feel for what really goes on.  Starting a winery will probably not make you a lot of money but it can be fun, just make sure to not risk everything in the process for hopes of a more relaxed lifestyle.

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