The Business of Horses A Financial Perspective

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The Business of Horses- A Financial Perspective

• Denise Joyce, Practical Business Solutions
• Teagasc Workshop, Clonakilty, Co. Cork
• 19th September 2007

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Why Horses?

• Hobby
• Lifestyle
• Business

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Example 1 Farmer X

• Owns 5 acres of grassland and 5 stables
• Buys a horse 5,000
• Six months later
• Sells the horse 8,000
• Profit 3,000
• Return on Investment 60

Farm stables
Horses
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Farmer X..on reflection
1,000
Feed bedding Vet, medicines farrier Tack
accessories
Feed bedding Vet, medicines farrier Tack
accessories
800
400
Horse
3,700
TOTAL
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Farmer X.restated

• Purchase cost 5,000
• Holding Cost (1/2 year) 3,700
• Investment cost 8,700
• Sells the horse 8,000
• Loss -700
• Return on Investment -8

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Business Fundamentals for Success

• To run a business successfully, you need to
  understand the fundamentals i.e.
• Cost Structure
• Revenue Stream
• Margin or Profit

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Cost Structure

• Costs may be grouped as
• Variable
• Fixed

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Variable Costs

• Costs which relate directly to the horse
• Vary proportionately as the number of horses
  increase/decrease
• Examples feed, bedding, farrier, vet
• Each horse held for a year costs approx. 4,400
  or 12 per day

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Fixed Costs

• Costs associated with running the business
• Fixed in nature i.e. do not vary as the number of
  horses increase
• Examples insurance, maintenance, electricity
  etc.
• 30 acre farm would incur approx 30,000 p.a.
  excluding depreciation

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Fixed Costs

• If horses only held, then the 30,000 needs to be
  recovered from horses
• If the farm is split between cattle and horses,
  you need to allocate costs between the two
  businesses e.g. number of acres dedicated to
  horses versus cattle

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Example 2 Farmer X

• Assumptions
• Owns 5 acres grassland and 5 stables
• Variable cost 4,400 per horse p.a.
• Fixed cost 3,000 p.a.

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Changing from a 1 Horse Farm to 5 Horse Farm
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Investment Cost

• Funding the purchase cost
• Savings
• Bank loan
• Line of credit available at Sales Houses
• Commissions due to Sales Houses e.g. Goff,
  Tattersalls
• Buyers commissions 3-6
• Tests
• Transport costs

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Changing from a 1 Horse Farm to 5 Horse Farm
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Growing the Business

• To raise finance, a detailed Business Plan needs
  to be prepared
• Business Plan documents your strategy
• Growth plan over the next 2-5 years
• Facility requirements i.e. farmland, stables etc.
• Labour requirements
• Running Costs
• Funding requirements

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Example 3 Farmer X plans for growth
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Impact of Growth on Cost Structure 5 Horse Farm
to 20 Horse Farm
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Cash

• Cash is the life blood of any business.
• Shortage of cash causes immediate business
  failure
• Horse business is asset rich, cash poor

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Revenue Stream and Margin

• Sales Price Total Cost Margin
• Minimum sales price to achieve breakeven

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Example 4 Breakeven Return
Holding Cost is not dependent on purchase price
of the horse
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20 Horse Farm - Breakeven
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Common Pitfalls in Business

• Poor visibility to financial data
• Understanding the cost structure
• Not knowing the break even value
• Poor cash management
• Access to funding

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Summary

• Make good use of financial information
• Know the breakeven value before sale
• Monitor cash incomings/outgoings
• Make sure you have access to funding in advance
  of needing it
• Good Luck!

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Contact detailsDenise Joyce, DirectorPractical
Business Solutions Ltd.denise_at_practicalsolutions.
ie061-332929