Where there is smoke there is fire. Proceed with caution. Does this sound familiar? We have seen an uptick in wine sales in 2010 when compared to 2009. However, before we start celebrating, we need to dig deeper and understand what is happening. When you begin to look further you will find that 2010 looks like the last half of 2008 when we saw the recession hit the industry hard.
We are at a critical stage in the sales cycle. The 4th quarter is a big test to see if wine sales will continue to grow. The next two months for the wine industry are equivalent to “Black Friday” for retailers. If distributors are feeling confident that consumers will continue to dine out, orders will happen. If not, then we will stumble to the finish line.
I have watched many of our financial instiutions get burned from poorly peforming loans. As a business owner you have to be very careful in trying to get that next sale. With the pressure on cash flows it can be tempting to keep pushing inventory out the door to distributors who are past due on prior sales. I have heard rationale like “they have gotten behind before but eventually pay.” This is a very dangerous mindset. It is like taking the name of your business and putting the words “Bank of” in front it. Remember what you’re good at…making wine, not being a lendor. You can easily be taken advantage of by distributors. The difference today is that you don’t know if that distributor who is behind on paying you is close to going under.
This recession is like nothing any of us have ever experienced. You cannot assume that the companies you do business with will be around tomorrow. Caution is in order. Big sales in the 4th quarter may look good on paper but if you cannot collect the receivables, your bank account will be permanently damaged.
Until next time…heed the smoke signals. To avoid getting burned, don’t extend credit to those with past due invoices.