s
s
Sections
Sections
Subscribe

[caption id="attachment_25075" align="alignleft" width="228" caption="Dean Gloster and Matt Lewis"][/caption]

Much of the wine industry has staggered under a dangerous one-two punch:  Growers, wineries and suppliers are facing slower sales and more difficult collections but also tight credit to finance the resulting cash-flow gap. To survive and even thrive in this difficult environment, you must manage three critical challenges:  (1) Collect what you are owed; (2) manage your costs to match cash flow; and (3) manage your relationships with your own lender and other creditors.

1. Be a collector, not a lender.

When there is not enough money to pay the bills, only some bills get paid.  Everyone else becomes an involuntary lender. Make sure you are on the short “pay” list. How?

First, be the most expensive lender.  Include a written late charge/interest rate and attorneys’ fees clause in your contract or deal. California courts have upheld late charges of 1.5 percent per month.  An attorneys’ fees clause means that delays or collection fights are potentially at your customer’s cost. You can later waive the late charge/interest or attorneys’ fees in return for payment, but they give you leverage.

Second, if a customer is in trouble, act promptly. Follow up professionally but insistently. The diligent are paid. Once a bill gets too large and too old, however, the risk of non-payment rises exponentially. Put troubled customers on cash-on-delivery terms. If you didn’t before, negotiate attorneys’ fees and late charges into any payment-over-time agreement. Get a personal guaranty or a security interest under the Uniform Commercial Code in what you deliver (especially if you’re not a grower protected by a grower’s lien), and perfect that lien by a UCC-1 filing.

2.  Don’t fall behind: Match expenses to cash flow early.

You must be timely, realistic and accurate about your cash flow. You have to make payroll and pay withholdings and taxes (think “personal liability”). To do that, you have to match expenses to your actual cash, not to what might eventually be paid. Defer expenses, and plan carefully to meet cash-flow squeezes. In difficult times, the most common problem on the expense side (particularly for closely held businesses, where “managing expenses” means laying off your friends, loyal staff and even family in a difficult job market) is making cuts that are too little, too late.  Remember, if you have to close your doors, everyone loses. Early, deep and painful cuts are sometimes the only way to prevent deeper and permanent cuts later.

3.  Be the solution, not the problem: Manage your own lenders and creditors.

Manage your own relationships with your primary lender and your own creditors.  There are many troubled customers today, and banks and vendors prefer to work with those who are honest, proactive and capable of managing through bad times. Avoid surprises, make realistic commitments and keep your promises. If you must stretch your payables, communicate about it. If things are especially difficult, get all your unsecured trade vendors together and put them all on a program that gets current bills paid first and older bills paid over time.  Most of your vendors are better off if you stay in business rather than closing or having your assets go to the bank in foreclosure. When things get difficult, you must take the leadership role and put together a survival plan that works for all of you.

Final thoughts

The wine business is a small industry full of long memories. Being professional, practical and prompt in anticipating and resolving difficulties will go a long way in helping everyone get through difficult times.

Just as some of the best wine is made by vines under some stress, the best businesses in the wine industry will find ways to cope and thrive in stressful times. Following best practices to manage your collections, cash flow and creditor relationships can get you to the better times ahead.

•••

Dean Gloster and Matt Lewis are partners at Farella Braun + Martel LLP, a San Francisco law firm with a St. Helena office, focused on serving the wine industry. Mr. Gloster leads the restructuring and creditors’ rights group, and Mr. Lewis leads the corporate group. They can be reached at dgloster@fbm.com and mlewis@fbm.com or via the firm website: www.fbm.com.