If you think Placer County with its South of France-like topography, climate, and rich soil is an ideal place to start a wine business, we agree. But before you get carried away by visions of luscious wine grapes planted acre upon acre or happy customers sipping wine in your eco-friendly tasting room, there are a few things you need to know about starting a wine business, among them, permits, licenses, and complying with myriad regulations related to the winemaking business…and then, there are business plans to write, financing to obtain, and payroll and other tax issues to deal with.
At Cook CPA Group, the goal of our Roseville CPAs and accountants is to help you turn your dream into a success story and the best piece of advice we can give you is this: Don’t quit your day job (or cash out your retirement investments), until you speak to a tax and accounting professional that specializes in wineries–like us.
Our Roseville Accountants’ Tips for Starting a Wine Business
The second best piece of advice we have is to keep reading this blog post because, over the years, we’ve learned that the more clients know and understand, the happier they are. And when our clients are happy, we are too.
With that in mind, let’s take a look at our top five tips for starting a wine business:
1. Figure out what kind of wine business you want to operate and where
The first thing you need to do is decide what type of wine business you want to start. For example:
- If you enjoy the wine-making aspect, your goal might be to produce really good wine and sell it to local or national retail establishments.
- Do you envision a “destination” winery complete with acres of vineyards, beautifully landscaped grounds, and tasting rooms?
- Perhaps what you really want to do is operate a vineyard and grow wine grapes that you sell in bulk to local winemaking operations.
- Finally, maybe a low-key, small family farm winery (versus a commercial winery) is more your style.
The location is also important. If you’re planning on growing wine grapes, you need land that is not only zoned for agricultural use, but it also must be ideal for the type of grapes you want to grow. If your dream is to operate a traditional winery, you’ll need to be located in an area that provides easy access to your customers, yet also complies with zoning and land use.
2. Choose a business entity that reflects your business model and minimizes tax liability
Whether you are starting a new wine business or purchasing an existing winery (a new business for you), choosing the correct business entity or structure is crucial. The wine business is very competitive, and if you want to make a profit, you need to set up your business to minimize your tax liability and maximize your profits.
The most common forms of business are Sole Proprietorships, Partnerships, Limited Liability Companies (LLCs), S-Corporations, and C-Corporations. There are advantages and disadvantages to each with regard to taxation and liability.
In the wine business, the most common business structure is the Limited Liability Company (LLC); however, S-Corporations are becoming more popular. While both are considered pass-through entities, flow-through income to a shareholder from an S-Corporation isn’t considered self-employment income (unlike an LLC). As such, it is not subject to self-employment tax or the additional 0.9 percent Medicare tax that went into effect in 2013 as part of the Affordable Care Act.
Further, many winery businesses generate losses during the first five years as they are becoming established and wine production ramps up. In this respect, LLCs are generally more flexible in that they allow members to allocate losses and offset taxable income As such LLCs could be a better choice if there are partners, especially where one partner contributed 100 percent of the capital. If there are losses, that partner would be able to offset the losses against other taxable income.
We’ll also make sure you understand how the type of business entity you choose affects things like employer-provided fringe benefits. For example, if you operate a vineyard and pay for your employees’ housing or meals while they are on the job, these are considered fringe benefits and there could tax consequences for you or your employees. See our blog post, Tax Consequences of Employer Provided Fringe Benefits, for more information on this topic.
3. Set up an accounting system to ensure compliance with record-keeping requirements
The wine industry is highly regulated. From zoning and permits to wine production, storage, labeling regulations, and even the types of wines produced (e.g. effervescent, agricultural, standard), there are numerous regulations to comply with—each with their own record-keeping requirements.
When you work with a CPA for wineries like us, we help you set up an accounting system that makes it easy to submit reports electronically to the TTB (Alcohol and Tobacco Tax & Trade Bureau) and the California Department of Alcoholic Beverage Control, which helps you avoid tax and compliance issues down the road.
And while it may seem mind-boggling to you, for the tax and accounting professionals at Cook CPA Group, it’s just another day at the office.
4. Understand employer responsibilities such as payroll taxes and sales and use tax
Quarterly payroll tax payments and sales tax compliance are a major headache for many business owners—including those in the wine business. Missing a sales tax or payroll tax deadline can cost your business plenty in the form of IRS penalties, and with most wineries operating on a tight budget, it’s not something you want to have happen to your wine business.
The good news is that when you work with an accounting firm like Cook CPA Group that specializes in wineries and other wine businesses, you won’t need to worry about missing tax deadlines–ever.
And while we believe it’s important that you understand how payroll and sales and use taxes work, we know that you have better things to do with your time (like produce, market, and sell your wine and manage your employees) and it’s why many winery owners in Placer County and the Sacramento Valley use our virtual CFO services.
5. Grow your business and increase profits
Once you’ve established your business, the next step is to take it to the next level. Fortunately, you have options—and it doesn’t necessarily mean becoming a mega corporation (unless you want to, of course). You can still keep your winery business small and grow your business because the key to growth is increasing your profits.
Many winery owners end up paying too much attention to cash flow or increasing revenues but don’t realize that by focusing on profitability it will lead to increased cash flow and that is what makes it possible for future growth.
Let Our California CPAs Help You Start Your Wine Business
Whether you’re ready to get started in the wine business or are just thinking about it, call Cook CPA Group first. With more than 25 years helping wineries achieve success when you meet with one of our accounting professionals you’ll have the information you need to make better decisions for the future.
Call Cook CPA Group today 916-724-1665 and find out how we can help your dream of starting a wine business come true.