I am putting together a business plan for the purchase and operation of a local stable. I will function as the barn owner and manager for the first couple of years while the business takes root.
It’s a 30-acre farm with large indoor arena, outdoor riding ring, 30 stalls, and standard barn amenities. We would be offering board, private and group lessons, and trail riding.
Boarding is fairly easy to estimate expenses and income for. But I’m struggling to figure out how to project income and expenses for people who will train and give lessons.
Is it a revenue split as an independent contractor, or an employment situation with an hourly wage or salary? Is it better to work with a small number of regular trainers, or would it make sense to provide the space to trainers who want to lease it or rent it and run their own training operation out of my facility?
I understand there are many nuances to these questions. Just looking for some guidance for how to approach my financial projections for the business plan.
This is one situation that I know of for instructors working directly under the stable itself, with the stable providing and maintaining the lesson horses and the facilities, and also doing the marketing, recruiting and assigning of students to lessons.
Instructors are 1099 contractors and are paid a percentage of the cost to the student(s) of the lesson. So, count the lessons taught each month, and apply the percentage. If the barn increases or decreases the rate per lesson, the instructor’s share moves accordingly, keeping revenue-cost in balance.
Example: Percentage paid to instructor: Private Lesson (1 student) 40%; Semi-Private (2 students) 30%; Group (3+ students) 25%.
For example, with a rate of $75 per lesson and a group of 3 students in one lesson, the barn bills a total of $225 for the lesson. The instructor earns 25% or $56.25 for the lesson.
The barn provides the 3 horses and the facilities. The instructor, instructs. Dressed appropriately, presenting themselves in a professional manner. Per your guidelines for instructors. Being careful not to step out of the 1099 lane into ‘implied employer’.
If you (the barn) run the lesson program you will also need a full set of policies for students, such as required minimum lessons per month, per student, to maintain the income stream and support the horses. And rules/policies about cancellations, rescheduling, and so forth.
If you let a trainer run the show and dry-lease all or part of the barn to them, of course it is a different situation. You will have less control, but theoretically you have a predictable income stream with little work on your part. And, you need to thoroughly background-check the trainer and hold out for your requirements. You don’t want someone who walks away with no notice, or worse stays and creates mass drama, either way leaving you with a mess on your hands.
Chronicle has an excellent article on a particular billing model for a lesson program. If your students are more comfortable doing this monthly rather than ‘semester’, that’s another option.
Also, an overall thought to hold in mind as you build a program – riding is not the most affordable sport. Horses are high cost sport equipment. You need students who can afford it. And who can afford increasing expenses as they go from beginners up the skills ladder, and are ready to add things like riding gloves, new boots, kids outgrow helmets, etc.
Hold the line on your revenue needs and don’t give people too much in breaks on cost. If they aren’t able to keep up, it’s better for them to choose another more affordable sport. Explain that the cost is very much part of maintaining riding. Personally, I don’t know any BO / lesson program manager who can afford to support other people’s horse & riding habits.
Thank you for both of your very helpful replies! My wife is an equestrian artist and we’ve been in this world from that end of things for a long time now, so we’re no strangers to the costs involved and the clients who are most likely to afford it. In our location, we have a large portion of high income earners and very little (if any) competition. I think we can build a stellar program and offer excellent service and care to clients and horses. That article you posted the link to may just prove to be life changing!
you might need to budget $100,000 to $150,000 for lesson horses, the cost of a dependable lesson horse has become breath taking
here is fairly good article on deprecating a lesson horse
when we had our farm running we were using our kids show horses in an extensive lesson program, but since the horses used were being primary used by our kids we never deprecated any on our taxes, we never wanted to have crossed the lines is the horse personal or business use
Setting this up to where you/the barn handles everything and hires trainers as contractors gives you control over the whole thing. You maintain the clientele and control the “image” of your program. There is a higher chance of a rotating door of trainers until you get established and find the right staff, but you have the freedom to boot anyone who doesn’t align with your business goals. Diversifying your staff by having multiple trainers can keep lessons going through illness or showing and means if/when a trainer leaves, you may not lose the entire client base.
Dry leasing the property is a much more stable (lol) income stream with less risk and less involvement for you. It’s very common, but also WAY harder to boot someone if they’re not maintaining things to your standards, are damaging the property, or are abusive. It’s harder to replace a full barn and trainer vs “just” a contractor and whoever chooses to follow. This is where you need an IRONCLAD contract - people probably won’t separate your farm from the crazy program leasing it, the reputation goes together. Find a good pro though, and things will be pretty simple.
Just my 2 cents. If there isn’t much competition in the area and COL is high, it may be advantageous to offer housing (for head trainer or barn manager or other staff). I find this works best if rent is paid vs subtracted from salary, for a variety of reasons, but you’ll need an accountant or to get really good at bookkeeping really fast
There’s some other COTH threads about 1099-contractos vs employees that go into quite detailed discussions. The equine world is really good at 1099-ing people that are legally actually employees. You’ll need to talk to an accountant and lawyer about how to make sure your trainers actually qualify as independent contractors; a lot of barns are doing it wrong, they just haven’t been caught.
There are a myriad of situations that exist out there. However IME, the most common is that the trainer rents the facility at a fixed monthly price, and then charges for the services they provide (board, training, lessons, etc.) This is not a 1099 nor an employee, it’s just someone renting your facility.
Second most common (that I’ve seen) is an instructor going into a boarding barn that is run by the BO, and they already have their own prices as an instructor (they probably teach at multiple facilities). They pay a use fee to the BO for the facility for all lessons, and also a use fee if using lesson horses owned by the facility. This is a 1099 contractor.
This sounds pretty iffy if it counts as a 1099 position set up this way. A big indicator of IC vs employee is an IC sets their own rates. If the barn is controlling the price of lessons, and the percentage the instructor gets paid, that’s an employee, not an IC.
You are definitely more knowledgeable than I am about the ins & outs of the management end. Is this by chance a state by state thing? Does each state set the criteria for IC vs employee?
If so, I wonder how much variation there is among the states. Sometimes, where employment and other business practices are concerned, there has been a sort of ‘standard model’ that has been accepted by most states, and the differences between them are minor. What is the case in one state can be expected in other states as well. About the IC vs employee criteria, not sure if that is the case.
We used a CPA and an Attorney who both knew the in/outs of Farm/Ranch Laws when we set up our equine operation, we just did what they suggested and never had any issues
The states get in the way if the operation is subject to a tax and in their control of labor wages.
Honest question, I don’t know – how will the IRS know who is setting the rates, the instructor/trainer or the barn?
Just based on a tax return. Without a costly investigation which the IRS seems to have less resources for these days. Also I didn’t know it would matter to the IRS, they aren’t enforcers of employment law, that I know of.
Even if multiple trainers at the same barn have the same rates, that could just be the standard market rate for that type of riding lesson, in that area.
Most of the locations where I’ve ridden have instructors charging about the same, from barn to barn. Of course they want to charge as much as their students will tolerate. But if they charge too much, they keep few students and have trouble getting more. So the rates are very similar over the general area, regardless of barn. I think that would make it hard to know just by the rates, without seeing the instructor agreements with the barn they are working with.
To expand on this…it is more of a federal issue, not specifically the IRS.
Payroll taxes pay in to social security, medicare and federal unemployment. Additionally, the employee may be subject to federal income tax withholding (an IRS thing) in addition to state income tax withholding.
Your CPA does not need to be a specialist in farm/ranch laws to advise on independent contractor versus employee issues. The rules are pretty clear.
As an aside…many horse facilities think they fall under a ‘farm’ classification for the IRS when they don’t. Boarding and training recreational horses is not a farm but a business. To quote anoth COTHer (I forget who posted this): “If you can’t shoot it, shear it or sow it then you are not a farm to the IRS” (generally).
It is less about the who is setting the rate but more about who is skirting social security, Medicare and income taxes.
In order for a business to correctly deduct “contract labor” they need to send a 1099 to the contractor and a copy to the IRS. If they don’t send the 1099’s then the IRS can disallow the deduction (reducing expenses and increasing net income) resulting for more tax on the business.
On the contractor side, the IRS now expects to see at least $XX income from the above business (or more if working for multiple companies). The IRS expects a tax return that reports self employment income. This income is subject to self employment tax (employer and employee sides of social security/Medicare tax) and income taxes. While the IRS still has out dated software…it still sort of checks itself.
The IRS wants to make sure SS, Medicare and income taxes are being collected and remitted (via a W2 employee or self employment tax).
This is very true. Horse cost will also depend on what kind of horse you want in your program. That requires some intense thought, and perhaps a survey of what else is out there, and what the demand is for, in your area.
There are a lot of decisions to make about the kind of program you want to run – just teaching basic riding; progressing to showing; actively showing X weekends per year; schooling shows or rated shows?
Anticipating where your program is going needs some thought now, re horse selection, and the basis of how you build the program. That could be a major price difference. If you are staying home, or sticking to schooling shows attended by other lesson programs, the finer points may not matter. If you want to do more, then the horses you choose are the foundation of getting there.
The horses are the equipment, analogous to the equipment available to learning gymnastics or golf or any sport. The kind of equipment available to students will enable, or dis-enable, the progress of your students. For example, students can’t learn to jump on horses that don’t jump. Students learning jumping for the first time should not be on horses learning jumping for the first time – that’s a recipe for accidents. And bad for the reputation of the program.
Basic lower-cost equine specimens that are calm enough to tolerate lesson students, and sturdy enough for a lesson program, may not be horses that will progress the students beyond the basics of walk-trot-canter, maybe some low crossrails and simple trail riding. But they may be the best choice for first-time riders, and very low-skill riders.
Horses that look well, will show well, jump prettily to 2’6" or 3", present in a hunter ring as a candidate for ribbons, have the gaits to score reasonably in dressage at Training to First or Second level, and that are therefore prospects for eventual lease or sale to the students … these days those are pricey. And behaviorally they may not be the best choice for beginners – they may have low tolerance for low skills.
Plus, possibly depending on where you are, many horses of any type or background are – frankly – not all that well started or schooled. They are not ready or safe for unskilled learners. It is very individual when or if they will eventually fit well in a lesson program.
Where I am there is a need for a nicer show-type, but simple to ride, horses that will eventually be leased or bought by learners. They are scarce in a lesson setting because of their expense. It was not always that way. Good early-rider-skills lesson horses can be hard to come by, in some areas.
Also, do you want a program that eventually leads to horse ownership, boarding at your barn, in your program?
There are pros and cons to this. One is that students who own their own horses can be more easily lured to another training program, taking their horse with them. If they have a friend that rides in another program, they and their friend may tug each other to join them.
Whereas students who are riding the program horses, who are satisfied with the horses in the program they are in, are less likely to want to wander to a new experience with unfamiliar horses. Especially those with fewer skills. That’s my experience, anyway.
If students who have been in your program for some period of time, are acquiring skills and wanting to do more, come to view your horses as limiting them, they are likely to go program shopping. Without telling you.
Fwiw, from the point of view of the lesson program and often the student as well, a learner is best to stay in a lesson program as compared with owning their own horse. If the program horses are adequate to their wants. The overall responsibility of horse care can be overwhelming, with sudden cuts to doctor, occasional lameness or illness … it is a lot. Whereas in a lesson program, the program does the horse care. If the horse has a problem, the student is assigned another horse to ride.
You may need some time and experience to come to conclusions about the goals you want for your program, and for the students in it. Depending on the students coming in you may reach some decision points within a couple of years.
It matters to the IRS because of the way payroll taxes are managed, withholding, and the like. 1099 status is often used for tax evasion by the employer and often leaves the recipient unable/unaware/unwilling to pay their share of the taxes. At the state level, it matters to them around both income taxes and labor law, especially workman’s comp.
A lot of horse businesses skirt the law and then get caught when their person-who-should-be-an-employee ends up in the ER with an injury and suddenly everyone is very interested in how the bill will be paid if it is workplace related and there’s no workman’s comp. But: in general anyone can report this kind of fraud to the IRS at any time and my friend in the IRS will tell you that the people who get those reports have no sense of humor.
I would say, there are many models that can work here but if the money from the students is going to you, your trainer and all the staff associated with the program probably should be W-2 employees. If you don’t want that, then have the trainer manage the lesson schedule, payments, and ratesplus any assistants and have them pay you for use of the facilities and the horses. They also would be responsible for their professional insurance. The tradeoffs here are that the trainer controls the program, probably will take the students with them if they leave, etc, versus you controlling the program, having a strong say on who teaches and having the students loyal to you and your program.
If you control the lesson schedule, take the money, and your instructor works only for you, that is a very tough 1099 to defend.
Insurance. Check thoroughly before planning your program. Sometimes higher jumping and other activities will be too costly for a lesson program to pursue, re insurance. Don’t push boundaries thinking they won’t know, because some do inspections. There are also other ways of getting caught out re insurance. Best to get it right from the beginning.
Just my 2 cents, but I would narrow down what type of program and clientele you’re targeting first. How you structure the staff will probably depend on what type of barn you want to run. If you have more of a high-end/competitive boarding barn in mind that’ll have different needs than a beginner lesson/rental trail rides barn. Offering more services isn’t necessarily better - not all boarders will want to share space with a rent-by-the-hour trail ride business, etc.
Also, what discipline? Dressage, eventing, jumpers, H/J/E, HUS, western pleasure, reining, saddleseat, etc? The standard program structure (and even things like arena size and footing) will vary.
What type of competitions are in the area? Especially those of the beginner/unrated level? Being the one English barn in a sea of QH shows or rodeos rarely is profitable. Traveling long distances for shows is much less attractive to the newbie rider. Unless your target market is owners wanting to travel and compete at national shows.
Lastly, the type of horses you’d use for general public trail rides are rarely the same ones that you’d also use for crossrails or Intro. If you even want to offer lesson horses at all! A lot of barns just have one or two starter horses and expect people to lease or buy - the cost of buying, maintaining, and retiring lesson strings is prohibitive for a lot of programs.
