To take on the challenge of how to start a winery, you need to be determined, fearless and passionate about your craft — although owning a vineyard seems romantic, starting a business in any industry is work, and the wine business is a tough one.
Just take a look at the success story behind Russell Bevan of Bevan Cellars. Bevan bought his first 10 acres in Napa Valley’s Sonoma County in 2004, but it wasn’t until 2013 that he got his first 100-point Robert Parker score for his 2011 Cabernet Sauvignon.
Shortly thereafter, his mailing list jumped from 500 subscribers to 3,000 in two days — and he saw a positive turnaround in the business’s bank account for the first time since he started his wine business.
To encourage drop-in visits, wine bars and retailers should be found in shopping areas that have a lot of pedestrian traffic.
It takes determination, courage, and passion to begin a winery. Although it may seem idyllic to own a vineyard, it’s hard work.
Russell Bevan of Bevan Cellars is a huge success story. Bevan bought 10 acres in Napa Valley’s Sonoma County in 2004. It wasn’t until 2013, however, that the 100-point Robert Parker score for the 2011 Cabernet Sauvignon was awarded to him.
Within just two days, his mailing list went from 500 subscribers to 3,000. And for the first time since Bevan’s wine business started, there was a positive turnaround in his bank account.
However, between 2004 and 2013, Bevan experienced major financial difficulties. Because of this, Bevan’s family stopped answering his calls because they suspected he was trying to borrow more money.
For those who aren’t discouraged by the difficulties of owning vineyards, they will need more than determination to get their ventures off the ground -financial resources, that is.
Towards the end of this article you’ll find answers for some of the most frequently asked questions on how to launch a wine business…
Although starting a winery will take some time, these steps can help anyone get started.
Two of the first important things to accomplish before getting too far with the wine business are the name and business entity. It is important to ensure that the chosen name is available and that it has not been taken by another winery. This is crucial when selling the wine. A name can make any wine stand out.
Check with the secretary of state to see if the name is in fact available and if it is, it’s possible to reserve it online. Remember that the domain name for the chosen name needs to be available in order to create a website or other online marketing tools such as a Facebook Page or an Instagram account.
Additionally, selecting the type of business entity is important. There are many entities available to choose from. However, a limited liability corporation might be the best option. It offers certain protections that an individual might not get and allows the owner to be taxed as either a sole proprietor, or as a corporation.
It is important to do extensive research into the industry and competitor markets when creating a business plan. A summary of the business should be included, along with a market analysis, details about the product and financial projections.
Business plan templates can be used or create one from scratch. It should be thorough and contain a lot of research regardless of the format. It needs to be constantly updated to reflect changes as the company grows. Consider it from the perspective of a potential investor: What information would be important to convince these people to invest in the business?
Winemaking is a heavily-regulated business. Hence, obtaining licensing and permits can be quite difficult. As a matter of fact, wine-compliance organizations exist to assist winemakers in navigating local laws as well as federal wine regulations.
Wine label approval is done by the Alcohol and Tobacco Tax and Trade Bureau.
It’s even more complicated to sell across state lines as many states have their own laws regarding direct shipment. Once the licensing and permit logistics are completed, the next important step is to keep track of the state’s excise and sales taxes.
This process can be overwhelming to those who are unfamiliar with this industry. Some would consult a lawyer experienced in winery regulations to keep things in order.
Once the business plan is complete and requirements for obtaining licenses and permits are in place, including how much each will cost, budgeting for the business is the next thing to accomplish. The price of being “all in,” is usually expensive.
Foley Wine Group founder, William Foley, claims that purchasing 460 acres of Santa Barbara County California land nearly 20 years earlier cost a whopping $15 million.
Vineyard prices in regions like Napa Valley have seen a significant increase since then. Northern California vineyards can run from $11,000 – $30,000 per acre. It is expected to reach $1 million per acre in the next 30 years.
One doesn’t need to live in California, though, to open a winery. There are wineries throughout the 50 states. Land prices are also lower outside California. Setting up a small winery in the backyard is possible for as long as there is enough land and money. It can cost anywhere from $35,000 to $45,000 to install a vineyard.
After buying or developing that piece of land, it is important to consider the annual establishment expenses required to keep the vines alive. These costs can run from around $15,000 to $20,000 for the first three-years.
Remember that at this stage, there are no grapes to make wine. Vineyard owners must also invest in machinery and equipment. This is not an inexpensive investment. A majority of vineyard owners would like to construct a production facility as well as a tasting room. The tasting room will generate 90% of the revenue.
All these costs are why opening a business bank account to separate the business and personal finances is highly recommended by experts.
One would need serious capital to start a wine business in the first year. In this industry, it is crucial to invest in costly fixed assets such as machinery, land, and equipment.
Although there will be ongoing expenses, the vast majority will be spent on establishing the vineyard infrastructure and operating it during the first two years.
Jerry White from Cornell University lists the following expenses an entrepreneur should consider when starting a wine business:
There are other startup costs to consider, such as payroll, shipping, business marketing, and insurance. White estimates that the initial five years will require a capital investment exceeding $1.5 million.
Most potential vintners, especially those who are learning how to start their winery, cannot raise $1.5million on their own. They will have to look for outside financing.
Like all startups, the newest vineyards may not be able to obtain small-business loans with a high-debt rating. This means initial capital through equity financing is needed as well as loans from friends and family, including bootstrapping.
Keep in mind that regardless of the type of loan applied, the chances of approval are best if the applicant has strong personal credit, profitability, and cash flow. So, the best time to apply is probably after the busy season.
It might be difficult for vineyards to secure a bank loan, since wineries are inherently risky.
To protect their interests, banks may require a large down payment — possibly as high as 50% — if they approve a winemaker’s loan request.
Loans through a local bank or credit union have higher chances of being approved than through a large national bank.
Even so, be prepared for a substantial down payment and a higher than usual interest rate. There will also be an appraisal of the vineyard.
Due to the high industry risk, potential lending institutions will be vigilant about making sure the borrower is able to repay the loan even if the wine company fails.
Along with the projected income and financial status of the business, lenders will carefully evaluate the personal credit score and salary of the borrower.
Equipment is the biggest upfront cost in starting a wine business. Therefore, it’s a good idea to look into an equipment loan for winemakers. The lender will finance up to 100% of the equipment cost, which will then be repaid by the borrower with interest over time.
Startups may have a greater chance of qualifying for equipment loans than with other types of loans. Lenders care as much about the equipment’s value as your business’s financial records, because it acts as collateral.
Vineyards will experience seasonal peaks as well as troughs, just like any other agricultural business. This is the part where business credit lines can help the vintner get through these dips.
Not all grapes are grown by the owner. In such cases, the owner can borrow from the credit line to purchase grape inventory and add to or blend with any existing harvest.
Winemakers, like any small business owner, pay a lot of the expenses on business credit cards. They also tend to have a large balance at the beginning.
The initial interest costs can be reduced by choosing a credit card that has a long intro APR period of 0%, allowing an interest-free balance for the duration.
Some entrepreneurs don’t want to invest in a fully-fledged winery. That’s okay because there are still other ways to get involved in the wine industry. Consider an alternative business model instead.
One possible route is to be a “virtual winemaker,” as in the case of Cannonball Wine Company located in Healdsburg, California.
Yoav Gilat, Cannonball founder, chose to invest in a smaller vineyard and processing center than spending millions in setting up a facility.
Gilat spent many years in hospitality before joining forces with the Israeli Army. He moved to the U.K. to study law, and then to the Bay Area to complete his MBA from Berkeley.
He met Dennis Hill, his Cannonball co-founder and winemaker. Hill has been in California for 35 years. Greg Ahn is the other co-founder and a veteran winemaker from Sonoma County. Gilat said that their goal was to make a great wine for under $20 and have fun doing it.
Cannonball was founded by the three of them as a “virtual company” – they don’t have a winery or vineyard. The company doesn’t have a tasting room, but they can arrange one if needed. Cannonball uses existing family growers to harvest the grapes. Then, Cannonball’s winemakers create the wine using rented equipment.
No matter what the wine business model is, success will depend on how the vintner or owner caters to the customers. This business venture includes keeping up with changes in their spending habits, tastes and industry trends. This is the key to a successful winery.
The industry predictions of Silicon Valley Bank in the “State of the Wine Industry 2018” report contains valuable information that will benefit both novice and expert vineyard owners.
Wine production businesses must first adapt marketing strategies and sales strategies to appeal more to a changing demographic.
The majority of wine drinkers today are price-conscious and place value and experience above luxury.
Every vineyard wine company, especially those that rely heavily on tasting rooms for revenue, should seriously consider setting-up an online store. Also, a vineyard company should be able to price their wines in the $12-25 range, which is increasing in demand.
The increasing prices in arable land is something that aspiring vintners need to keep in mind which is yet another reason to opt for the alternative business model. All domestic winemakers need to be aware of the increasing competition from high-quality foreign imports that are reaching record levels.
Small vineyards continue a decade-long trend of finding it difficult selling to restaurants which is why opening an online shop is recommended by some experts.
It also gives vineyards the opportunity to be creative in marketing and selling to local restaurants.
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Now, we know you probably have tons of questions…
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