Owners who offer boarding, what is your expense breakdown?

[OverandOnward]

@cyanskies

The thing I’m most stuck on is how to factor in the cost of the large, one-time, startup costs. Equipment - truck, tractor, manure spreader, mower, etc. We spent ~$6,000 cementing the storage shed so we could actually put hay/bedding there instead of having the floor just be dirt/mud. All the electrical wiring that goes to the pastures for both water heaters in the winter and the electric fencing needs to be completely replaced - no quote yet, but I suspect that will be at least a 4-digit project, possibly 5…

In “real” business accounting (that is, medium-large business with a paid full-time accounting staff) those things are capitalized. On paper, the numbers are booked to some sort of asset.

Then they are depreciated out according to IRS rules, so much being moved to expense every year. That is, a portion of the total amount allocated to assets is taken from the asset balance and booked to expense (because the asset is being used up, it won’t last indefinitely). The tax rules give different lengths of time for expensing these one-time costs in this way.

This process at a granular double-entry level is not much use to a small business operator such as a not-too-large boarding farm, who is just trying to track monthly expenses to monthly income.

My suggestion is to look at it like this:

There are two kind of facility costs,

• one-time new purchase costs plus one-time replacement costs (buying a farm and a tractor, replacing a busted gate, installing electric fencing), and
• ongoing maintenance costs (adjusting said gate, maintaining the electric fence and the tractor, etc.).

For the ongoing maintenance - that’s stuff you do repeatedly several times a year and so not really a one-off expense, it doesn’t add anything new to the farm - whatever you are spending over a year, come up with a level-ish monthly estimate and count that in as a monthly cost to be covered by boarding income. The leveled ‘monthly’ expense estimate is a bit theoretical, so you can adjust it if it’s a year with more maintenance than usual.

For the one-time purchases and large-dollar replacements, this is your capital investment in having a farm. For the farm to be worthwhile as an investment, some percentage of this total investment needs to come back to you every year in farm income. You can call it “return on investment” or ROI, it doesn’t matter if that’s not an exact accounting definition.

If the farm isn’t giving off at least that much income, there is a question if it is a good business proposition or if you would be better off to pursue other investments instead.

For example, if you allocate $100,000 as being the total amount of one-time purchase costs of the farm, tractor, fencing, etc. & so on, and you’d like a 5% return, then the farm needs to give you a yearly profit of at least $5,000 to make it worthwhile, financially. If you feel the farm investment should return more than that to be worthwhile, say 7% or 10%, that’s how much money you should have in income for the year for this to be a good use of your money and time. Financially speaking, anyway. It’s just a way of making sure if what you are spending to have a business farm is actually paying for itself.

If the total allocation of one-time start-up costs is $1 million, then the farm needs to make $50,000 income for the 5% ROI. So evaluate if you are using that $1 million to get $50,000 yearly income, or if some of it is leaking into nice-to-have things that aren’t generating more income. Adding cavaletti can increase your income if they help keep the barn full, or lead to more lessons given, or more expensive lessons given. But if not, maybe consider those a personal expense, so how much cavaletti do you need just for yourself. Don’t buy stuff for other people to use that isn’t generating a return. And so on.

Over time if you add more one-time purchases to the total - say a gator vehicle to haul hay to the paddocks, that kind of thing - then that increases your total investment. And also increases the total income for the year that is needed to make it worthwhile.

If you sell the old tractor and buy a new-to-you one, add the cost of the new tractor and subtract the proceeds from the old one. And so on.

You do not have to be strict about precision accounting numbers because this is just for you. You are your own CEO and Board of Directors. You can just jot it all down back-of-the-envelope style for a quick overview of your ROI.

This is just a way to help you evaluate for yourself if this whole enterprise is worth your time and trouble, from a financial point of view. And in comparison with other ways you could have invested this money.

[Libby2563]

I have an informal/modified version of what @OverandOnward describes, except I do not board other people’s horses so it is just for my own information and budgeting purposes. I could adapt it for business purposes pretty easily if needed.

I use Excel. I have one sheet with all of the start-up/capital expenses and a line for their total value. This includes big things like the barn, arena, dry lot, auto waterers, and tractor but also smaller things like storage containers, buckets, tools, etc that I did not need when I boarded.

Then I have a second sheet that I update monthly with ongoing expenses, including the repair/replacement of start-up items (like when the water line to my Bar Bar A burst last year). This helps me calculate what I am spending per horse, keep track of how much hay/feed/bedding I typically use at different times of year, etc.

Then (and this is the potentially scary part) I have a third sheet in which I divide the start-up costs by the difference between what I would pay for board in my area and my average monthly cost per horse, times 2 horses because that’s the most I could conceivably justify/afford if I did not keep them at home. That tells me how many years it will take for the start-up expenses to pay for themselves.

FWIW my original budget had me breaking even within 5 years and it is now at I think 12 years because of things costing more than I expected and all the improvements I didn’t know I needed/wanted. Silly, naive me! Keeping them at home has given me a lot of intangible benefits though, including the ability to support more than 2 horses. Plus now I’m at 8 years and have made all of the major improvements I can think of, so the break-even point is sort of within sight. I know that the horse-related improvements might add some value to the property when sold or could be sold for some value themselves (e.g., the tractor and implements) but it is hard to say for sure, so I prefer to be conservative and err on the side of them paying for themselves while we own the place.

FWIW part 2: My average monthly cost per horse is “only” around $300 (not including my labor). Market rate around here for a small barn with no on-site trainer and no indoor might be in the $600-800 range, but there’s no way in hell I would board someone else’s horse for what amounts to only $10-17/day above materials costs.

[OverandOnward]

@Libby2563

FWIW my original budget had me breaking even within 5 years and it is now at I think 12 years because of things costing more than I expected and all the improvements I didn’t know I needed/wanted. Silly, naive me! Keeping them at home has given me a lot of intangible benefits though, including the ability to support more than 2 horses. Plus now I’m at 8 years and have made all of the major improvements I can think of, so the break-even point is sort of within sight.

That sounds like a very sensible way to approach your analysis.

So interesting that the cost changes have made that much change in your breakeven point. It is rare for a business that has been operating consistently to experience that much change in a very short time, but that is the world we are in right now. (Even though your operation is not a business.)

And you make a very good point that the preference to have the horses at home counts a great deal. This is such a wise way to figure out the cost differential between at-home and personal.

I know I could move to the country so as to be able to keep my horse at home with less expense than living in town and boarding. But the responsibility of the physical facility, the limitations on travel, and what you describe with all of the facility work and upgrades are just beyond me, given how my time is spent now. Probably always.

I think you are wise to hold back on continuing to modify your place for someone else’s benefit at a future sale, if there is one. A lot of upgrades are “nice to have” – buyers like them, but a buyer will not pay a dime more to have them. That is, they do not increase the price. So they are just a free gift to the next buyer. If upgrades get a property sold significantly more quickly that can add value. But anything that you are not adding mostly for yourself is best assessed closer to an actual sale based on the market at the time.

[Libby2563]

@OverandOnward

So interesting that the cost changes have made that much change in your breakeven point. It is rare for a business that has been operating consistently to experience that much change in a very short time, but that is the world we are in right now. (Even though your operation is not a business.)

Oh, sorry if I was confusing! As much as I’d like to, I can’t blame the shift in my break-even point on the weirdness of 2020-22.

It’s more that I underestimated the cost of some things (like plumbing) and started with fairly minimal facilities that I soon wanted to upgrade for horse QOL and ease of care. In 2014 I built the barn and arena and fenced 3 acres of pasture—that was the basis for my initial 5-year break-even point, but even that cost more than I expected due to simple but necessary ancillary things like running water to the pasture. Almost immediately I realized a third of the pasture was too boggy to be useful so I had some grading work done and eventually had an underdrain installed. I also bought more tractor implements for pasture maintenance. Then in 2015 I subdivided the pasture with electric fence and built runs off the barn. 2016 was the dry lot, which included a new run-in shed, more cross-fencing, and an auto waterer for the dry lot as well as the runs behind the barn. Then when I had the dry lot I stopped stalling the horses in the winter so I needed/wanted a covered hay feeder and somewhere to store hay near the dry lot. Each project leads to more projects, you know?

I think I’ve reached a pretty good equilibrium now though. My last major improvement was my compost bins and manure spreader in 2017 (which pay for themselves after a certain amount of time too, compared to paying for a dumpster), and since then my start-up cost sheet has had only a few small things per year.

Honestly if I weren’t on COTH I’d probably have a cheaper, simpler, less optimal setup and my horses would live more like they did when I boarded and when I first moved them home: in 12x12 stalls with overnight turnout in summer and day turnout in winter. What I have now is better for them and easier for me, but it wasn’t free!

[OverandOnward]

Gas seems to have reached a price almost twice what I ever paid before 2022 … and it might be going still higher. And it might not ever again be below the current price.

Ganked from fb …

[miminorthwest]

I think people will probably complain of the swing in fees from season to season, so i would build it all in over the year to average a consistent monthly fee, and at your fiscal year-end, look for trends which you can base your annual board charge increase on, if you are finding you need to increase. I think stability in pricing will leave them happy and you happier knowing what to expect.

[candyappy]

@OverandOnward

I had a BO at a full-care barn who billed a base ‘stall rate’ (not really dry-stall, because labor for feeding, stall cleaning, turnout/in, blanketing & fly spray were included), and then added what each horse ate.

She was happy to feed just what each horse needed. But whatever she bought for each horse was billed to the owner each month, tax & transport & handling included. If she bought 2 x 50-lb bags that only your horse was eating, you were billed for the 2 bags. If you left in the middle of that time period, you could take the bags because you already bought them and she didn’t need them. [She had a large and well-organized feed room.]

She added a hay/alfalfa/whatever charge as well based on what your horse ate. Every horse got as much as they needed.

You can call this a bill-through or a surcharge. But it can vary by actual cost each month, so the BO is not left with a downside for rising costs.

This BO did this for some 25 boarders. I know not every BO could or would do this, but it worked for this BO for many years. (And still does as far as I know.)

This method never left her on the hook for price increases. Price increases went straight through to the owner as soon as they were incurred. Including hay/forage.

For someone who is organized enough to do it that could be a good model. Make a profit on the basic stall rate and bill through the rest of the consumables by boarder.

I like this. Horses get the food they need and it is actually fair to each boarder as they are paying for what their horse is fed. As a BO it gives you a level of security.

As a boarder you would have no idea what your monthly bill would be( as costs fluctuate ) and that ( for me) would be hard since I was one of those boarders who didn’t have unlimited cash on hand.

[beowulf]

I agree with the other posters that mentioned keeping the monthly rate the same regardless of season. Human psychology is strange: a temporary increase in what they pay per month is met with a raised back and questioning and will sometimes wrongly be perceived as nickle-and-diming; a fixed rate year round is often times accepted without question – even if in the end the board cost is identical. I come with the perspective of BO, BM, and landowner that rents out several units.

If you are not already, make an Excel sheet. Track it by month, and year. You do not need to be an Excel whiz to do this - you can even use Google Sheets. Track all of your expenses/revenue by Month and year. I use the Tab feature for each new year but you can do whatever you want that makes sense to you. You could use one tab for expenses and one tab for revenue. What really matters is that you are recording every expense, and every form of revenue (“income”) the farm has.

Every expense/revenue should be listed in this sheet. At the end of the year you have a baseline idea of operating costs. As far as large expenses, like a tractor, drag, or indoor, it is best to treat these as “capital improvements” – which means they are not assets tied to a specific year. Either divide these costs by the # of years it takes to pay off if you are financing, or divide it by the number of years you think you’d need to see a ROI. Like OverandOnward said, this sheet does not need to meet DOR level scrutiny – it is a baseline for you to see the “big picture” and understand where your major expenses are and how you can fund them. You do need to be careful though as too many major capital improvements at once (IE indoor, tractor, and manure spreader all in the same year) will rapidly drive up the “cost” of boarding if you do it this way, in that you will have to charge significantly over market to see a ROI.

It helps if you break down fixed costs and variables - for instance, your RE tax is semi-fixed in that it should stay stable with the assumption that it can only go up. Your mortgage, water, insurance, labor costs, fencing, pasture management, snow removal, truck/tractor/utility vehicle payment, etc should all be fairly fixed as well with some fluctuation. Assume in the summer months the $$ you put towards snow removal instead goes to pasture maintenance, and vice versa. Add all of these costs together, then add your yearly upkeep costs (feed, hay, shavings, electricity, etc).

Now take that number and divide it by the # of horses you have on property. This will give you a very baseline idea of how much it costs per horse. Then you need to decide how much “profit” you need to make to make it worth it to you to have a boarder on your property. I put profit in quotes because in a general sense you won’t make money having boarders. At best you’ll break even, with additional workload and time/energy/stress.

The real money comes from training, instruction, lessoning, etc.

You mentioned that your main cost increase is tied to hay in the winter; consider that the amount of hay you save in the summer should offset the amount of hay you have to feed in the winter. If you are finding that your current board charge isn’t covering winter hay costs, you are not charging enough year round or you are not funneling that “saved” $$ in the summer appropriately – maybe it is being absorbed/eaten up by another exorbitant expense like tractor payment.

@clanter if it helps, I believe Frugalannie is not that far from me and board in this area is insane - some barns are pushing $2000/mo when you factor in the lesson requirement. FrugalAnnie is fulfilling a much needed niche which is why she has a wait list. There is a dearth of affordable barns here and 1/3 of $2000 still prices most people out of the horse world around here.

[frugalannie]

@beowulf, thanks for the compliment. We will have to meet IRL one day!

[candyappy]

@frugalannie

I spend at least an hour a day just on communicating with the boarders.

This is something my BO was gifted at as well. He really kept up personal communication with us boarders on a daily basis when we were out. So much better than todays world of text & email.