Questions answered, great information, many thanks!
People in any business can sell “good will.” Meaning selling their reputation for being good in business to the purchaser. It is often done in the business world. You add what you think is the value of your reputation to the sales price. Of course if you have not made any profit, it doesn’t seem that there can be much value to the business even with “good will.” The value of your business will be income minus expenses. And if that comes down to nothing, then that’s the value. Although any salary you may be paid by your business should be considered income.
BOs here often lease their property. Their improvements do not figure into the sales price of their business, since improvements become a part of the owner’s property. My first BO had a very profitable business, so she made money on the sale, even though she did not own the land and barn and could not get anything for improvements that she and her husband made to the ring and barn and paddocks. She had an after school care for kids with ponies, did lessons and birthday parties, and she had a very successful summer camp. All money making, since boarding only helps with the feed for BO’s horses. She always said that you don’t get rich on boarding.
Yes, that’s a common business practice - I don’t fully understand it either - mostly selling good will of the name & the client list, I think. I’ve never heard of it being done with a business that’s never turned a profit, though.
The valuation should reflect the lack of profit. There may be a reasonable expectation of price as well though depending on how long biz has been operational. No matter - I hope the valuation goes the way you want.
The amount of income the boarding biz brings in is also important. Not sure how you stay in business without turning a profit at some point. How are you depreciating property that is not part of the business??? Somehow you had to turn the real estate/buildings into business property in order to depreciate it. I have a home based business, but don’t take any depreciation for my home office. I also have a race horse who comes home between races for r&r and had 6 months off at the farm last year, but was told I can’t depreciate any portion of the barn or facility w/o making it part of the business.
the “has a free barn manager (me)” maybe the problem as it causes a intermixing of operations… where does one stop/start
We had what believe to be a similar arrangement, the property was own by us personally, the farm which we owned leased the property from us and the horses were owned by another.
Each operation was independent of the other but overlaid. Each had its own set of books, each was responsible for the costs related to its operation. Each paid its staff or its obligations.
Our advisors told us to track it all and to make sure there was never any commingling of funds or duties
in your case…the lease for the boarding operation is an asset
Thanks everyone. There is no current lease between the boarding business and the stable itself.
The business has run because I have subsidized it with income from another job… not a lot but several thousand dollars a year.
Someone seems to think this business is a pot of gold. I think it’s more like a pot with no bottom, although I enjoy it and it has required less support over the years. And I only need to work about 30-40 hours a month in total to keep it going, but that’s a lot of unpaid hours. It would not keep operating under other ownership unless they hired a barn manager.
The facility is nice, but the facility is in no way ‘part of the deal’ in valuing the business.
The depreciated assets are stall mats, an 8 year old tractor, and a few other odds and ends like that. They are pretty much done depreciating at this point.
We shall see what the ‘experts’ do with it. I never quite understood how difficult it was to make money with a boarding stable until I tried it! I can see how, if you did sales, lessons, training in addition to boarding, it can work… but straight boarding is not a great business idea.
Ok, the business is you keeping horses.
it operates with minus profit (at a loss, if you subsidize it every year)
I think the business is you, if you are not there, there is no business, as such the operation is worthless.
Did I overlook something?
Alagirl said it.
In the OP’s case, there is no business without the OP. The business runs at a loss, including any kind of machinery or ‘stall mats’. Income is less than out go, make sure you document the personal money you have put into it. There isn’t a “business”. And if you left, there would be nothing. So, there’s nothing to be valued. Plus, the net worth is in the negative.
I can only imagine a spouse thinking there’s something to be gained by makeing you “value” your “business”. A non-horsey spouse. Just my guess.
[QUOTE=Ambitious Kate;8090388]
I can only imagine a spouse thinking there’s something to be gained by makeing you “value” your “business”. A non-horsey spouse. Just my guess.[/QUOTE]
A non horsey spouse and thier non horsey divorce lawyer wouldn’t be a surprise to me. I’m with the others, who don’t see a ‘business’ here.
If there is no profit and no accumulated assets that make it likely to turn a profit in the future, and most especially if there is no profit while not paying the labor keeping it going, then its value as a business is $0.
You are not free, if you add in the cost of your time, it is operating more in the negative than you think. If the business is being valuated for the sake of a sale of the property, that is a different matter.
Goodwill is calculated on the amount you could sell your business over and above what the actual assets are valued at. If your program has a good name it MAY have Goodwill value even if YOU never made money with it.
There are accountants who specialize in business valuations who would be needed to ascertain if your business is worth more (or possibly less) than the assets. It IS possible to have negative Goodwill.
Talk to your accountant (who files your taxes. Mine also has a lawyer on staff).
If it is a business and you file it as such, they can give you sound legal and finacial advice on what to really do in this situation. If the business isn’t turning any profit, at some point it is going to get flagged and you’ll have an audit. This sounds like more of a hobby, not a business, in which you are writing off tractors etc.
This sounds suspiciously like my dad’s divorce in the early '90’s. Pre-nup or not, as part of the settlement he had to spend $5k to determine that all his real property was in fact worth less at the time of the divorce than it had been at the time of the marriage.
Get thee to an accountant.
PS: if you aren’t making a profit even not paying for labor, you probably need to raise your prices. 
Thanks everyone… and you have all sussed out the situation. The business plan was always to get the boarding business to break-even, which it is close to doing.
However, business plan was predicated on outside money for construction and refurbishment that the boarding could never generate.
And although the ranch employees are fairly compensated, without a ‘real’ manager, paid or not, the business would not continue.
We shall see… thanks again!
How did you get the IRS to treat this as a business if you never showed a profit?
IRS- haven’t been audited- who knows if it would fly?
We haven’t been 7 years yet.
Much time, expertise, and money invested, with the outcome of some profit… eventually.
IRS hassles are probably next, the way things have been going. Fun never stops…
[QUOTE=mvp;8092630]
How did you get the IRS to treat this as a business if you never showed a profit?[/QUOTE]
I believe that the hobby loss rules create a rebuttable presumption. Basically, grey area like the thick fog bank that is the IRC…
