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we're going to get started on this morning's accounting series it's a 101 series brought to us by crafted erp beverage industry solutions specialist just a little housekeeping first off we are recording this webinar so it will be available in the industry education section with the profit planner series going forward and also we will have everyone on mute so please send any of your questions at any time through the chat you just for anyone who is new and joining us we have updated our profit planner series with one business education we have reinstated our commitment to working with wine business education and they deliver profit plan or tools six workbooks that you can access through the Oregon wine board industry site so industry Oregon wine o RG / education / profit planner and you can register and login for those profit plan a series there that will give you cost of goods accounting from your vineyard through to pricing forward market without any further ado I am going to hand you across to Casey Johnson from crafted ERP Casey is a cost accounting specialist and she will kick off the webinar with us awesome thank you Bri go ahead I'm you got panelists there we go mm-hmm let me go ahead and allow sharing on my screen right do you see there's like a little computer icon underneath the audio that you should be able to click alright do you see that icon see the icon alright let me see it if it's identifying now we're doing it awesome okay alright oh hello and I'd like to thank everyone for joining us today for our first session on accounting for your vineyard we hope you enjoy the session find it helpful as bri mentioned if you have any questions throughout the webinar please throw them into chat so we can make sure to get those answered so my name is Casey Johnson I'm an accounting specialist here at crafted ERP I spent my whole career working in operational accounting focusing on inventory management and costing I've worked anywhere from cereal to fuel additives and joined the crafted ERP team to really help business owners and operators understand their financials and their cost of inventory jeremy king is a principal here at crafted erp he's also on this webinar he's just watching this time but you will see him at the organ wine symposium if you are attend our session there he started his career in investment banking and ventually becoming the CFO of a publicly traded software company after leaving corporate finance he worked for technology and management consulting practice is there that he had the idea for crafted ERP crafted ERP is an industry solution built on NetSuite it helps businesses in the beverage industry manage their inventory and accurately report their finances so we're very excited to be working with the Oregon wine board it's helped the community continue to grow and understand cost of their wine and just build on the groundwork that they've already laid out with the pot profit planner so our goal today is help you gather an understanding of how do you read your financial statements and understand profitability to do so we're going to review the structure of a trial balance dive deeper specifically into the income statement and we'll also be looking at some simple calculations such as profit yadda that will help provide profitability for your vineyard like we said this is going to be a 3 Series section so we're gonna start with the basics today in the 101 and really build on that throughout these sections so after we've reviewed the financial statements today we're gonna build up that framework for costing your wine so we're gonna be looking specifically today on gathering those material cost to produce your wine and then going forward and the additional sessions will build on the labor overhead costs and how you can get that full picture of what it actually costs you to produce a case at the end of all of these slides we're going to have a Q&A section where those questions will come into play we'll make sure to get those answered and then we'll also discuss the upcoming sessions and what you have to look forward to alright so the main financial statement that we're going to be looking at today is a trial balance so we'll be looking at our balance sheet going over that all of that that makes up your balance sheet from your assets liabilities to equity and then really diving into that income statement looking at your revenue what your cost of goods sold are then those additional expenses for selling your administrative expenses and those areas so if you don't have access to a trial balance currently that's something you can reach out to your accounting team for if you have one otherwise I encourage you to reach out to your bookkeeper your CPA start getting a trial balance in front of you to start looking at these different aspects so as we build upon all of this information you can start looking at you know how am I going to gather this where am I going to get these numbers from how am I going to be able to successfully cost my wine looking deeper into the trial balance you're always gonna see this reported with your balance sheet in the top section and your income statement in the bottom section your balance sheet your assets are always going to equal your liabilities plus your equity for your common accounting so when we start looking at our balance sheet in our first section when we dive into that assets but you're gonna see for your assets beginning with your current assets are gonna be those bank accounts any sort of petty cash that you might have available if it's relevant but really that cash value that you hold in your assets as a company then you'll also see your customer receivables so any orders that you've shipped out to customers that you haven't collected upon yet will be available there too in that you'll also see your inventory so any sort of raw materials that you might have on hand such as you know your grapes that have been harvested your packaging materials and you sort of finished goods if you have a retail store you would see any of that merchandise in this inventory section also and this inventory is what we're really going to use to start building that cost of our wine so you know what is art what are our raw materials each varietal value that but our packaging materials how much are those costing us and really using those basis to build into our finished good value that we're then going to sell to our customer along in the assets we're also gonna have our fixed asset so any sort of vineyard related assets so your trellises your irrigation systems you'll see in this section and these sort of business related assets so computers that your finance team or any other admin might be using potentially a car for your salesforce all full and fall into this asset section and they may sort of processing related assets such as your tanks for storage any sort of barrels in the facility after your assets on the balance sheet you're going to see your liabilities so this is going to be any sort of values that you owe so if you have any open credit card balances for the business any sort of vendors payable so you've purchased grapes from a vendor you haven't paid for them yet you have a line of a credit extended with this vendor you'll see those values in this section any sort of loans payable that you may have taken out from a bank in order to finance some of the new vineyard projects that you may have going on will be in this section along with any other liabilities so and you sort of payroll that you've accrued but you haven't paid out yet because you're not on that two-week payroll cycle period and then you'll see your equity which will include any sort of stock for the company and then your retained earnings which is going to be that balancing figure that's gonna give you your assets equals the liabilities plus your equity so now if we go down to the income statement this is where you're gonna find all of your profits for the reporting period so we're gonna look at our revenue and our revenue is going to be broken out into our total income and then we'll also break out our sales discounts so you'll want to see the total value that you are selling that product for you'll also want to see it broken out of anything you've discounted off that original value after that we'll go into our cost of goods sold section and under your cost of goods sold that you're gonna want to see any sort of material costs and then here you're also going to see what we determine as overhead costs so any sort of direct labor that relates to producing your wine any sort of production utilities storage additional agriculture expenses or Freight all that relates to the production of getting that wine from the grape sold all the way to your customer and in these sections for revenue and cost of goods sold you can break these down further also so that you can have better reporting so if you have a tasting room or a retail store you would potentially have income for tasting room income for bulk wine income for cased wines and come for your retail store and then on the other side of that you're also going to see those separate breakdowns of your cost of sales accounts so in this tasting room example if you have a Lin come line for your tasting room you're also going to have a cost of goods sold line for your tasting room so that you can easily report on profit for that tasting room Malone and see how profitable it is compared to potentially your retail store or that bulk or case wine part of your company so after we look at our cost of goods sold and anything directly related to the sale of that inventory you're gonna have your son selling general and administrative expenses commonly referred to as SGA and any of these expenses are going to be those indirect costs that are necessary to operate your business but not directly related to the sale of that specific wine so you're looking at your indirect payroll so potentially your accounting team that you staff will fall into this section any sort of office supplies if you rent out a building for your administrative staff any sort of sales travel will fall into this section so as we work through to create a better understanding of our true cost of goods one of the most important processes is going to be to make sure that you classify your expenses properly so if you're using a payroll software currently a lot of these payroll softwares have the ability within them to identify which employees are going to be direct labor or indirect labor so when we're going through and building our costs we really want to make sure that we're making this as easy as possible for your operating team to understand and for your accounting team to capture all of these groups and buckets so if you have a payroll system it's and you're able to identify which employees are direct versus indirect it can really help you group these buckets in a more automated fashion and get that information applied so you can better apply it to your inventory your accounting team will be able to support you with this they'll also be able to help you identify the difference between an asset that you want to capitalize and see in your balance sheet such as those trellises or a computer potentially a new tank or any sort of expenses that you want to recognize immediately upon purchase so again those office supplies those pencils you don't want to expense those immediately you wear if you have a larger purchase such as you know a new storage tank or a new set of barrels for your inventory you'll want to hold those on your balance sheet and recognize that expense slowly over a period of time so now we're gonna dive deeper into the income statement really looking at your gross margins in your ebody and understanding what this information tells you so after we go through this we're gonna start gathering all of those costs necessary to calculate your cost per case of line so above you're gonna see the three sections that we discussed earlier on the income statement first we're gonna look at revenue in this example or revenue for 2019 was $500,000 with discounts of $50,000 ending with a net revenue of 450,000 dollars so this is what I was trying to explain on the previous side where we're gonna want to see the break out of that so our total retail sales value to our customer was $500,000 but we gave sales discounts of $50,000 throughout this period to recognize $450,000 of revenue in the door so next we're going to look at our cost of goods sold we've identified $150,000 here related to our material costs alone then we've gone in and added our overhead costs so we're looking at our direct labor again some utilities related to production any sort of storage costs we may have had for this period our agricultural expenses as far as maintenance any sort of fertilizer or chemicals we might be using on the crop irrigation costs for that period and then the freight to get the sales out the door so this is where we really want to start building that basis for we understand our material costs we understand the cost of that grape but how do we start building in these other overhead costs into the cost of our inventory so we can get that true cost of a case of wine to understand our profits and that's what we're going to continue to build on through these sessions but again as I encourage you to get that trial balance from your finance teams whomever you're working with we can start looking at how you can gather this information making sure you understand those direct labor buckets and any of these other cost of sales categories we can start identifying those then when we get into those 201 and 301 sessions you'll have those available to start building into your cost of inventory so when we look at our net revenue compared to our total costs of goods we're going to get our gross profit amount which comes out to two hundred and five thousand dollars in this case so we're positive we have profit we're happy then we're gonna go ahead and calculate that gross margin percentage so we can start seeing you know how does our vineyard how does our business compare to the industry or potentially if you once we get to that point when we're breaking this down to the block level the varietal level the case good level you know what is our margin for this particular wine compared to industry and start benchmarking not to say in this instance our profit is positive our gross margin is at forty six percent seems great we're doing awesome but if we find out industry standard is that seventy five percent we're probably going to want to start diving in deeper to say you know why is my competitor making seventy five percent when I'm only making forty six percent so starting to gather those numbers so that we can start reaching out to the industry to see what standard is and really and really laying out those benchmarks so the next area that I like to report on I think is very beneficial is a beta and so it you're evena is gonna be is your earnings before interest tax depreciation and amortization and investopedia.com defines this is a measure of a company's operating performance essentially a way to evaluate a company's performance without having a factor in financial decisions accounting decisions or tax environments so as we know you're making profit everything is great but that profit is not always possible without that a pounding and Finance team that marketing expense that you had to do in order to get that sales price where you wanted it to be in just those other areas and expenses that you're naturally going to have in a business in order to continue to operate so it's important to look at although your gross product your gross profit on the product is that two hundred five thousand dollars ensuring that all those additional expenses and costs don't overshadow that so although you were able to make a profit on the line of two hundred and five thousand dollars if it costs you three hundred thousand dollars to market that wine you're no longer going to be profitable so when you look at E but it's a very good indicator of how successful as a whole the operation is running so your IVA is gonna be that profit less those sgna costs and then you're gonna add in that tax any sort of depre
iation amortization that comes after that line so in this example we're adding back in twenty thousand dollars of depreciation when after we subtract off that sgna expense so our total IVA de is one hundred and seventy three thousand five hundred dollars everything is good so our profit is covering all of those additional expenses we're still operating in making money so now we get into the fun start we have a good understanding of our financial statements we know where we're gonna start gathering and pooling these numbers and information now how do we actually cost our wine so in every industry there's going to be a little variability and it's no different in winemaking and so there's a lot of things to consider so the first thing we're going to be looking at is our grape costs so how much does it actually cost us to either produce to harvest this grape or purchase this grape so if you're looking at your grape costs the first thing you're going to want to look at is if you're purchasing the grape you're going to take the price that you purchased it for plus any sort of acquisition costs so if you have any freight to get it to where you'll be pressing the grapes that you're going to want to add that Freight to the cost of your grape you're also going to want to start thinking about the best way that you can keep track of each varietal that you're purchasing because varietals can vary in price and also looking at you know sort of what that market value for that quality of grape is so making sure if we purchase this grape or including any freight and acquisition cost and we're able to find a way to easily separate out each varietal specific cost now if we're going to harvest the grape you'll have to recognize any sort of direct costs and expenses that you're accumulating during the means during the season to maintain the vineyard where the grapes are grown such as labor fertilizer so these expenses will all be added together to capture the total cost of the varietal for each harvest then you're going to transfer that grape into your wine production and it should be handled as a purchase from your vineyard into your production facility and there's two ways to do this you can either purchase it at that total costs that you've captured or you can purchase it at the market price for that grape so when you're doing this cost transfer if you're looking at the market price what you're going to be looking at is that purchase if you were to go out into the market and purchase this for specific varietal of a similar quality what would it cost you so you would do this to see the overall value in profit of your vineyard to see what it's providing for your grapes internally if the market price is more expensive than what it costs your vineyard then you're doing well if it's less expensive than what it's costing for you to produce on your own this is a great time to start looking at you know what are those specific buckets that are costing you so much to produce these specific varietals and where is there any potential for you to cut costs anywhere to become more competitive in the market because if your grapes that you're harvesting are gonna cost more than a similar variety that can be purchased elsewhere you're already starting at the disadvantage from a cost perspective when we're looking at this so in future sessions we're going to continue to elaborate better ways to capture these costs how to identify those main cost drivers look at potential areas for savings and how we've seen others doing this in the industry how they're capturing and gathering this information so after your grapes has been valued and transferred into production then you're going to want to look at the total value of harvest and then to capture that total wine costs then you'll want to identify your pressing conversion factor to determine how many cases of wine you'll be able to produce from each ton of grapes that you're able to either harvest or purchase at this point also you'll want to include any bulk wine that you're purchasing so if you're hot you're also going to want to look at costs if you're hiring someone to press the wine for you if that's contracted out you want to make sure that you're capturing that cost and that'll be another one of those values that we'll be looking at in future sessions so for your bulk wine you're going to want to make sure that you're capturing that the same as those grapes that you may have purchased so if you're purchasing bulk wine and there's any sort of acquisition costs such as Freight to bring it to site you'll want to make sure that you roll that into the total value of your bulk wine to get the most accurate picture so after the wine has been processed and you have and the total value has been built out you're going to look at your packaging costs next so this isn't going to include those bottles cases corks caps direct labor associated with packaging line so for today's example we're only focusing on the material in the case of a case of wine but we will be looking at that labor of packaging in the future so whether you're packaging it yourself or again sending the wine off-site to be bottled how do we roll that total value into the final case product if you're able to break your packaging materials into specific categories such as your bottle costs your court costs and it's valuable to you that's definitely encourage the more accurate you can get that case of wine costs about the more accurate you're gonna be able to see your margins on that product if you're looking at you know these specific packaging materials and you're saying you know our bottles for whatever wine we're distributing all cost about the same same with the corks cases and labels there's not a significant cost variance between the packaging from a Chardonnay to Pinot Noir then you may want to just look at this as a total lump sum also as I alluded to earlier you know this is all going to be based on the amount of time your team has to put into this too so if for your team it's not feasible to track your costs at this bottle cork labels case level then it's going to be better to estimate your cost per case of overall package materials so what you'll want to do is say when we're looking back at that balance sheet our total packaging materials value was say $10,000 on our balance sheet we expect of that $10,000 or it's a packaging material we're going to be able to package about a hundred cases or a thousand cases of wine in that case we'll take that total packaging material of $10,000 divided by our estimate of a thousand cases of wine to get us down to ten dollars per case to package our wine so there are always areas here where you can get as detailed as you want to get down to that specific actual value to produce a case but then it's a matter of how much value that provides your business if the amount of effort it's going to take to track these packaging materials or some of these other areas at that level is going to surpass any value that it's going to give your operation you're going to want to make sure that you just have a good solid way to estimate out what that packaging cost is per case that way you can have a good estimate of what that value of case wine is and what your profits are so now we're going to look at an example of calculating your cost per case so as part of the profit planner one of the workbooks that I've been working with a lot is this winery cost of goods worksheet and one of my favorite parts about it is it has this sort of benchmark for the cost of grapes by region which is where you're getting that market value of what it's going to cost you a car those grapes gives a really good indication of you know what you're purchasing at compared to what is available out on the market or what you're producing at compared to what's available out on the market so for this example I pulled them back the benchmark for a Pinot Noir for Premium County and it's $1,800 per ton so to keep things simple in this example we're new use a single varietal to produce the cost of this case we're gonna identify the grape cost that were so after we've identified the grape cost then we'll use the pressing yield and the best way to identify the pressing yield is to use prior year's yield so if you have history on what you're yielding out of the great process the pressing process that's going to be the best way to get this number prior to actually pressing the grapes or else I'm sure some of you have people on your teams who can go out and look at a ton of grapes and estimate very closely to how many cases they'll be able to produce from that and if you have someone on your team that is awesome I am accounting and Finance so if I go and look at a ton of grapes I'm just gonna see a ton of grapes so for me I'm gonna rely on historical information to sort of get me to this expected yield that I can expect from one ton so for this example I use the yield of sixty cases per ton again to keep things simple I didn't include any bulk wine in this but if you were to include some bulk wine all you would need to do is make sure that you added what percentage is gonna be from the grapes that you pressed compared to the percent of bulk wine that is used to produce this case so our grapes cost per bottle in this instance is going to be that eighteen hundred dollars divided by sixty cases per tonnes for $30 per case so if I was using 50 percent of this at $30 per case and potentially I had purchased some bulk wine at that same value I would just do 50% of this one 50% of the other one add them together and if we're using the same dollar value we're still gonna get down to that $30 per case so here for packaging materials I broke out each individual material but like I said before that might add enough value to your operation to make it worth tracking at this level it may be better to look at an overall estimate of what it costs to package each case based on your inventory so here we have bottles for $12 corks labels case case label total packaging cost of 22 dollars so we add the cost of the wine at $30 plus our total packaging cost to get us down to that total cost per case of just materials of $52 so this is just a reminder this does not include any sort of labor storage overhead costs any costs related to pressing the grapes any costs related to packaging but we will start getting into those in that 201 and 301 accounting session we just want to make sure that we have a good understanding of those financial statements where we'll gather all of that information from so that we can start building on this and building those additional costs once we have that material basis and a good idea of all of our labor how to accurately report those identify those expenses it'll make it a lot easier for us to build those into this model I know the costing worksheet that I've been working with in the profit planner is a great place to start as far as listing out what all areas you can use to capture your cost starting with the cost of that grape and then building into that pressing conversion and any sort of additional cost that you're going to see throughout the process all the way through packaging material and then on top of that what we want to do is really build on how you can capture those labor and overhead costs and use that costing worksheet to build in the total overall value so that is my presentation on our basic costing 101 so at this time I'd like to open it up to questions I've also incorporated my email along with Jeremy's email here you can also find us on LinkedIn if you'd like to connect okay see we do have a couple of questions you do you have a suggested list of accounts we should have set up ie the sub categories storage extent listed under each category on these statements and would you include the merchant credit card fees into the SGA that is a great question so at crafted ERP we do have a set chart of accounts that we suggest for our customers that just starts with sort of your bank account and flowing through all of these different sub lists of areas I don't have it pulled up now but if this specific person would like to reach out to me I'd be more than willing to walk through that with them one of the things that we use in our crafted chart of accounts is potentially at the more advanced level as far as breaking out these overhead and labor costs and then applying those back into inventory which we find is very valuable what was the second part of the question brief um the sub categories for storage and expenses listed under each category on on the statements would you include the merchant credit card fees into the SGA yes so merchant credit card fees I would include into SGA and then first up categories on storage what I usually see in the in the companies that we work with which again usually have a chart of accounts and then are able to segment it down into departments classifications and location so if you're looking at that storage account you would have those different locations or when you're looking at a wine your winery or a vineyard you would then also have an accounting segment for your block or any sort of storage location facility that you have there that you can post directly to if you're working in a system such as QuickBooks it doesn't have that accounting segmentation what I often see do people do is yes they list out those sub accounts to say you know here is our storage cost but then I'm gonna have sub accounts for multiple storage locations so I can identify you know which locations are costing me the most money especially if you're selling directly from those locations you can then see all of your revenue and costs out of there and sort of build P&L on those specific locations to say you know this storage facility or this distribution channel it's profitable it's doing great this other one is not as great maybe I should look at consolidating great and there was a question about can you break out the even a calculation in your example please yeah let me go back okay so if we look at the eBay da what we're gonna look at is our profit less our sgna then we're adding back that depreciation so if we start from the top we're going to look at our net revenue which is that four hundred and fifty thousand less our total cost of goods sold which gets us to this 205 then from there you're going to subtract fifty one thousand five hundred you and then you're gonna add back in this twenty thousand to get to our 173 500 you and then another question that came through is where design costs for labels and boxes placed since they're generally one-time cost I would build those into that label cost if you're able to one of the features that we commonly use is the term is landed cost so with that landed cost you're building and that Freight or anything else if you're producing this label multiple times in a year and it's not something that you can attribute to one sort of batch production run of labels and would probably be it would be simplest just to expense those immediately great thank you and make this presentation available and it is being recorded so there there will be chances for you to revisit the recording as well or you can reach out to KC or Jeremy at crafted anytime with some questions also and we will be following up on the 4th of February at 10:30 a.m. with our second 201 accounting series which Casey will deliver as well Casey do you just want to cover a little what you're going to go into in the 201 session on the floor yes I'd love to it's like free said feel free to reach out to Jeremy and I if you have any questions specifically as it relates to that chart of accounts we would love to help you and support you in any way that we can so on February 4th we're going to be doing another go-to webinar and where we're gonna go over the accounting 201 it's gonna be understanding how to read financial statements and profitability is the topic or the name but what we're gonna be doing during this session is we're gonna be beginning to develop that costing model so using that accosting work worksheet that is provided through the profit planner how can you gather all of those costs and put it into the cost of goods worksheet how we're gonna be gathering those overhe
d and aging costs of our wine and getting those into a costing model so that we can get to the true costs of getting that wine bottling that wine we're also gonna start driving into those major cost drivers that I was alluding to earlier so if you get to your final grape cost compared to market and realize that you're it's costing you a lot more to produce than others are selling it for really diving into those reasons looking for how we can find savings in your in your vineyard and your operation to really boost that profitability and make sure your success as successful as possible and then on February 12th will be doing the accounting 301 session at the organ Wine symposium Jeremy will be there he will not just be a listener so he will be there to speak and there we're going to be improving upon that costume model from 201 getting down to those block level details discussing more of how you can automate those processes potentially using leveraging systems that you already have such as a payroll system to really capture all of those costs without adding additional work to you and your team thanks Casey we're looking forward to that and for everyone who is attending the Oregon wine symposium there is a registration link available on the program page to write to register for those classes so please follow those when you are in the program guide and we will be sending out additional emails to sign up for those classes also until then if there's no other questions coming through we look forward to spending time with casey again on february 4th at 10:30 a.m. and casey thank you for your insights and for all of your question answering and guidance much appreciated awesome thanks everyone and if anyone has any questions regarding the Oregon wine symposium or any other industry education initiative please feel free to reach out to me directly that's brief stock I'm at B R double e Bri at Oregon wine Oh our G is my email and please feel free to reach out with any questions you may have or recommendations for future workshops thanks and we will see you on the force you
