Production Equipment
press (Used Wilmes 2700)	$19,000	$19,000
destemmer (good used)	$7,000	(new) $12,000
Must pump (good used)	$4,000	(new) $8,500
receiving hopper	$3,500	$3,500
jacketed tanks	(6-1000 gal @6K ea.)$36,000	(5-1000 gal @6K,6-2,000gal@8K) $78,000
refrigeration system	used milk cooler & pump $1,000	(glycol chiller) $11,000
filter (pad)	$6,400	(w/extra plates) $7,000
bottler	(6—spout gravity) $1,200	(used monobloc) $19,000
labeler	(gluer/hand) $600	incl.
corker	(hand oper.,floor) $500	incl.
hoses	(150 ft @ $1.80/ft) $270	(200 ft) $360
pallet jack	$600	$600
hose fittings (6 @ $30)	$180	$180
pump, van—speed	$1,200	$4,500
lab equipment (pH meter, ebulliometer, burettes, chemicals)	$850	$850
tools	$800	$1,000
Grounds
lawn (landscape/rake/seed)	$400	$400
sidewalk (40 ft.)	$300	$300
parking lot, crushed stone	(10,000 sq. ft $500	(20,000 sq. ft.) $1,000
Tasting Room Equipment
cash register	$700	(auto-cardreader) $2,000
Tasting glasses	(6cs@$42/cs) $250	(lOcs@$42/cs) $420
dishwasher	(std.household)$500	(commercial) $2,500
refrigerator	(small) $150	(glass-door) $1,300
Fax machine	-optional—	$450
furnishings	(desk, chair) $200	(x2) $400
file cabinets	$500	$750
copier	$600	$1,200
computer system	$3,500	(laser+software)$6,000
air conditioner	$400	$500
package design	$1,200	$2,200
Fees and Licenses
incorporation fee	—optional—	$2,000
label approval	(5@ $50 ea.) $250	(100 $50 ea.) $500
Total Capital Costs:
	$160,252	$292,110
	Operating Costs
Grapes and Bottling Costs
grapes	(3l tons @ $600/ton) $l8,600	(92 tons@$600/ton)$55,200
glass(750ml@ $54.85/gross)	$9,610	$28,832
corks	(26 K @ $115/K) $2,990	(76 K@ $115/K) $8,740
labels	(28 K @ $.065 ea.) $1,820	(83 K @ $.055ea.) $4,565
capsules	(26K @ $.055ea.) $1,430	(76 K @ $.050ea.) $3,800
labor	$12,000	$25,000
cleaning chemicals	$250	$400
Utilities/Insurance/Taxes/Annual Fees
water
electricity	(1,100 KWH/MO.@$.16/KWH)$2,112	(1,600 KWH/Mo.) $3,072
gas	$900	$1,200
phones	$1,450	$1,900
insurance (fire/liability/bond)	$2,000	$2,400
special occupational tax	$500	$500
state license (farm winery & Dept. Ag.)
	$200	$200
federal license	$100	$100
Administrative
accounting	(taxes only) $700	(consultations) $1,500
office supplies	$450	$1,000
postage	$500	$900
Sales
advertising (print, signs, fees, dir.mail)
	$l,500	$4,000
equipment (cork pullers, disposable cups,ice,shirts)	$250	$350
tasting wine	(7% vol.)	(6% vol.)
labor		(2 full@$15,000)
	(1.5 full@$6/hr + SS)$29,000	(1@ $20,000 +SS)$66,000
travel reimbursement	(2800mi@$.25/mi) $700	(8,800mi@$.25/mi) $2,200
tasting room supplies(soap, paper prod.)
	$200	$400
credit card fees	$1,200	$2,200
miscellaneous	$500	$1,000
Total Operating Costs:	$88,962	$215,459
(First Year)
Total Costs (First Year)
Operating + Capital	$249,214	$507,569

If these numbers seem intimidating, don’t worry— they are. A small winery is a miniature manufacturing plant, and manufacturing is very capital intensive. There are a pair of salient points to note. The first is that the total outlays do not determine the success or failure of the business. Large capital expenditures up front can be covered by sales growth in ensuing years. Remember, it is money you are spending to build your cash-making machine. It is more important to keep operating expenses at a minimum.

The second point to note is that your winery will live or die by cash flow. You need to develop a good understanding of your cash inflows and outflows before starting your business. It’s OK to be unprofitable for four to five years in a growing business; if you have correctly priced your product and have structured your debt and equity financing to provide sufficient cash to cover expenses, you will become profitable. Conversely, a business which is profitable and growing rapidly, will be dangerously cash poor if adequate capital structuring is not in place. The expense of obtaining large amounts of short term financing for costly expansions can quickly eat up profits and destroy a business.

In summary, building a small winery is akin to eating an elephant-you do it one bite at a time. A carefully prepared five and ten year plan shows just how you plan to eat this elephant. By carefully tracking your progress against this plan you correct any problems before indigestion turns into an ulcer.

How to Eat The Elephant

For the 5000 gallon winery the total first year expenses (capital + operating) are $249,214.

First one must figure out how best to finance the capital expenses. These are the up front expenses that must be covered to get the winery up and running. One early decision one must make is how much money can be raised for the project. This will determine the debt to equity ratio, or simply the ratio of borrowed money to the money you and your investors supply toward the capital costs.

For this example we will assume a 1:2 debt to equity ratio. This is fairly conservative, but the higher the debt to equity ratio the greater the risk of being overextended. This means we will raise $105,132 and borrow $55,120. Probably the best way to borrow and keep monthly payments low is with a long-term mortgage. Long- term mortgages are usually the most flexible and least expensive as compared to equipment and personal loans. Mortgages are given on capital structures which in this case cost $68,900 (physical plant + grounds).

When taking a long-term mortgage be sure not to borrow more than 80% of the capital structure costs to avoid paying mortgage insurance, which is quite expensive. In other words, we want 20% equity in our capital structure. So we apply $13,780 of our own funds to the building, and finance the remaining $55,120. We now have 20% equity in the capital structure, and have $91,352 of the money we raised to cover the balance of our capital costs and stay within our 1:2 debt to equity ratio.

The monthly payments on a 30-year loan for $55,120 at 10% interest are entered on the cash flow analysis sheet. Next the operating expenses are distributed throughout the year when they will most likely be incurred. This gives the anticipated month to month total cash outflow.