Wine industry incumbents would find working in the vinery environment a striking and unique experience since wineries appear attractive, sophisticated, elegant, alluring and appealing. The charm that the vineyard site visits offer is highly exotic in itself. Then there is the fascinating concept of indulging into some quality control testing to guarantee that the wine meets the owners’ claims and relishes expectations. Notwithstanding the sensation that glooms in the realm of wine business, various concerns arise when an enthusiast is eager on conducting a winery valuation activity. The operating and organization structure of a winery leaves a major influence on the cash flows and on the subsequent value that establishes for prospective buyers.
Some of the pertinent considerations for a property valuer considering to plan and execute a winery valuation engagement are discussed here for your information. The method of book-keeping either being on a cash or accrual basis is a basic element of inquiry to begin with. Winery accounting standards differ according to the employed accounting method. This outcome of this consideration influences all three basic valuation approaches viz. income, asset, and market based methods. Learning about the inventory costing methodology being utilized since it is a significant challenge in wine business analysis is also vital for a vineyard property valuer.
A winery valuation may also employ the first-in, first-out (FIFO) costing methodology. Here, the winery ensues all expenses and assigns the cost of grapes, bulk wine, production costs, bottling materials, and indirect costs to the bulk and bottled wine inventory. The costs are gathered in inventory until the wine is sold and the costs of the specific individual cases of wine are relocated to cost of goods sold.
Wineries may also evaluate their inventory using the last-in, first-out (LIFO) system of inventory costing. Hereby, a winery costs its inventory identical to the FIFO method, but when allotting costs to the income statement, it employs the final case of wine produced to establish the cost of goods sold.
The property valuer would also consider the location aspect of valuing a winery as it has a great influence on the business and profit potential of the vineyard. The analysis of a winery also comprises investigating the existence or absence of an appellation right to be valued. Untapped tax savings, if any, can influence the valuation largely. In order to claim a deduction, a competent, thoroughly backed valuation of the relevant vineyards is a must by a registered property valuer.