Good accounting data vital to winery decision-making
Part one of a two-part series
By Jim Hansen and Jeff Campbell
BDO Dunwoody LLP
Many winery owners keep a close eye on weather forecasts and prediction of wine prices that will affect their livelihood. Unfortunately they do not always have access to good information about their operations.
A good accounting system will both help prevent unsuspected surprises and provide knowledge on how to capitalize on opportunities.
BDO has been serving wineries in the Okanagan and across Canada for over 25 years. We find that many owners put a great deal of emphasis on establishing a price for their product, but fewer watch as carefully the costs of producing that product. The result is that they may find that their costs run away from them and there is not much profit left at the end of the year.
Problems caused by inadequate accounting systems
While the wave of consolidations in the industry has meant that fewer wineries are run with pencil-and-paper accounting systems, many companies use home-grown record-keeping systems that may use a variety of computer programs. The results can be:
- Inefficient record-keeping, as figures may have to be entered more than once;
- Errors intrude as figures are copied from one set of records to another;
- Information is not up to date, which means that managers and owners may miss out on opportunities, as well as be unaware of problems before they become serious
- It is difficult to produce reports that can help with decision-making, meaning that these reports are not generated often enough, or soon enough, to take timely action.
- The winery must put a great deal of effort into determining its tax liability, because a customized solution may not have taxation capabilities and if it does, this information will likely be out of date.
- New employees must learn the customized solution, instead of being productive immediately on a system they have been trained on before.
Advantages of professionally-developed systems
In response to these problems, we find that many wineries are migrating to one of two solutions: either specialized winery accounting and management programs, or using standard programs such as ACCPAC Advantage Series.
Specialized winery programs:
Usually US-developed, these programs are designed with the needs of wineries in mind. They help owners and managers track the agricultural side as well as the manufacturing, inventory, receivables, payables and other success factors. This specialization has great advantages. However, the main problem with these programs is that they are not set up for the tax legislation in Canada, either federally, provincially or locally. Also, they may not easily generate the reports required by provincial liquor licensing bodies.
If considering such programs, you are best to ask other users what they think, particularly getting their views on the taxation and liquor licensing aspects.
General accounting programs such as ACCPAC Advantage Series:
It may seem difficult to accept that a general accounting and management program could out-perform software designed specifically for the winery business. However, these programs have many modules that are designed to work with the main program, and can be used for the other aspects of the winery. In our experience, we have yet to discover a winery application that could not be met through one module or other of these versatile programs. Advantages they hold over specialized winery accounting programs include:
- Well-tested, robust programming that has stood the test of time with thousands of users, meaning fewer chances that “undocumented features” will disrupt your work;
- Add-on modules are similarly robust and tested, and designed to work with the main program;
- A wide variety of ways information can be entered, so you can choose methods that work best for you;
- Tax-related programming is right up to date and compliant with Canadian legislation;
- Many reports can be easily generated, to provide data to satisfy liquor licensing requirements.
- A complete integrated solution that provides a single source for data entry which eliminates the need for duplicate entry.
- Accurate tracking of inventory, both inventory in Work In Progress and finished goods
- Tracking of marketing information which can be used for future sales activities and management reporting.
These advantages mean that in many cases, a program such as ACCPAC is the best choice for a winery.
If you are planning to install an improved accounting program, our advice is:
- Do not try to rush the process.
- Be sure you have adequate training in the program, so you do not make costly errors on the job.
- Obtain buy-in from management and staff; present the change as being in the interests of the company and all involved.
Getting best value from an integrator:
Your integrator should be willing to work with you at your pace and in a way that meets your specific needs. It may be best if you assign several members of a team to work with the integrator’s team. You should be able to rely on your integrator to carry out a business process review to determine your needs, a formal needs assessment, recommendation of the best product for you, migration training, and training on integrating the system into your existing operations. You should also be able to count on your integrator to give you an honest, straightforward opinion if a particular accounting program is not best for you – and to make other recommendations.
After the program is installed and working, you will find it a tremendous source of information that can help you identify opportunities and avoid the pitfalls in your operations. In the next issue we will utilize some of our benchmarking studies on wineries to discuss some common pitfalls and opportunities to watch for.
The next article in this series will look at how wineries can benefit from having good accounting systems.
Jim Hansen is a partner of the Kelowna office of BDO Dunwoody LLP. He specializes in helping wineries reach their goals. Jeff Campbell is an IT specialist in the Kelowna office of BDO Dunwoody LLP. They can be reached at 1-800-928-3307; e-mail jhansen@bdo.ca. / jeffcampbell@bdo.ca
For more information, call your local BDO office or contact our National office at:
Telephone: 1-800-805-9544 Fax: (416) 367-3912 e-mail: info@bdo.ca
This bulletin is a publication of BDO Dunwoody LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this bulletin is current as of December 31, 2005.
© 2005 BDO Dunwoody LLP
