A reader has asked me to explain how is it possible that Stormhoek, which grew from 0 to 200,000 cases in three years can get into a tight financial situation?
I’m not going to speculate on that, but I can tell you what happens to some wine businesses – they simply run out of cash.
Any fast growing business consumes cash rapidly, especially when the cash flow cycle is extended – like the wine business. Remember that you have to harvest or buy grapes, make the wine, pack and transport the finished product and then collect your money. This process often takes six months or more – and I’m only talking about commodity wines. Premium wines and Champagne can take three years before they are ready for the shelf.
Obviously while all this is going on the bank, the grape farmer, the packaging supplier and all your employees have to be paid. Many wineries start off undercapitalized anyway so this only compounds the situation (notice that the bank gets paid first, the owner is last in the money queue).My advice is:
- A sale is not a sale until you have the cash in the bank
- Don’t get caught up in your own hype
- Be as passionate about ROI as you are about your wines
The quality of your management team will probably be the most important investment decision you will ever make. It all starts (and ends) at the top.
By Mike Carter