Four years ago I wrote a newsletter called “Idiots guide to setting up a winery”. It was a detailed layout of the financial and physical challenges of putting up my first winery. Today its time for the next chapter: “The idiots guide to: mostly failing to make cash flow work in a growing wine business”.
2014 was my first harvest in the new winery. For me, that time is a blurry distant memory of spending all the money I had on a chaotic conglomeration of necessities to support the very basic needs of great grapes in it’s journey from juice to rather more exciting elixir.
To top that, for the first time, I had more elaborate overheads. Everyday more unforeseen costs crept in: machines broke, cooling tripled electricity usage, forklift- and tractor rent, etc etc… So there was definitely no cash left for additional hands in the winery. I had to do everything myself. I wish I could say it’s something I’m proud of, but looking back on things, I think my decisions were driven by my stupidity and the fear of employment commitments. Anyhow, I did a 35-ton harvest completely on my own. Goodness it was tough. Some friends threw in a helping hand here and there, but all-in-all that harvest was too much for me. Bad for my health, finances and the family. But somewhere deep down I still knew that moving to the new winery was not a mistake.
Towards the end of 2014, convinced that I was fine on my own, I received an e-mail from a freshly qualified winemaker from Stellenbosch University who was looking for a 2015 harvest job. My wife literally put the phone in my hand and forced me to follow up. Today, almost 4 years later, Julia is still with us – an invaluable asset! This seemed to form a style of employing staff because not long thereafter, a friend’s gardener joined us in the winery for one day to help and he also didn’t leave. Finally, in January 2015 the last of our current team (Andre) came to help out for a week and well… So we were 4 going into the 2015 harvest. We were then faced with a new problem: we needed enough work to keep everyone busy all year long (not just in harvest), and 35 tons didn’t do it.
Now just some background for you guys and girls who know a bit about finance: In January 2015 we bottled the whole of the 2014 white wine production (50% of our 35 ton harvest). So this meant that we had to buy bottles and corks (besides paying the bottling fees). These wines then had to rest for at least 6 months before we could start selling them. In the mean time, from January – April 2015 we harvested and grew in production with 57%. This meant buying more barrels and more grapes. Payment for grapes are due in 30 – 90 days. Back to the whites we bottled in January: the quicker you then get them labelled, the quicker you can start selling, so in July 2015 we labelled the whole white wine production of 2014 (paying for labels, wax, boxes and labour). It then took us about a year to work our way through selling these wines. July 2015 we then bottled all the reds of 2014 (the other 50% of our initial 35 ton harvest). Now these wines needed to spend 6 months to a year in bottle before we could release them.
This meant that in January 2016, when we were about 50% sold out on the 2014 whites…WHAM!… we started with the 2016 harvest…(grapes and harvesting costs to cover) PLUS we had to bottle all of the 2015 whites (50% of our 55 ton harvest). On top of that, we again increased our production in the 2016 harvest with 36% (more barrels and more grapes). And so the cycle repeats itself and still does. So all of our profit went straight into stock.
On the home front, our family grew with 150% since we got married and with 3 small kids to keep alive and well, we also made some changes. My wife fully supported us both financially throughout the first phase of our married life (when I was playing wine wine) and I felt that it was now my turn, so she chose the option of being at home with the kids.
So my point is: if I retire today I have 2.5 years of stock – liquid assets one could say. And that my friends, is what makes a wine business so difficult… Especially if you don’t own a bank on the side.
With 35 tons in 2014 we filled the little winery (with a nice little lounge in the one corner), with 55 tons in 2015 we maxed the space (smaller lounge) and in 2016 we over-maxed it by fermenting 75 tons, 27 varietals, 60 separate parcels, while storing 2015 barrelled reds, all in the same 160 square meter cellar (no lounge).
One afternoon, after once-again playing Tetris with all the wines and barrels in my much-too-small cellar, I was walking back from the winery in total misery. The owner of the farm where I rented the small building came to me and asked what’s wrong. I asked him if he couldn’t build me a larger winery. And he said yes. So exactly 12 months later I moved into my new 550 square meter winery.
And in the early harvest days of 2017 when the first grapes hit the sorting table in the new winery – it felt like we were release from jail. We were set free to focus on what we like most: putting awesome stories to bottle.