Dissecting the winery P&L (with free template)
The P&L Statement is the main report that shows how well your winery business is performing financially.
It generally showcases an overview of your revenues, costs, and expenses incurred during a specific period of time, and summarizes important financial metrics like gross profit, the cost of goods sold, and net profit.
If you’re wondering how sales are fluctuating month-to-month, if COGS have blown out, or which sales channels are bringing in the most revenue—your P&L is the place to look.
Here is an outline of what commonly goes into a winery Profit & Loss Statement:
Revenues
Sales Revenue:
Wine Sales: Revenue generated from selling bottled wine.
Tasting Room Sales: Revenue from tastings and events held at the winery.
Merchandise Sales: Income generated from selling branded merchandise.
Club Memberships: Subscription or membership revenue from wine clubs.
Online Sales: Revenue from selling wine through online channels.
Cost of Goods Sold (COGS)
Production Costs:
Grape Costs: Expenses related to purchasing or growing grapes.
Bottling Costs: Expenses for bottles, corks, labels, and other packaging materials.
Production Labor: Costs of labor associated with wine production.
Winemaking Supplies: Expenses for yeast, barrels, and other winemaking supplies.
Inventory Costs:
Inventory Carrying Costs: Costs related to storing and maintaining inventory.
TIP: You can take your revenue from the P&L and subtract the total cost of goods sold to find your gross profit.
Gross Profit = Revenues - COGS
Operating Expenses
Marketing and Sales:
Advertising: Expenses for promoting the winery and its products.
Sales Commissions: Compensation paid to sales staff or distributors.
Public Relations: Costs related to maintaining a public image and customer relations.
General and Administrative (G&A):
Salaries and Wages: Compensation for administrative staff.
Rent or Mortgage: Costs for leasing or owning the property where the winery operates.
Utilities: Expenses for electricity, water, and other utilities.
Insurance: Costs for various types of insurance coverage.
Depreciation and Amortization:
Depreciation of Assets: Accounting for the loss in value of assets over time.
Amortization of Intangible Assets: Writing off the value of intangible assets over time.
Tip: You can find your Operating Income by calculating Gross Profit - Operating Expenses
Operating Income = Gross Profit - Operating Expenses
Other Income and Expenses
Interest Income or Expense: Income earned from investments or expenses from loans.
Miscellaneous income or expenses that are one-off occurrences or not considered operating income or expenses (examples might include gain/loss from sales of assets, insurance claim income).
Tip: You can find your Net Profit by calculating Gross Profit - Operating Expenses.Net Profit = Operating Income + Other Income and Expenses - Taxes
What to look for when reviewing your winery P&L
If you’re wondering how your winery is performing, the Profit & Loss (P&L) Statement is the place to look. This is why reviewing your P&L is so critical to the success of your business.
You should be reviewing your P&L Statement every month to see how your business is performing and how your numbers are trending.
When checking out your winery’s P&L Statement, here are a few things to look for:
First, look at your revenues
You can use the P&L to see a quick snapshot of how sales are trending, month by month. Quickly reviewing the report can help you spot how well each source is doing and if there are any unexpected changes.
If you see anything odd, look closer to understand why!
You can dive even deeper into the details of your P&L to review your income from different sources like wine club, tasting room, online store, distributors, and custom winemaking.
How is each source doing? Do you see additional changes from month to month?
Second, take a look at your COGS
Cost of Goods Sold (COGS) is a key part of your Profit & Loss Statement, especially for wineries or businesses dealing with inventory. This isn't just about counting the cost of grapes, bottles, and corks. It's crucial to track the cost of the products you actually sell each month to understand your winery's real profits.
Simply put, your COGS should change based on your monthly sales. For example, if you have a big sale one month, your COGS will be high. But if you’re producing a lot without selling much, your COGS should be low — definitely not more than your total revenue. High production costs should be recorded differently and only included in the P&L when the wine is sold.
Don’t just wait for the year-end to calculate COGS. Work with your accountant to estimate it monthly as a percentage of sales. You can then adjust the numbers at the end of the year.
Calculating COGS monthly gives you a clearer picture of your profits and helps avoid big, surprising adjustments at year-end. If you aren’t calculating your cost of goods sold on a monthly basis, then your P&L really can’t give you usable information.
Third, review your expenses
You can review your expenses in a monthly Profit & Loss format and quickly scan to see how various line items are changing from month to month.
We recommend starting with a high-level report: view your expenses in a collapsed format and note which categories have increased compared to last year and which have decreased.
Next expand the parent categories (e.g. wages, marketing, tasting room expenses, facilities expenses, admin and office expenses, taxes and licensing, professional fees, travel and meals) and take note of which line items are showing the biggest increases and decreases.
Unless you’re in the beginning stages of your winery, make sure your expenses are never growing faster than your revenues.
Take the time to make a list of any expenses you may be able to cut, subscriptions or services you can cancel, or contracts that you can renegotiate.
Finally, review your bottom line
Last but not least, take a look at your bottom line.
What does your operating profit look like compared to last year?
We recommend reviewing your operating profit for year-to-date against the same period last year (or better yet compare the rolling-12 period with the previous rolling-12 period). Since your month-to-month revenue may fluctuate month-to-month depending on seasonal sales and when you run wine club, it is helpful to look at your operating profit over a period longer than a single month.
Note your change in revenues, gross profit, and expenses, and make sure your expenses are growing faster than your gross profit.
A good rule of thumb is that your winery should be showing at least 10% net income. If it’s not, it is going to be difficult to cover your tax bill, principal payments, and return anything to the owner.
We wrote another great blog post about which KPIs you should be tracking and reviewing every quarter, which you can read here.
Download your winery P&L template
You can download our winery Profit & Loss (P&L) Statement template to use in your own business.
Simply make a copy of our template and input your own figures to track your winery’s financial performance.
Beyond the P&L
Another thing to keep in mind is that if your other key winery financial statement, the balance sheet, isn’t accurate, your P&L by definition won’t be accurate. Every time you review your P&L, you should also review the balance sheet – or at least have confidence that your accountant is reviewing it for you!
Also, it’s important to keep in mind that the bottom line on your P&L will not match your cash flow. This is especially true in resource-intensive businesses like wineries. It is very common to show a profit but have less cash at the end of the year than at the beginning. This happens if you are investing in assets or building up your inventory levels. It can also happen if you are paying down debt or taking owner distributions. In order to understand how the bottom line of your winery P&L relates to cash, you will have to learn to read the third key financial statement, the Statement of Cash Flows.
Get more help with your winery P&L
In summary, understanding and regularly reviewing your winery’s P&L is crucial for financial success and stability.
This blog post and our downloadable template are designed to simplify this process for you.
Make a copy of the template now and start gaining deeper insights into your winery’s financial health.
If you have a question about the P&L that we haven’t covered in today’s blog or the P&L template, feel free to reach out to us. You can get in touch with us anytime by using the form here. We’re always here to help.
In the meantime, check out our blog on quarterly financial reviews to get a better understanding of how we recommend reviewing performance in your winery on an ongoing basis.
Until next time.
