Olaf Grapeman whistled a Taylor Swift tune as he drove his old truck from Osoyoos to Penticton British Columbia. He and his staff had just finished securing their vineyard against some unexpected chilly weather. It was late-May 2023, and Olaf, the father of four boys ranging in age from 5 to 16 was anxious to be home. Despite the late hour, he looked forward to his family greeting him when he walked through the door and knew it would be sometime before even the youngest would be asleep. The family enjoyed their time together and never complained about the luxuries they werent able to afford. But, Olaf dreamed of surprising his family with a trip to California one day. Despite money being tight, Olaf was delighted with what his company had accomplished. Business was booming. Revenue for 2023 was 23.0% ahead of 2022, 2022 was 21.2% ahead of 2021, and operating profits were up even more. Olaf had been brought up to value a strong work ethic. His father had worked his way up through the ranks to become Chief Operating Officer of a vineyard in Kelowna, British Columbia. At a young age, Olaf began working for his father at the vineyard. After earning a Bachelor of Business Administration degree, specializing in Accounting and Finance, at Kwantlen Polytechnic University, he married Brandy Winemaker in 2011. Upon his return to the vineyard, Olaf was made a supervisor. He excelled at his job and was highly respected by everyone at the company. In 2014, facing the financial needs of an expanding family, he and Brandy began exploring employment alternatives. In late 2017, Brandys father offered to sell the couple his wholesale wine business, Purple Punch Inc. (PPI), near Penticton, British Columbia. The business and the opportunity to be near Brandys family appealed to both Brandy and Olaf. Pooling their savings, the proceeds from the sale of their house, a minority-business-development grant, and a sizable personal loan from Brandys father, the Grapemans purchased the business for $735,500. It was agreed that Olaf would run the vineyards operations and Brandy would oversee its finances. Olaf thoroughly enjoyed running his own business and was proud of its growth over the previous six years. The vineyards operations filled 50 acres of land, which included a processing facility, and employed 15 full-time and 5 seasonal employees. Sales were primarily to retail businesses and restaurants throughout southern British Columbia. The company specialized in such wine varieties as gewrztraminer, viognier, and ice wine, but also produced and sold a wide variety of red, white, and ros wines.1 Over the previous two years, Olaf had increased the number of vine species grown at the vineyard by more than 25%.

Olaf was a people person. His warm personality had endeared him to customers and employees alike. With Brandys help, he had kept a tight rein on costs. However, the effect on the businesss profits was not obvious, as its profit margin had decreased from 14.9% in 2020 to 11.3% in 2023. Regardless, Olaf was confident that the nurserys overall prospects were robust. With Olaf running the business full time, Brandy primarily focused on attending to the needs of her active family. With the help of two clerks, she oversaw the companys books. Olaf knew that Brandy was concerned about the recent decline in the companys cash balance to below $5,000 in April 2023. Such a cash level was well under her operating target of 2% of annual revenue. But, Brandy had shown determination to maintain financial responsibility by avoiding bank borrowing and by paying suppliers early enough to obtain any trade discounts.2 Her aversion to debt financing stemmed from her concern about inventory risk. She believed that interest payments might be impossible to meet if adverse weather from climate change wiped out their biological inventory. Olaf and Brandy have come to you, a professional Finance consultant, for advisory services. They would like to understand their issue with PPIs declining cash balance, among other things. Olaf and Brandy are nice people and you hope to help their business thrive into the future. You also ask the Grapemans for background information to help support your analyses. Brandy explains that she was happy with the steady margin improvements the business had experienced. Some of the gains were due to Olafs response to a growing demand for more specialty wines. Restaurants were willing to pay premium prices for wines that delivered a luxury dining experience, and Olaf was increasingly shifting the product mix to those products. Brandy recently prepared what she expected to be the end-of-year financial summary (Appendix A).3 To benchmark the companys performance, Brandy used available data for the few publicly traded horticultural producers (Appendix B). Brandy provides you with both the financial summary and the benchmark summary to assist your analyses. Across almost any dimension of profitability and growth, Olaf and Brandy agree that the business appeared to be strong. They also know that expectations could change quickly. Increases in interest rates, for example, could substantially slow market demand. The companys margins have relied heavily on the $15.45/hour wage rate currently required for certified non-immigrant foreign farm workers. However, recently there was some debate within the BC Government about the merits of raising this rate. Olaf and Brandy are concerned they may not be able to pay the higher wages with their cash balance decreasing.

Olaf would like to know if any of the operational changes they have implemented since taking over the company are impacting financial performance, and Brandy would like to know what changes need to be made to the companys financial operations to improve cash balance and profitability. They would also like you to identify any issues that you see and provide them with guidance to reduce risk. Olaf would also like to know when he will be able to take his family on vacation to California, if ever. Olaf was optimistic about the coming year. Given the ongoing strength of the local economy, he expected to have plenty of demand to continue to grow the business. However, he is seeing increased economic uncertainty being publicized in recent news. Because much of the inventory took two to five years to mature sufficiently prior to harvest and another two years minimum to turn into wine to sell, his top-line expansion efforts had been in the works for some time. Olaf was sure that 2023 would be a banner year, with expected revenue hitting a record 35% growth rate. In addition, he looked forward to ensuring long-term-growth opportunities with the expected closing next month on a neighboring 20-acre parcel of land.4 But for now, it was mid-May, and Olaf was looking forward to taking a vacation at the end of the summer. He would enjoy spending time with Brandy and the kids. They had much to celebrate for 2023 and much to look forward to in the years to come. 4 With the acquisition of the additional property, Brandy expected 2023 capital expenditures to be $85,750. Although she was not planning to finance the purchase, prevailing mortgage rates were running at 9.8%. The expected depreciation expense for 2023 was $22,000.

3 As compensation for the Grapemans services to the business, they had drawn an annual salary of $55,000 (itemized as an SG&A expense) for each of the past three years. This amount was effectively the familys entire income.