Best Metrics for Wineries

Dive into the world of winery finances with Geni Whitehouse, a CPA with deep roots in Napa Valley's wine industry. Geni uncorks the complexities of managing a winery's books, from tracking multi-year production cycles to balancing farming costs against market fluctuations. She emphasizes the importance of understanding each winery's unique goals and shares insights on key metrics that can make or break a vintage. This episode offers a rich blend of financial wisdom and industry-specific knowledge, perfect for anyone looking to understand the business side of wine production.

• (00:00) - Best Metrics for Wineries
• (00:39) - Meet Geni Whitehouse
• (01:43) - Geni's Journey: From Tax to Technology
• (03:59) - The Wine Industry: A Unique Environment
• (06:16) - Advisory in Accounting: Beyond Compliance
• (08:11) - Understanding Winery Financials
• (09:07) - The Scope Grid: A Holistic Approach
• (17:49) - Challenges in Winery Accounting
• (29:16) - Challenges in the Wine Industry
• (31:52) - Public vs. Private Wineries
• (36:12) - Financial Metrics and Strategies
• (44:04) - Balancing Inventory and Sales
• (45:32) - Is the Wine Business Worth It?
• (52:51) - Conclusion and Contact Information

Learn more about Peerview Data
https://www.peerviewdata.com

Connect with Geni Whitehouse
https://www.linkedin.com/in/evenanerd
https://geniwhitehouse.com

Connect with Glenn Dunlap
https://linkedin.com/in/glenn-dunlap

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Creators & Guests

Host

Glenn Dunlap

Glenn Dunlap is the Co-Founder & CEO of Peerview Data

Guest

Geni Whitehouse, CPA

What is Best Metrics?

Welcome to Best Metrics, where we dive deep into how industry experts evaluate financial statements and the key metrics they use to help their clients improve. Each episode, host Glenn Dunlap sits down with leading professionals to discuss their analytical approaches, the insights they uncover, and practical advice you can apply to your own practice.

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Katie: Welcome to the Best Metrix podcast. Each episode, we meet with industry experts to discuss how they evaluate financial statements, what metrics they commonly use, and how their clients have improved. We'll also gather suggestions of how you can incorporate the same insights and processes into your own practice. Thanks for listening and enjoy this episode.

Glenn Dunlap: Hello and welcome to the Best Metrix podcast. Our guest today [00:00:30] is Geni Whitehouse. He'll be bringing us insights into a subject that is sure to capture the imagination of many of us. Today we'll be discussing the best metrics of the wine industry. So Geni is the president of the ITA Information Technology Alliance, the founder and trainer of The Impactful Advisor, and has been named one of the top 100 most influential in Accounting by Accounting Today. She has been a consulting CPA with Bedco for over 17 years, supporting the wine industry specifically. She's also a self-proclaimed nerd, proud [00:01:00] grandmother, and a basset hound lover. So, Geni. Welcome to the show.

Geni Whitehouse: Thank you for.Having me, Glenn. Yeah, I have a basset hound behind me so you can see one. And I have a great pal behind me as well. So. Got it all covered here with my background. So it's great to hear what you're doing. I love this topic. It's one of my favorite subjects.

Glenn Dunlap: Well, yeah. Thank you. And thanks for thanks for joining us. It's, um, you know, we were just talking before the before we launched. Just, you know, how long we've known each other. I think we've been running in the same circles for quite a long time. So [00:01:30] it's exciting to have you on here and get a chance to, to talk to you about, um, you know, talking to you about wineries. But before that, do you want to give a little background, a little bit more in depth about, uh, about your practice, about you and anything else I didn't share?

Geni Whitehouse: So I work in a CPA firm part of the time. I've been here since oh seven, first as a contractor, and then I joined the team on a permanent part time basis. And my background was originally in tax, so I was a in a CPA firm. I started with Deloitte, did a whole bunch of different things in accounting. Spent 15 years doing that [00:02:00] and made partner in a small CPA firm. And I was doing tax. And the day I made partner, I kind of went, wait a minute, this means this is for real. I'm committing, I'm going into a marriage and I don't want to do this anymore. And it was the first time I really thought about that. And so I went in and quit the next day and started down a tech path, a technology path, and started as a trainer in software for a company, did a PeopleSoft implementation, and then ended up at Division Software where. But I [00:02:30] was really from that point forward, I had two goals. One was to not to help other accountants who were unhappy, figure out that there was a better life, and secondly, improve the value that accountants could deliver for their clients. My biggest frustration, Glenn, was when I had to hand a client a tax return where they owed a bunch of money, and I couldn't tell them how to what to do to get generate any more cash.

Geni Whitehouse: And I knew they had no cash flow because I'd seen it from angels. But it was the most frustrating thing to me, and also a psychological [00:03:00] burden to carry around and worry about all those clients and how much they owed. And I just felt, um, unaffected. And so I really had this mission to go make what we do as accountants easier for people to understand and apply because it's valuable. But we're so, you know, hard to understand. And as I like to call it, that, the information doesn't get to the client. And so they don't embrace what we know and they don't pay us what we're worth. So that mission sort of fired me up. And I went into technology [00:03:30] to try to solve it. And I thought if we could find the right tool, then we could make the profession better. And then I found, as you found, we talked about Glenn, accountants didn't know what to do with the tool or how to talk about the numbers. We were trained to balance stuff on the back end, but we weren't trained in what to do if the numbers are not right. And so I then went in pursuit of tools to help me figure that out, but also to train my potential software buyers and how to talk about the numbers. Yeah.

Geni Whitehouse: So our firm [00:04:00] was was founded in the 80s and has been since then focused on the wine industry. So we're in Napa Valley. So of course it kind of makes sense. There are wineries all around us, 500 within a 30 mile radius of each other. So imagine that. I mean, imagine a row of the same stores and all next to each other and having to compete as a winery. So very unique environment, um, a very fun industry to work in. As you can imagine, the quality control [00:04:30] is one of my favorite roles, right? I asked all the wine and make sure you know, if there's no um, but the firm has been very proactive, and I met the firm managing partner through advisory training courses. And so when I was at Sage at the time and I left Sage, he said, come do that stuff you've been talking about with wineries, and I moved to California from Atlanta. So the first thing I said is, do I sound like I know anything [00:05:00] about fancy pants, wine or any of that stuff? And he said, I don't need you to know why. I need you to know numbers and how to communicate them. So I took the plunge and it's been amazing, an amazing time. And there's lots of cool stuff about the wine industry that makes it really interesting to work in.

Glenn Dunlap: Well that's fantastic. Um, it's it's it's funny how life leads us in different routes and then, you know, you never know. You know, I doubt that you would imagine moving from Atlanta to [00:05:30] Napa Valley, you know. But there you are. So.

Geni Whitehouse: Yeah. Yeah. And I grew up in South Carolina, so I mean, in the South. And, you know, friends in a box was the go to alcohol for me. So.

Glenn Dunlap: Yeah.

Geni Whitehouse: Um, but yeah, we.

Glenn Dunlap: Couldn't afford franzia in a box when I was, you know, uh, yeah.

Geni Whitehouse: You know, in the fringe on top. You can just, you know, have a little bit. Yeah. That's right, that's right.

Glenn Dunlap: Yeah. And, uh, do you still have that, uh, Francis in a box in the in the fridge or. No. No, I. [00:06:00]

Geni Whitehouse: Think I would make a great, um, escorted out of the state if I had. That's right. You can buy it out here. Oh, if you can find it in the stores.

Glenn Dunlap: But it's made somewhere. That's that's right there around there somewhere. So. Well that's fantastic. So, um, uh, love the story. And I love how much you are doing for, uh, the advisory side of things because, um, you know, as, as, uh, in the profession, it really is. I think business [00:06:30] owners are looking for a lot more from their accountants than than just the compliance element. Not that those not that tax or test work isn't important, but they're really looking for. Okay. I don't know what these numbers mean to me. I don't know what to do. If I knew what to do with this, I wouldn't need you. But I don't know what to do with this, so help me understand this. So and that's really the crux of what got us going here was just the, you know, trying to help, um, you know, advisors that are probably sitting in a CPA firm [00:07:00] that has been traditionally 85, 90, 95% of their revenues come from tax and audit, and now they're being tasked with being a better advisor. And so it's like now, now what do we do. Like you know, hey, hey team. Let's go. Let's go drive advisory revenue. And they're all kind of looking at each other like now what. So yeah.

Geni Whitehouse: Yeah. And everybody's talking about it, but nobody knows what it is or how to do it, which is also frustrating to me because I've been talking about it for more than 20 years with tools that here's what you do, here's what this looks like, but also. That's right. She said, [00:07:30] when did you start, Glenn? What was the first year? When did you. 2015?

Glenn Dunlap: So we're we're coming up on our 10th year. Yeah. Come on.

Geni Whitehouse: Yeah. Wow.

Glenn Dunlap: That's amazing.

Geni Whitehouse: Ten years. A lot of.

Glenn Dunlap: Yeah. And think about the changes that have taken place in the profession just in that ten years. I mean, it's not a profession that's really known for a ton of change, but it's it's seen a lot in, in the it's been talking about doing the advisory thing. But then I think the pandemic really forced firms to take a real hard look at the technology that they're using and how they're doing it and [00:08:00] how they're serving clients and they're not. The number one question we get today isn't will it print, which was our our first question that we got a lot. And now it's, you know, we're doing some things different there. So but let's jump into the, you know the metrics for the wine industry. So I always ask the question to start like when you get a set of financials for, you know, a company in this profession in, in a winery, a winery, they hand you a set of financials or they send them to you electronically. What are [00:08:30] you looking at for on the PNL, the balance sheet, the cash flow statement? What are the what are the three or 4 or 5 things that you kind of, you know, always zero in on to to help you identify the health of the company.

Geni Whitehouse: Here's where I'm going to go off the rails here, Glenn. So the first thing I do not look at the financials, which is what we're inclined to do, because that's what we're trained to do. We're the reconcile everything balance. The first thing I'm going to do is find out about the client. I'm going to back up and say, why are you a winery? What [00:09:00] are your goals? And we look across five areas of the client's business. We look at financial customers, operations people and in the mind. This is a methodology that I teach that I learned, and it was life changing for me. And it's called the Scope Grid. This little tool, this little matrix, it's like a Swot analysis sort of. But we ask beyond the financials and what the problem I think we have as a profession is we were trained in just financial stuff in looking at the general ledger. And if we discover a problem there, it is never [00:09:30] solved. There it is solved in those other four areas with your end in mind what you're aiming for, what you're doing with the customer, what's happening in your operations, what kind of people you have in place. And so this focus that we have on measuring financial stuff, which is important, but we have to first understand what is it you're trying to do? And then I decide what metrics I'm going to look at.

Geni Whitehouse: But if I don't know why you're in this business, for example, if I hear you're in this business just to make a living and I have a short [00:10:00] term goal, then it's a very different focus that you need to have, right? I'm on my compensation if that's what you're doing. Right. I don't care about long term value. We're growing equity or any of that stuff. But if you tell me you want to go public, then I need to help you align to different goals. I want to have, you know, other metrics that external parties are going to review. So I spend a lot of time. Our firm does this on onboarding a prospective. We call them customers because we believe you have to earn their trust over [00:10:30] and over again versus a client that is seen as an annuity. So our firm may say customers, which I can never remember to say because everywhere else I speak, I'm saying clients. But the people that we work with when before we'll take them out as a customer, we're going to ask them about what they're trying to do, because then we're in a position to really leverage the financial information to achieve the goal.

Geni Whitehouse: So we ask them what's working, what's not working, what's working? How many times do we ask as accountants tell me what works? [00:11:00] I never did. Okay, here's the problem. Let's dive into the spreadsheet and start working on it. Right. Or the financials or the budget or the plan or whatever. But it's, you know, what are you doing? Right? Let's celebrate that. That's right. We are going to repeat that. And we also want to make sure that it is repeatable, that we're not just doing a one off thing that works, that we have processes and procedures to make sure that we can replicate it. Then we find out what's not working. And then the critical thing is what is your ideal outcome in each of these five areas [00:11:30] financially, what do you want? And again we assume net income is the focus. Well, in our industry I've got a winery that may be one small .00 1% of all the other businesses that they have. And their focus on that is not necessarily profitability. It's more like long term asset value.

Glenn Dunlap: Yeah.

Geni Whitehouse: Your equity growth or the value of the appreciation in the land or the brand or something like that. So if I'm going to focus on short term net income, [00:12:00] I'm going to miss the boat for them. So the critical shift that we make to move into advisory is to ask a lot more questions before we jump to solution.

Glenn Dunlap: I love it.

Geni Whitehouse: We're trying to jump the solution. I'm the expert. I'm going to tell you what to do. And again, here I am a redneck from, you know, South Carolina, an expert in wine. So what I learned very quickly and I was terrified. I mean, the first time I went to a winery. They didn't know I'm blown [00:12:30] into it.

Glenn Dunlap: Talk about imposter syndrome, right? Yeah.

Geni Whitehouse: I mean, it was clearly obvious the first time I opened my mouth. Well, she's not from around here. She's not going to know anything about Scuppernong in the South, which nobody. I mentioned that in Napa, and they were like, what are you talking about? It's sweet wine. Um, it's one of the first ones I ever had. Anyway, um, yeah. So we have this sense that we are the professionals, we are the experts, and that [00:13:00] we're setting out when we go to a client to prove that. And what I believe and what I teach people is it is the opposite of that. That client is the expert in that business. And my job is to give them data to back up what that leader of the business probably already knows, but may not have the data to support it. So by making them feel smarter, my value escalates. And that's the biggest shift that our profession has to make in order to be successful [00:13:30] in business. Ask more questions, listen more intently, and broaden the perspective of what you're examining before you jump to the thing that we're most comfortable with, which is the financial statements and the, you know, the details. Let's get the context before we try to dig deeper. Yeah. Love it.

Glenn Dunlap: Love it.

Geni Whitehouse: So generally. Yeah. But once we have that conversation we know where they're trying to go. Where [00:14:00] we do I mean obviously we look at the three bottom lines, the three financial bottom lines. We look at net income. We look at operating cash flow, which is huge, which many accountants don't even talk about. And then we often look at return on assets. But it's awful for the wine industry. It's always awful because profit divided by the asset investment is going to return a very small number in the wine industry. But we can look at comparative return on assets to see how different wineries compare against each other. Um, but you [00:14:30] want to generate as much profit as you can based on the amount of investment and in the wine industry, the asset investment is tremendous. It's huge. So you're tying up a lot of capital to produce a relatively small profit. But it's still one of the factors that we want our clients to know about. But sure, most of our time on operating cash flow. Okay. Because that is the critical education that we can do for owners, because most people don't understand what are the levers I can push to improve [00:15:00] operating cash flow. And we and we know that's what they're focused on because we have these huge cash drain periods like a harvest is a huge cash outflow. And then there are periods where we have to bottle and spend some other money and like that. So we know their peak cash flow requirements. And then there's some peak sort of cash inflow times that they intelligently set up. They built programs called wine clubs that help cover the cash flow variations that occur over time. [00:15:30] But operating cash flow is where we start, and it's where most people have the least insight. Most people think profit equals cash, which I know, you know, Glenn, and we start by educating them visually that this is what's going on. This is where your money went. You bought a $10 million piece of equipment.

Glenn Dunlap: Right?

Geni Whitehouse: You bought a pizza oven, you built a thing, or you launched a new brand or whatever. But you say, look, here's where it is. You made this much money, but you spent this on that and that and that. The stuff [00:16:00] that's on the balance sheet that they do not see.

Glenn Dunlap: That's right.

Geni Whitehouse: So I mean, that's that's what we're looking at. But again, the metrics that matter for them to me are very customized for each winery. We don't have a here's what your number should be. Here's what you should be looking at. We don't have a standard that we apply. And we have some things that we produce just for because we have this weird, you know, geographical container [00:16:30] that all of our wineries are in. Yeah, the costs are extremely high here. You know, there are all kinds of things that are unique to our market. So they want to know, how do I compare to my neighbor down the street? Right. So we're doing metrics that are things like farming costs per acre. Mhm. We're looking at financial and non-financial metrics like that. I mean financial is the cost but the the acreage isn't in your financial statements. And we're bringing in things like that like [00:17:00] marketing spend per case and in cost like that. And obviously looking at are days because part of our so our winery clients have part of the fun and part of the challenge of this industry is that we have manufacturing, we have farming, we have multi-channel selling. So we sell retail and wholesale. Um, what else do we have? I mean, we have every single complexity that you can have every type of business rolled into One.

Glenn Dunlap: And most of them have [00:17:30] storefronts, tastings, restaurants. I mean, yeah, yeah.

Geni Whitehouse: They have retail and wholesale, but they also have online as part of that retail. Yeah.

Glenn Dunlap: Which commerce? Yeah.

Geni Whitehouse: All of that. We have this whole manufacturing production, all the farming which comes with all kinds of compliance and regulatory stuff. And then you have, you know, the normal everything else. But so the level of complexity is high and the accounting is very complex. But most of the people in our [00:18:00] space are small businesses. They're not big wineries. You can afford, you know, $1 million piece of software to manage the business. So they're using a solution like QuickBooks and trying to keep track of everything that's going on. And it's it's difficult.

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Glenn Dunlap: So you mentioned 500 wineries within a 30 mile radius or something like that out there. So are most of the wineries. Are they fully vertically integrated. Like you just mentioned, all of those.

Geni Whitehouse: Wineries are have based [00:19:30] on most of the wineries that you think about. A Napa winery is an estate winery, which means they're growing their own fruit. But what we're seeing is at least a portion of most of those are growing their fruit for 1 or 2 of their varietals. Some of them are all 100% mistake. Some of them have a Sauvignon blanc and they're buying fruit. So it's it's a mix. But when you think about who you come to visit in Napa, it's thought of you as a vineyard that you can go tour. You usually do a cave tour and you do a vineyard [00:20:00] visit and you have a retail facility. But that is that is changing because there's not any more space. So new brands are coming in who have a much lower cost of entry because they're buying the fruit and getting it, I mean, getting it processed through somebody else's production facility. So you're seeing a mix of that. But the traditional who we think of as Napa are Our state, wineries that have vineyards grow, and at least part of what they're selling is their [00:20:30] own fruit. So we've got the vineyard, the farming. And they do. Many of them do outsource the farming to somebody. But there's still complexity of costing what's going on there and then dealing with all the compliance and regulatory stuff. I mean, there's a thing called fish friendly farming that is an environmental thing that you have to make sure that your farming practices don't do something to the river that's going to affect the protected fish that are in the water. And I mean, there's just all kinds of stuff.

Glenn Dunlap: So add to the complexity that you are in California [00:21:00] too.

Geni Whitehouse: California got.

Glenn Dunlap: Offers.

Geni Whitehouse: And all kinds of local regulations about what you can do and who can have a tasting room, and whether you can have a wedding at your winery and all kinds of stuff. So you really have to want a winery to do it. Right?

Glenn Dunlap: Right. So, so you mentioned a lot of these are smaller and that they're using QuickBooks. Are you using classes A lot of times to track a lot of these different things or how are you doing?

Geni Whitehouse: It's hard because there's so many dimensions of what you're trying. So if you think about a bottle of wine, it's got a vintage, [00:21:30] right? It's got a brand label. It's got, um, a number of cases that you're tracking, which is quantity that you're tracking. It's got it's got an appellation. The place it was grown. It's got all these dimensions. And so you want to slice and dice it by. I want to see all my carbs together. I want to see all my 2021 vintages together. I want to see all the this and that. And it's really hard to get that done effectively by using the classes. So people have like for example, just selling [00:22:00] the wine. If I sell the same product, retail and wholesale basic QuickBooks can't let me do multi-level pricing or multi-location inventory tracking. So they end up creating two SKUs, a wholesale same thing and a retail. And then your inventory counts, right? So there are all kinds of simple things like that that are challenging. Now QuickBooks is trying to add some of that, but from what I've seen, it doesn't. It's not all there yet, but okay. But they go [00:22:30] they work around it. Um, the clients do, but it makes it really complicated to get up to the minute metrics from the accounting package. So where people go and this is another question we ask. Again, when you ask me, what are the key metrics? I asked my client, where do you go to see if your business is on track? To me, that is the most valuable question I can ask a client, because that tells me what matters to them. Doesn't matter what matters to me. What do you think is important? And most [00:23:00] many times for smaller ones. What do you think it is, Glenn? Where are they going?

Glenn Dunlap: Cash.

Geni Whitehouse: Checkbook. I'm monitoring and I'm going. Okay, but that doesn't tell you all the stuff you have that hasn't cleared or what you got coming up next week. So first of all, we might need to align around that, give a better insight, better cash flow forecasting, or find a way to make that more relevant. But we also might say, okay, well how do you know? Okay. So that tells you what you've [00:23:30] got. What about your sales activity. What are you managing and monitoring there. And they're usually creating some flash report that takes two weeks to put together. And they can't tell today what really happened. So we get we work with all the tech companies in our space to try to get insights on top of the point of sale system, so that the owners and the teams can see exactly what's moving. And today, not four months from now. So we want them to get insights from those operational tools before [00:24:00] it gets to accounting.

Glenn Dunlap: Yeah. Yeah that makes sense.

Geni Whitehouse: So that's a huge opportunity for us. But most of us are trained to look at the accounting system and don't know what all the pain that goes on outside of that.

Glenn Dunlap: Yeah.

Geni Whitehouse: There's a lot of pain and all this other system.

Glenn Dunlap: Well, for sure. I mean, it's you mentioned just the SKUs and being able to track some of those things. I mean, there's yeah, this is a this is a really complex, uh, you know, industry. So, so, so thinking about you mentioned you've mentioned several things. So let me go back and [00:24:30] see if I can draw some of these numbers out of you. So like when you think about um, you mentioned the three bottom lines. So net income what's, what is a, you know, a target for a winery.

Geni Whitehouse: Anything over zero. Anything over it is success. So what we look at what we look at. First of all, you look at the bottom line, which is what we account as. Do you go to the bottom line. Right. Is it plus or minus okay. It's a plus. Then you go up to gross profit. What's [00:25:00] the number. The dollar amount. And then you look at the gross margin percentage. If you're in a state winery you should be at 50% gross margin or greater. Um, and that's in our Napa area because we have relatively high priced wines. We have high margin wines because we have extremely high cost, so you're seeing higher return, but you're also seeing if you go down to the operating expenses, high operating expenses. So you've got to have a high enough gross margin in order to cover those, [00:25:30] um, operating expenses need to be funded by that. But that's what we see. It's usually higher than that the higher the DTC percentage direct to consumer. Sorry. Okay. Higher selling retail and I call it DTC versus wholesale. Um, the higher the percentage of direct to consumer the higher the margins because sure.

Glenn Dunlap: Yeah. You're getting the retail piece. Yeah. Yeah.

Geni Whitehouse: I mean, there was a big push in oh eight when we had the first recession. Everybody wanted to go direct to consumer because the margins were higher. [00:26:00] And you could, you know, make up for shortcomings in volume by higher prices and margin. Um, and then wholesale was still there to get the brand awareness out. So wholesale, you've got to be there too. Two, but we see the DTC, the direct to consumer percentages increase, and then we expect the margins to grow as well. Okay.

Glenn Dunlap: That makes sense. What what's the of the 500. What's the average retail revenue of not retail. What's the average revenue for a winery [00:26:30] in the in the Napa Valley? I mean, I realize you've got the all over.

Geni Whitehouse: I mean, there's 100 case winery. There's five. It's all varies dramatically by case. But what I can tell you is the price points are in the hundreds. You know, cabs are $100 a bottle. And that's they talk about premium wine being $30. You can't beat it. Yeah. We and we have some wines that are we sell some whites and, you know different things. But the main Napa cabs are in the $100 range. It's pricey stuff, [00:27:00] but it's also very expensive to deal with here, to grow and produce and market and all of that. So I mean, so that gives you some idea. But I mean, the revenue I mean, there are people who are, you know, constellation is Napa. A huge enterprise. They're smaller people that literally have 100 cases a year and are selling. There's all ranges of, which is why I can't tell you. Here's the number. Yeah, I teach classes to winery folks. I teach a class called Demystifying Finance and Accounting every couple [00:27:30] of months. And I have retail people, salespeople come to my class and they all want to know what's the number. And you know, the answer is it depends.

Geni Whitehouse: Yeah. What are you trying to be? That's why that why are you doing this question that we start with is so important. I'm in this business because first of all, I have some connection to an experience or the land. And then what do you want to end up with? What's your end in mind? I want to build a legacy. Okay, then we need long term sustainable profitability [00:28:00] and positive cash flow. But we also need to train your kids, and we need to do a whole bunch of other stuff. So that gives us a real roadmap as to how we can best assist that client in creating the life of their dreams. And that's what motivates me. That's what I think advisory is helping a client create the life of their dreams. And so I think I think they have to understand the numbers in order to do that. So it's applying the numbers and helping the client get to where they [00:28:30] want to go, wherever that is. If we don't know where we're trying to go, we can't help them.

Glenn Dunlap: Yeah. No, I totally agree with that. So you see, there have been fires and things like that. So you've had some definitely some wineries and some, some, some specific grapes that come on in different times of the season get impacted. That's one of the things I was in Napa a couple years ago and it was like, well, this didn't get impacted because it was an early grape. We harvested it before the fires came. And so then but the later grapes got really [00:29:00] impacted. We couldn't sell those. But you're going to I would I would imagine you talk about a net income target of zero. That could be a wildly varied from year to year based on, you know, the grapes that they're growing, the, you know, the harvests and all that kind of thing. Right. I mean, it's.

Geni Whitehouse: Well, that's one of the things, the yield. So if you think about it, and this is one of the things you had to get in your head when you first start working in this industry, the cost of farming all year. So by 2024, all the money that I spend on farming is the cost of my 2024 grapes. [00:29:30] That's my vintage cost. This money I spent to farm. Right. That's that's the cost. So if my yield goes down, the cost per bottle is tremendously increased. Increased. Right. So it's a totally variable cost component. And the pricing is generally not set based on a factor of cost. It's based on the market value.

Glenn Dunlap: Right. That's right. Yeah.

Geni Whitehouse: So your profit could go up or down. So what you have to do is really monitor your cash and your [00:30:00] other expenses, um, based on what that's going to be because the vintage the yield is the huge thing. But I mean, the fires were one year. We've had something every single year. Yeah. And this is the thing that amazes me. Farmers just kind of roll with whatever it is and manage to keep going. And it's like, how can how much of this can they take? Right. There's we've had floods. We've had droughts, we've had earthquakes. Well, since I've been here and we've had, you know, market things change [00:30:30] where suddenly nobody wants to drink wine anymore. Or then we have a thing where everybody wants Pinot because of sideways, or there's this huge shift over here. Everybody wants wine. So we got to pull out all of our fruit. And each of these things are. You can't just change everything overnight. I mean, our our grapes take 3 to 5 years to be producing so that we can make wine out of them. So it's a it's a very, um, it's a very nature dependent. [00:31:00] That's right. We have very little control. I think farmers have to accept that. So they work.

Glenn Dunlap: And they pray a lot.

Geni Whitehouse: And they think, well, you know, we can't get fire insurance in California now. Um, there's a huge thing where they won't even offer it. So you're you know what? What do we do now? So the state has come up with some programs, but it's extremely expensive to try to get fire insurance.

Glenn Dunlap: Right? Right. Well that's interesting. [00:31:30] Um, so net income, so gross margins. We're looking at 50% as a, you know, and net income, something north of zero on the net income. So we're looking for that.

Geni Whitehouse: Zero again depending on what you're trying to achieve. So we measure you against your own goals. Right. That's the best we can do for anybody. And then once we see what your goal was we want to compare you to everybody else.

Glenn Dunlap: Well, so you mentioned are they interested in going public. How many how many wineries have gone public in the last, you know, 5 or 10 years? Yeah. No.

Geni Whitehouse: No [00:32:00] investor wants not her daddy because of all the because of the huge capital investment, because of the lack of control. I mean, you know, an investor, an outside investor is going to want a continuous growth rate of X year over year. And when you're limited by how much you can grow, where does the you know, the growth comes from price changes, right. Um, but you can't grow the volume that much because of limitations of what you're able to grow in a, in an estate winery. But you'll see that the big acquirers acquire [00:32:30] different types of wineries. They acquire some, some brand only kind of wineries that are buying and bottling and have great brand awareness. And they might have some estates, they might have a mix, and they might also just acquire vineyards. So they have access to their own fruit, and they can do what they want with the, you know, with the production side.

Glenn Dunlap: So it makes sense. Okay. So that's an exit strategy for some of them is that there's going to be larger estate winery that would that would be interested in either their brand, their fruit, their land whatever the you know there's [00:33:00] some.

Geni Whitehouse: There's some other option. Yeah. And so that's the play. There are different ways to get into the space or different things. And you know if you're going to be in public you probably want to leverage your risk. You're going to have a bunch of different options of what kind of lawyers you have, so you can spread the cost across them and also benefit from centralized administration and practices and things like that.

Glenn Dunlap: So is it similar that you see the large breweries buy up all of the, you know, the you know, the what what do you call [00:33:30] them, the microbrews that were, you know, the you know. Yeah, yeah. The craft brewers. Thank you.

Geni Whitehouse: Yeah, yeah.

Glenn Dunlap: So they just spun a bunch of them off. But I just, you know. Well so we're.

Geni Whitehouse: Seeing that too. We're seeing it in and then some out. We just saw a big, a big, um, group of wineries that just just filed for bankruptcy. Mhm. Um, and, and you know, I don't know what the underlying story is, but, but it's not an easy market. I don't know that there are that many easy markets left the function in. [00:34:00] But this one, um, because of the just the process, the length. So if I have so the vintage that vintage that I have farming cost for this year gets harvested, you know, between now and the end of the year probably meant much of it's happening already. Um, and then it's put into the production facility and then it's stored and worked with for the next three years before I can even sell it. So there's a huge tie up of cash. So if I have a white wine, I can get it harvested, bottle it and sell it much [00:34:30] more quickly. So most of our, all of our clients pretty much have a red and white so that they can have a quick turnaround thing and then keep selling through the other stuff that takes longer to get to market.

Glenn Dunlap: That makes sense.

Geni Whitehouse: And then they have multiple vintages that they're selling every year so that they manage. But, you know, skipping an entire vintage, which is what happened with the fire, is a huge thing. And we're just seeing that this would be the the bottling time for that vintage. So we're seeing the impact of that. Um, it's a scary thing [00:35:00] for sure when you your whole crop is at risk. And there were there were grapes that were harvested in advance of that that weren't impacted at all. But the bulk of the the cab was still on the vines and people weren't even even if they weren't impacted. People knew that the the press, you know, around that vintage would affect the their ability to sell that wine. So they looked at it and take a hard look at what [00:35:30] they wanted to do based on, um, just the, the press. I mean, you saw on the news nothing but fires. I mean, my mom in South Carolina calls. Are you okay? They're in California. And. Mom. Yeah. We're fine.

Glenn Dunlap: And that's.

Geni Whitehouse: That's right. Just seeing the fires everywhere on the news.

Glenn Dunlap: Yeah.

Geni Whitehouse: You know, when we see is the 1 or 2 places where there was a fire and everything's destroyed, and then, you know, there's a lot of other stuff.

Glenn Dunlap: That's right. That's that's right. It's it's it's never as bad as as [00:36:00] either Fox or CNN says. And it's never as good as Fox or CNN says, depending on what the story is, you know. So you have to you have to weigh that out.

Geni Whitehouse: So so go ahead, Glenn, you're going to ask.

Glenn Dunlap: Well, you mentioned farming cost per acre. So talk to me about what what what are we putting into farming costs.

Geni Whitehouse: So farming costs. There's there's they have vineyard workers out there all the time that are grooming, that are pruning the vines all year. You're working with these vines all year to make sure that you optimize the production. And if you're a high end producer, [00:36:30] you want to have concentrated fruit. So you're probably going to have less fruit that has more value, more flavor and more value, but also a lot of manipulation, a lot of work or a lot of clearing things out, a lot of taking care of her pruning. And you're watching and that's what's going on all year. There's work in there. Um, most of these are organic farms, so they're doing things like bringing in the sheep to cut the grass and doing all that. And then there's the picking and harvesting costs and then the processing and all of that. So there's a lot [00:37:00] that goes on. But that's one thing that people want to look at. If you see me three times lower an acre.

Glenn Dunlap: Sorry, sheep, leave the grapes alone.

Geni Whitehouse: They do. Well. Usually they're in there before the grapes are on the vines. And this is during the early periods or during the winter when it rains and we actually have grass growing. Okay. The interesting thing about our environment is the winters are green and the summers are brown. But if you go to where I grew up, you know, summers are green and winters are brown, right? So [00:37:30] it's a weird reversal because we finally get rain in the winter. But yeah, so all that processing. But what we're trying to do is educate owners on what the financial metrics mean. So what it means is that are days is 100. Educate them about that. Show them the things they can fix that will impact cash flow then bring their teams in and educate them on what they can do based on one of those levers the owner wants to push. If the owner says, I want to increase the price [00:38:00] of my wine, then they tell their teams, okay, go sell more at a higher price. The teams are like, well, we can impact the price, but they can impact the mix.

Geni Whitehouse: Both the channel mix which affects the price and the SKU mix. Which items do I sell? I could sell more cab and less Sauvignon Blanc. And then the effect of average price goes up and then I can affect revenue. So we do training at that level. We bring the tasting room people in and say these are the things you can impact that will help [00:38:30] drive the revenue up. But we need to get the owners agreement on what are you going to do at the top. And what we think matters is who sets the KPIs. If it's an owner imposed KPI on the team that they have no understanding of it and it's a punishment, not a motivator. But if we get the teams educated and they go, oh, I need to sell one more bottle to everybody who buys. Then they're engaged, excited, and motivated to track that information. So that's the kind of stuff that we want [00:39:00] KPIs to mean. It's an activity input measure that we think matters because that's how you move the the overall organization forward. Yeah. That takes education. Yeah.

Glenn Dunlap: That's interesting. So you're looking at the inputs and all the different. Yeah. So then yeah.

Geni Whitehouse: We're breaking it down on to the to the front line level. Otherwise you're never going to affect the change that you want. I mean I've been in corporations. I mean, your corporations, they pass out the financials and tell everybody to go sell increased top [00:39:30] line revenue by 10%. Everybody goes okay. And they go back in the hall. Go, well, what do we do now? And he goes, I don't know. I'm just going to do what I did yesterday with this. If I show you that, if you could get every customer not not more visitors to come to your tasting room, your retail facility, but sell the ones that do come. One more bottle. Here's how you move the needle. And they're like, oh, I know how to do that. So now you're you've got a different environment than what we're typically seeing when we start at the top and stop [00:40:00] at the top. Yeah.

Glenn Dunlap: Yeah. That's interesting. Um, do you, do you have targets for farming, cost per acre, marketing spend per case or days? Are those across the board?

Geni Whitehouse: We do. We show what our individual client. We do we create a scorecard for our clients just from our clients only. And we take we normalize their data so that we're taking out LIFO and things that make them not comparable. And we're doing a comparison for certain things. And farming cost per acre is one of them. We show them what [00:40:30] they're doing and what the industry average is for that year, and we show them if they're up or down based on that, which is what you're facilitating with your solution, that benchmarking, we benchmark them against their prior year and then we compare them to what the industry averages. So it's very insightful of everybody in Napa's farming costs went up and yours went down or what are you doing? Um, yeah. Which is never the case. No. And, um, everybody else went down and you went up or, you know, whatever's happening. So it gives people a good, [00:41:00] um, a good place to see. Okay. Because because we're so similar. And again, in this confined area, it means a lot to see people just like me. You know, in that benchmark.

Glenn Dunlap: How much can you monitor that and, and manage that throughout the year, or how much of it is what you get to the end of the year and you go, oh, good Lord, this was awful.

Geni Whitehouse: Well, it's that's the problem. It's hard to do it timely or I can't do it every month because I gotta do this normalizing [00:41:30] thing, and I gotta make sure I got all the other people in there to do the industry benchmark. So the challenge is that by the time we get it done, it's old, which is a challenge we have with most of what we deliver as accountants. Right. We're giving them Historical information. So what? One of the things we're trying to do is move all of what we do forward so that we can see right now what's happening. And we're trying to do things like we're helping our clients do inventory costing, which is the biggest, one of the biggest challenges costing wine because [00:42:00] of this multiyear storage and production thing, you have to cost year after year. So we're working with the software providers who manage the production process to build in costing so that we can get it done at the day they bottle and they can see what's in there and start managing from that. But that's the challenge, is much of what we do is too late for you to do something with it.

Geni Whitehouse: And I know you're facing the same thing and trying to get one of the reasons that you have integrations to all these systems so you can pull it out as it's happening and [00:42:30] not wait till whenever. The other challenge we have is that, you know, we make adjustments to the financials when we get to the end of the year stuff, we adjust it and then we're comparing to the what we think is the corrected GAAP financials. We don't want just the the pre adjusted right. And our our need for perfection delays their ability to get inside time right. We have to do an advisory is kind of let go of 100% accuracy in favor of timeliness [00:43:00] and relevance. But it's a hard shift. And you don't you don't want to give them information that's not right. But then at the end of the year, you change everything because it's all wrong. But, um, that's why the CAS practices are the best place to start advisory because you're in there, you know that you've got your numbers right. And that's right. You can you can see the challenges as they happen.

Glenn Dunlap: Yeah. Well, it kind of had an old partner that used to refer to the forecast. And [00:43:30] you know, how much time are you going to spend doing this? And how deep is the, you know, you got a 100 hour forecast that you're building or you and he's like, you know, it's the difference between being roughly right and precisely wrong. And I think, you know, from a financial standpoint, you can if you're getting it roughly right, then you don't have to spend all of that time to get. I mean, not that not that it doesn't have to tick and tie all the I'm not I'm not putting that aside. But I think there's an element of this where you got to get roughly right, so that you know what's going [00:44:00] on because you can't wait 12 months or 15 months or 18 months to tie all this stuff.

Geni Whitehouse: Yeah. And you can't. We don't have time. Our decisions have to be made right now. I've got to decide. Do I sell? Do I sell this wine in the wholesale channel and take a markdown on my profit, or do I go to retail? Can I is there enough retail traffic for me to do? I got to make that decision based on what's happened up to this date. I'm in the middle of the month of September. I'm going to go. So I got 20 bottles of wine or 20. So I got 2000 cases left [00:44:30] of this vintage. Am I going to put them in my wholesale channel or retail? And I got to be able to see right now what happened in those two channels. And what's my most likely route to success? And then what's the impact going to be on profitability if I do that?

Glenn Dunlap: Right, right. Yeah. You might be better off on discounting it slightly on your e-commerce channel and holding on to it. Yeah. Yeah. Yeah. But but taking them more closer to a retail value than a wholesale value out of that. So yeah.

Geni Whitehouse: That's right. So I mean that's the stuff people [00:45:00] are going through right now. And I've got a harvest going on. So I've got to fund it. I need cash. So if I can get it, if I can push a whole bunch of this out sooner, I might go that way and forego some of the profit. We got to make sure that I can cover everything. So, I mean, that's what real people in business are doing day in and day out. They're not worrying about whether it's GAAP compliant or not like we are.

Glenn Dunlap: Yeah, yeah.

Geni Whitehouse: We were accounted for properly.

Glenn Dunlap: There's a different GAAP that they're worried about. It's it's that checkbook that you talk about.

Geni Whitehouse: It's back there [00:45:30] that's strong.

Glenn Dunlap: Yeah. So is is this a good is it a good business to to be in. Like you know, what I think of is when you see people that are, you know, they they, you know, sell software companies and then decide to buy a winery, right. You know, so is that what.

Geni Whitehouse: You.

Glenn Dunlap: Want? Yeah. Yeah, I would love I would love to live in Napa, but I don't know that I should own anything in Napa. Right?

Geni Whitehouse: Well, it's it's still it's [00:46:00] a great business. It's a great place to be. It's a great industry to be part of because it's so hospitality focused. It's one of the things when I, when I moved to California, I came to Pleasanton first, and then I came up to Napa. And when I came to Napa, I thought, this feels like a place where I could be happy because the people are so welcoming, and it's got the southern charm aspect because of the farming, the farming. There's a connection to the earth. I agree there's a connection to the experience. There's [00:46:30] a real welcoming attitude for people of all kinds coming here because we have to be. That's how we make our our living. So from that aspect, it's a wonderful place to work. But from the just the hassles of doing it, you have to really know what you're getting yourself into and you have to really want to do it. And people are making money. I mean, they're not losing money or we wouldn't still be here. Um, and making money. There's still mystique to Napa for now. I mean, we still we still want to come visit us. [00:47:00] We have a beautiful place, we have great food and, you know, and a lot of really cool stuff here. So, um, and hopefully the next generations will continue to see what it is that we offer that is so special and different. Um, but it is a tough place to generate financial returns. And if you're looking for a quick payback, it ain't gonna happen.

Glenn Dunlap: Yeah. So is this, um, thinking about the accounting profession and how many people are involved in this? So chances are, if you're somewhere else [00:47:30] in the country, you probably don't have as much of an opportunity to be involved in this. Although there are there are places that have.

Geni Whitehouse: Wineries everywhere now. But what you have, people reach out to me because I'm. And I'm talking about this all the time. And generally they have one winery client and it's it's really hard to get up to speed on one. Um, you know, when you do it once you don't, you do it once and then you do it again the next year. It's it's difficult. And there are just weird things, like this whole thing about the farming costs, what you do with them. And then for tax treatment. I mean, I'm [00:48:00] not doing taxes anymore by mutual decree. I said it and my employer said. But, you know, farming costs, are there special tax treatment for that where you can write that off on a cash basis, you can do all these things and then a gap, you want to capitalize it. So there's a whole bunch of understanding that goes around it, how you even track and report for the financials. Like we take we take the cost that are inventoried for wine. So the farming cost is an inventory cost of the bulk wine. Right. It's the [00:48:30] cost of the grapes. Right. So we show it to the panel. We show all those costs on the face panel. We show the production and seller costs on the face of the panel, even though they belong in inventory.

Geni Whitehouse: We show all those costs. And then every month, we move it over to the balance sheet. Because we know the owner is not going to look over there. They don't understand the balance sheet. We want them to see on the PNL how much money you tied up in farming for this 2024 vintage. Look at the numbers, because that's where your cash is going. Even though we're sticking [00:49:00] it over there, it's affecting you. So look at it. I mean, those are the kinds of things that we do that are unique because we realize that we want them to look at this thing every month and talk about it and monitor what's happening month to month. So, um, very unique things like that. And then this whole costing thing and what you allocate and how you do it, and you have non-producing acres, you had to take out a calculation for the farming costs because they don't capitalize those costs. They stay with the farm. Um, and so there's a bunch [00:49:30] of other things. Anyway, it's a complex thing. Um, and we find clients who come to us that have somebody who has this one winery. Is that part of their 1000, 10,000 other businesses. It's never done right. But for them, it's not that big a deal. And, ah, one entity's a small drop in the bucket.

Glenn Dunlap: So they bring it to you to do the details or they or their clients.

Geni Whitehouse: We get it after they've realized or they've suddenly decided that it matters and they want to have the real numbers. And then, you know, we go through [00:50:00] and adjust it. But our firm doesn't have a cash practice. So we spend some time we do something called monitoring, where we'll go in and look at the monthly books and get a sense of at the end of the year is not a surprise to any of us. Um, and we do stuff with ratios and metrics and that stuff. Yeah. But yes, there is money to be made.

Glenn Dunlap: Yeah, there's money to be made. You're looking at some industry benchmarks. You're also looking at year over year because there's going to be some, [00:50:30] um, you know, intricacies for that, that special entity in and of itself. Yeah, that makes sense.

Geni Whitehouse: You know, looking at the balance sheet, this is the other thing that we're trained, I think we're trained to look at financial statement by financial statement, compared to some compared PNL things to each other. Right. I'm looking at revenues, percentages of I mean of margin as a percentage of sales. I'm looking at marketing as a percentage. So I'm doing a bunch of stuff within that financial [00:51:00] statement. And then looking at the balance sheet separately, where the biggest challenges for wineries is that it's the comparison of the sales growth to inventory growth, which is on the balance sheet. So I frost compare that if my sales graph is growing at a slower rate than my, um, inventory. Yeah. Yeah. Right. Yeah. If it's sales are going down and inventory is going up, I got a cash flow problem. Yeah. My ah, growth. I compared [00:51:30] the growth in my ah over time to my sales. And if ah is growing faster than my sales then I've got a cash flow problem. Yeah. So that most people aren't doing or even talking about with the client. And that's where the real insights happen when they look at what they're doing on the balance sheet relative to what they're doing on the piano, they can start making corrective decisions to to fix that. But over producing, over producing inventories is one of the biggest challenges our people have. And also not collecting on those sales. We make distributors [00:52:00] wholesale and accounts receivable.

Glenn Dunlap: Yeah, that makes perfect sense. I mean, it's the mismatch. I mean, it's almost like the, you know, kind of like a matching principle. But in one sense, if you're looking at those things, if you get it, there's probably a bunch of analogies over your skis or whatever. When you start thinking, when you start thinking about, you know, sales, sales and inventory or sales and are those are if you you're not looking at the relationship of those. Yeah. That can be a real problem for you?

Geni Whitehouse: Yeah.

Glenn Dunlap: Yeah. That's great. Well, Geni, this has been this has been really [00:52:30] interesting to me. I don't know, it's just one I've, you know, sort of been at on the periphery, uh, grew up in a farming industry, farming family, I should say. So you see a lot of those things. But, um. Yeah. So it's it's really, it's really interesting to think about just how, uh, vertical integration is, is here, uh, across the board. But, um, so thanks for sharing the insights. If somebody wants to get Ahold of you, how would you recommend that they do that?

Geni Whitehouse: My email is there, Brian. My name Geni at co CPA. Com that's the firm that [00:53:00] I have the absolute honor of being a part of. They tolerate me. I come in and out. I do this weird advisory only that's all I do is I do a lot of training and outreach and, um, they put up with me for 17 years so far, and it's just been an absolute joy. Um, and again, the people that we work with are very special clients.

Glenn Dunlap: Fantastic. Well, it's it's a it's a fun industry. Thanks for sharing so much with us. And I think if I was a new advisor into this space, this this conversation would help me a ton [00:53:30] being able to sit down with them. I also loved where you started with just the, you know, getting getting in their minds, you know, understanding what they're looking for out of the gate instead of just jumping right into financials, which I always ask about first. So that's a this is a this is good to, you know, reframe this. So that's fantastic.

Geni Whitehouse: Well thank you for having me Glenn. It's a pleasure. Keep doing great work with this. We need more metrics, discussions and tools like peer review to help do this well and to not have to figure it out on their own for every single time they work with a [00:54:00] client. So thank you for the the impact you're making on our profession.

Glenn Dunlap: Well, thank you. Thank you much and thanks for joining us. And we'll see you next time on the Best Metrics podcast.