This Page Contains Excel Models and PowerPoint Presentations

Used Primarily for Educational Purposes

to Demonstrate Concepts and Excel Use

Page Contents

	Why Does Premium Wine Cost So Much?
	The Five Year Annual Forecast Model
	OK, When am I going to stop bleeding cash!
	Comments in income tax effects and winery operations

 

Why Does Premium Wine Cost So Much!

OK, your customer wants to know how you justify charging him or her $65.00 for a bottle of Cabernet.  I suggest you reply in one of two ways:

 

"I make the finest wine in the world and Parker doesn't know shit!  Besides, this is the last case available, so quit complaining and give me your credit card."

OR

 

"Take a look at this Power Point presentation."

Frankly, the first response is probably the best - unless, of course, your customer happens to be a cost accountant.

        To Download the Why Does Wine Cost So Much Excel file (Version 2.0 April 15, 2007) - Click Here

        To Download or View the PowerPoint presentation (to view in your browser, when asked - DO NOT update links) - Click Here

The PowerPoint presentation is linked to the related Excel workbook.  When linked, the PowerPoint presentation will always reflect the results in the Excel workbook (very cool ).  Note, the linkage is set to assume that the .PPT file and the related Excel file are on the same directory.

Visual Basic for Applications (VBA)

The Why Does Wine Cost So Much! workbook contains a modest amount of visual basic code including code to print preview the model, display a Power Point Presentation that is linked with the model, and display an About Form with a button to call-up this web page.  The model itself is really quite simple and does not require VBA to function.  The VBA just makes the model a bit easier to print and navigate.  In order to execute the VBA code, you must adjust your Excel security setting to allow VBA projects.  This is done on the Tools|Options|Security tab.

The VBA code is not protected and effectively demonstrates how to add the following functionality to an Excel workbook:

	Print preview selected worksheets
	Showing a linked PowerPoint presentation from the Excel workbook (very cool)
	Showing an About Form that includes a button that loads this web page
	Comments in income tax effects and winery operations

Most of the VBA code is activated via command buttons contained on the sheets and on the About form.  Take a look - the code is not protected.  The code is simple and easy to understand, yet introduces some very useful and powerful concepts.  You may find these simple routines and this basic approach to building user friendly Excel workbooks a good intro to Visual Basic and useful for your own Excel work.  Please use it freely and enjoy.

 

The Five Year Annual Forecast Model

This 5 year forecast and PowerPoint presentation was developed as part of a lecture to demonstrate some basic concepts for developing financial forecasts for winery operations.  It is also useful for understanding the effects of product mix, retail sales, and growth in sales and production on the operating results, cash flow and financial position.

To download the Five Year Annual Forecast Excel .zip file (125 KB) - Click Her

Download .xls file (402 KB) or Preview in your Browser (Do Not Enable Macros to Preview) - Click Here

The PowerPoint presentation is intended to serve as the documentation for the model and can be viewed and/or downloaded below:

To view the Power Point presentation (Hint - try the Browse | Full Screen option) - Click Here

To Download the 2.6 Mb zip file containing the .ppt file  - Click Here

If you send be a brief email after downloading the file to alondon@alondon.com, I will keep you informed of enhancements and bug fixes.  Also, your comments and ideas on how to improve the presentation are always appreciated.

Visual Basic for Applications (VBA)

The Five Year forecast model contains a modest amount of visual basic code including a simple utility to set-up the sheets, and code to print preview the model, display an About Form, navigate the Capital Budget sheet and call-up this web page.  The model itself is really quite simple and does not require any VBA to function.  The VBA just makes the model a bit easier to print and navigate.  In order to execute the VBA code, you must adjust your Excel security setting to allow VBA projects.  This is done on the Tools|Options|Security tab.

The VBA code is distributed within the workbook as follows:

	3 routines in the Utility module for sheets setup, unprotect all sheets and go to web.
	2 routines in the Splash Screen sheet object;  One to print preview the model, and one to call the About form.
	3 routines in the About Form to initialize the form, go to this web page and exit the form.
	2 routines in the Capital Budget sheet object to hide columns and activate the "Nav button" switch (very cool!).

Most of the VBA code is activated via command buttons contained on the sheets and on the About form.  Take a look - the code is not protected.  The code is simple and easy to understand, yet introduces some very useful and powerful concepts.  You may find these simple routines and this basic approach to building user friendly Excel workbooks a good intro to Visual Basic and useful for your own Excel work.  Please use it freely and enjoy.

 

OK, When am I Going to Stop Bleeding Cash!

First, some definitions.

Cash generated from operations is just that - cash collected from sales in excess of all your production costs, operating costs, interest and income taxes paid.  But cash flow is the sum of cash generated from operations less cash invested in plant and equipment and vineyard development plus cash borrowed.  Cash positive is that point where your cumulative cash flow exceeds zero.  You are not making money (except perhaps on your investment in Real Estate) until your operation is cash positive.

Income is that fictitious number generated by your accountant.  It represents sales, less: cost of those sales, sales marketing and administrative costs, interest and income tax provision.  Positive income is good; it holds the promise of future cash flow - maybe (if you are not growing to fast).  Accordingly, you should care primarily about cash flow and the point you become cash positive.

The answer:

If you purchased land, and are planting vines and building your winery, as a general rule you will start generating cash from operations in year 8 and not become cash positive (on a cumulative basis) until year 13 to 15!   If you build your winery and don't wait for your new vines to mature by purchasing grapes or bulk, then you may cut 2 to 3 years off this cash cycle.

If you purchased an existing winery operation with a producing vineyard, but did not purchase the inventory, you will probably start generating cash in year 5 and not become cash positive for 10 to 12 years.  If you purchase bulk to to build inventory immediately, you can take 3 years off this cash cycle.

If you purchased the winery with adequate wine in process and bottled goods inventory you will pay an additional million or more for the operation, but you may generate cash in year 1 - unless. of course, you are highly leveraged.

These numbers will vary significantly depending on the amount of financing, types of wines you produce, your rate of growth.  It takes a moderately complex financial forecast to determine the cash positive point.  If you really want to know when the bleeding will stop, contact me and I'll do some arithmetic and send you a bill.

To Download a very simple analysis demonstrating the cash flow generated if you purchase a winery with a producing vineyard and no inventory - Click Here

 

 Income Taxes and Winery Operations

The government wants taxes paid on Taxable Income - they don't care about your inventory or vineyard development problems.  Taxable Income is Income adjusted by 22,000 pages of IRS law and regulations.  The tax law is so complex and convoluted that only a specialist with a computer can compute your tax liability.  Taxable Income is determined by accountants that specialize in learning the tax code and helping the government collect taxes.  That is right, if it was not for 10's of thousands of accountants (the guys who brought you ENRON) that spend their entire "professional" carriers learning the tax code and keeping up with the changes, the tax law would prove totally unenforceable.   And, if you think accountants can save you taxes - forget it!  The only way to save taxes is to ignore some part or all 22,000 pages of the tax code.  NOT recommended if you maintain any assets in this country.  On the other hand....

The government even makes you capitalize interest and administrative expenses just to increase your taxable income and collect more money.  This is known as the UNICAP provisions (Section 263A).  The only breaks you get from the government are:

 

	You can expense crop costs;
	Participate in the LIFO inventory scam;
	Carry tax losses forward (unless you live in California that arbitrarily suspends loss carry forwards!);
	Get free advice from UC Davis;
	And, the government does not collect taxes on unrealized appreciation on your real estate holdings - yet!

Taxable income represents the promise of future Income which, in turn, represents the promise of future cash flow - maybe!  Accordingly, if you are successful, you start paying income taxes years before you start making any money!  Remember "making money" means cash positive (that point where cumulative cash flow exceeds zero).

So, if you purchased a winery as a tax shelter - you have been getting your financial advice at cocktail parties.  If you become a successful winery and are doing business as a corporation (C-Corp), the taxes are going to kill you because all your cash is invested in building inventories so there is never enough money to "bonus out" and avoid the double tax bite!  Accordingly almost all wineries operate as LLC's or Sub-S Corporations (known as "flow through" entities).  But, if you suffer operating tax losses, which is likely in the first 3 to 5 years of operation, some of the tax loss carry forward benefits could be lost when they flow through to an individual return (Form 1040).  If you do not actively participate in the winery operations (generally more than 500 hours a year), your losses will be considered "passive" and must be carried forward and offset only against future winery taxable income.

The best summary of the tax laws that effect the wine industry is contained in the IRS MSSP (Market Segment Specialization Program) publication:

   http://www.unclefed.com/SurviveIRS/MSSP/wine.pdf

This is a really useful guide, but do not forget who the author is!  Also, it was published in 1995 - so double check everything for current law and regulations.