So, the romantic notion of owning your own vineyard has taken hold of you… Whilst there are certainly worse ways to earn a living, just like any business, it’s a tough challenge to take on and not just from the point of view of having to graft each and every day to earn your keep.
Ploughing one’s savings and/or that of family members into the venture is often a pre-requisite. Vintners are a hugely resourceful bunch and whilst there’s plenty of the old red (or white) to go around, some don’t take kindly to a perceived piece of the pie being taken from their table.
As long as you go in with your eyes open, be prepared to work hard and also be hard-nosed about certain aspects if the need arises, the dream of owning a winery can be yours. If you’re still not deterred, read on…
It Takes Time
A conservative estimate for being in a position to trade profitably in the wine business from the position of a startup is 8-9 years. If you’re not willing to invest the time and effort at the get-go, what hope do you have of owning a successful wine business a decade later? The answer is a simple one. None at all. Rome wasn’t built in a day, and neither is a profitable wine venture.
You’ll almost certainly rack up debt quickly too, but these are crosses one has to bear along the path to profitable business. Consider too, exactly what the monetary investment looks like before making your grandiose plans. In the first instance, always think of your business as just that; a business, not a ‘wine’ business.
It’s a dangerous game to set the wheels in motion before everything has been fully costed which sounds incredibly basic business advice, but where owning a vineyard is concerned, simple business principles seem to go out of the window for some potential owners.
Five years to develop everything properly, a further 12 months for your first vintage and up to three more years to hone your marketing plan means that, at the outset, you can’t have a life outside of the winery.
5 Steps to Success
It is a huge commitment to undertake, but if having your own winery is definitely your end game, follow these steps to get off to a good start.
Step 1: My name is…
You have your idea, but do you have your brand? There’s probably a multitude of business names floating around in your head. Some funny, some serious, some an intelligent play on words… but be aware that many vintners have been down exactly the same road before and may well have bagged the name that you consider to be just right.
Remember of course that how you brand yourself is vital to the ongoing success of your business. When it comes to selling your wine, do you really want to be known as a company with a ‘comical’ name? It’s unlikely to help you getting your foot in the door with top level corporate companies by way of example. Make it memorable by all means, but your name/brand is a representation of you. Make sure it is accurate.
Choose a business entity too. For example, a limited liability company offers you certain protections that you wouldn’t really get as an individual.
Step 2: You do have a business plan… don’t you?
Your business plan has to be robust and fit for purpose and the time you spend on this aspect will reflect in your business in the coming years. Should you not ‘dot all the i’s and cross all the t’s’ at the beginning, you will come to regret it further down the line.
There are various business templates available online, however, these really should be used as a guide only. It won’t be tailor made for your specific business, and that’s exactly what you will require.
At the very least, you should’ve ensured that financial projections, market analysis, company overview and a summary of the business are included as a start point.
As your business develops, so should your business plan. The document should remain fluid throughout the life of your business, and referred to occasionally to see if improvements can be made here or there.
Put yourself in an investor’s position. That should be enough to instruct you on what needs to go into your business plan and why.
Step 3: Licensing and Permits
If you weren’t already aware, you’ll be knee deep in paperwork once you begin the journey which will hopefully end in your own winery. The industry is one of the most heavily regulated, and it’s a good idea to avail yourself of the minefield of licensing issues and what permits are required for a particular area.
Be aware too, that if you intend to sell abroad, which almost every vintner will do, there will be further laws to adhere to and further paperwork to complete. Did we mention excise and sales tax?
If in doubt as to how these areas of the business might affect it, best advice is always to consult the experts.
WGP Global have extensive experience and we would be happy to discuss your liabilities in this area to help put your mind at rest.
Step 4: Budget
Your budget can only be put together when you’ve signed off on your business plan, which will include the cost of any licenses and permits you need. NB:- Don’t expect it to be cheap.
Land prices need to be taken into account at the outset, and it isn’t uncommon for acreage to cost anywhere from £10,000 per acre upwards. That’s a significant investment by anyone’s standards, and the better the area in terms of soil, weather, marketability etc., the higher the price per acre.
Once your plot of land has been costed, found and purchased, there are the annual costs that will add another £15,000+ per acre to your budget. Those grapes won’t grow on their own so the upkeep on the land is paramount. Keeping everything in top-top condition is conducive to better quality of grape, therefore a better end product and a bigger yield.
Of course, at the beginning there are no grapes to speak of, so there will need to be significant investment for the purpose of acquiring the right machinery. Building a production facility and tasting room is not necessarily a necessity, however, between 80% and 90% of company revenue is likely to come through your tasting room.
Without staff, there is no business, so factor in the human cost too, alongside insurances, company marketing and shipping. You’ll be lucky to be left with change from £2m after the first few years of investment, but if you’re willing to persevere then there’s a strong likelihood you’ll make a relatively quick return on your outlay.
Most people don’t happen to have a spare £2m just lying about the place so…
Step 5: Funding
All startups need finance from somewhere, whether that be from friends ad family, traditional forms of loan, venture capitalist investment or otherwise. The issue for potential vintners is to ensure that take the right path for their business.
Taking a loan from a bank as a vintner whilst not necessarily advisable, is still possible. Banks view the wine business as inherently risky and, as a result, may require various forms of security to protect their interest. Be aware too that your personal credit score and potential salary will likely form part of the process when the bank decides if your business is a risk worth taking.
Getting a loan for any equipment will normally get approved for the simple fact that lenders know the equipment – which you’ll pay for plus interest over an agreed period – is the collateral.
Business Line of Credit
A wine business by its very definition has seasonal peaks and troughs. It’s during the tougher times that some readily available credit could be required and it’s to that end where a line of credit for your business comes into its own. Borrow what you like (within reason) and only pay interest on what you borrow.
Business Credit Card
There will always be a shed load of little bits and pieces that needs to be paid for, and a 0% business credit card, preferably with a long interest free introductory period, is just the ticket.
Simple Agreements for Future Equity (SAFEs)
For startups, SAFEs ensure that details regarding the equity stake are not negotiated until after any initial early-stage investment. Only then does the growth path become clear.
Much like an investment in the production of a Hollywood film will eventually lead to revenue when the film is released to the public, revenue sharing will give investors a future stake in the company’s revenues without tying it to an equity stake.
Having one single early-stage investor can mean that one person’s ideas run the show, and create an imbalance that can make future fundraising more challenging. Syndicates for early-stage ventures allow a wider array of investors to support the venture without making too many unique commitments to individual investors.
Convertible notes begin as a debt investment but give the investor the option of converting the remaining balance of the loan into an equity stake at a later date. This makes it a good structural fit for startups where the true value and scalability are less apparent until later in the process.