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8 questions every winery owner should ask their accountant

Executive Summary

Before you dive into the details, here are the eight questions every winery owner should be asking. These will help you focus on key issues and quickly determine if you are getting the information you need to make timely decisions about your winery. 

The Questions

  1. Are we capitalizing the right costs into inventory?
  2. Are we using the correct method for tax and book inventory?
  3. Do we understand our gross margin by sales channel?
  4. How are we tracking wine losses and blends?
  5. When are we recognizing revenue and expenses?
  6. Does our chart of accounts reflect how a winery operates?
  7. Do our systems support accurate, timely reporting?
  8. Are we showing this year’s vintage costs on the P&L without overstating expenses?

Full Article

Winery accounting is different, some might even say complicated (or worse.)

If your internal team or outside CPA is treating your winery like a typical product business, you could be missing critical information or making decisions based on the wrong data.

Whether you're preparing for tax season or just trying to get a clearer picture of what's happening in your business, here are eight questions you might want to ask your accountant. You don’t need to know all the answers, but you do need to understand critical decisions that might be impacting your results.

  1. Are we capitalizing the right costs into inventory?

Wine inventory is not just what is in the bottle. Costs like grapes, winemaking materials, and packaging should be included, but so should a portion of labor and overhead, depending on your accounting method.

Ask: Are we applying consistent rules for what gets capitalized and what gets expensed?

  1. Are we using the correct method for tax and book inventory?

Tax rules often allow wineries to use the NIMS method (Non Incidental Materials and Supplies), which is more limited than full absorption. Book accounting usually requires broader capitalization. Also, for tax purposes, wineries may elect to use LIFO (Last In First Out) or FIFO (First In First Out) methods, each with different impacts on taxable income and inventory valuation.

Ask: Are we clear on which method we are using for tax versus management reporting? Have we considered whether LIFO or FIFO is the right fit for our winery?

  1. Do we understand our gross margin by sales channel?

DTC, distributor, tasting room, wine club—each channel has its own cost profile. Blending them together makes it hard to know what is really working.

Ask: Can we see margin by channel, not just overall sales? Does our accounting software allow us to track that accurately?

  1. How are we tracking wine losses and blends?

Between evaporation, transfers, and blending, volume can shift and so can cost.

Ask: Do we have controls in place to track gain and loss percentage and where wine is moving?

  1. When are we recognizing revenue (and expenses)?

Revenue should match when the wine actually leaves your hands, not when the order is placed or charged.

Ask: Are we properly accounting for prepayments, club orders, and fulfillment timing?

  1. Does our chart of accounts reflect how a winery operates?

Generic categories like Supplies or Labor are not helpful for making winery specific decisions.

Ask: Can we break down costs by area (farming, production, bottling)? Are we tracking by vintage or varietal?

  1. Do our systems support accurate, timely reporting?

Good decisions require good data. If you are waiting until year end to sort it out, it is too late.

Ask: Are we reviewing inventory, margin, and cash flow monthly? Are our tools up to the task?

  1. Are we showing this year’s vintage costs on the Income Statement (or P&L) without overstating expenses?

You want visibility into how much your current vintage is costing you, but you do not want to hit your bottom line with costs that have not yet become cost of goods sold.

The solution: Track farming, cellar, and bottling costs on the P& L, then zero them out each month by transferring those costs into inventory:

  • Bulk wine inventory if the wine is still aging
  • Bottled wine inventory if bottling occurred during the period

Ask: Do we show current farming and production activity on the P and L (so we can monitor them) but transfer these costs into inventory monthly so we are not distorting profitability?

Conclusion

You don’t  need to be an accountant to ask good questions about your winery business. If the answers do not give you confidence, it may be time to take a closer look at how your accounting is supporting your winery.

Need a second opinion or training for your teams?  We help winery owners and their teams gain clarity, improve margins, and make better financial decisions. We also help winery accountants better communicate financial information to leadership teams.