Sunday, December 16, 2007
Should You Operate a Boarding Stable?
At Equine Legal Solutions, we receive many requests for guidance from people who are considering operating a boarding business. The scale of their plans range from taking in one horse to defray expenses to taking over an existing stable to building and operating a stable of their own.
Common reasons for boarding horses
-Affording the mortgage. The property is unaffordable unless it produces income.
-Help with maintaining the property and/or caring for horses. With employees and/or extra cash flow, the boarding stable can help maintain the property and care for horses (including the property owner's horses).
-Doing a friend (or several friends) a favor. The property owner has friends without horse property, so they want to share. A friend is down on their luck and can't afford board at a conventional facility, so the property owner wants to help them out.
-Making some horse-related and/or property-related expenses tax-deductible.
-Supporting the sustainability of horsemanship in the community.
-Qualifying for agricultural property tax exemptions.
Regardless of the reasons for operating a boarding facility, the initial business considerations should be the same.
Is it lawful to operate a boarding facility on the property?
If the property is leased, make sure that the terms of the lease allow all of the planned activities.
Whether the property is owned or leased, the planned uses must be compliant with all zoning regulations. In rural areas, zoning is typically set forth by county government, and in urban and suburban areas, zoning is typically set forth by municipal government. Equine Legal Solutions highly recommends visiting the local zoning office in person and discussing the planned uses of the property to make sure they are lawful, and what permits, accommodations and licenses may be needed to lawfully operate (and the costs associated with same).
Common zoning considerations:
-Number of animals permitted on the property, and what animals count toward that total
-Storage and disposal of manure
-Dust and other forms of potential air pollution
-Restrictions on noise
-Restrictions on outdoor lighting
-Allowable size, appearance and location of signs
-Parking on the property and traffic to and from the property
-Restroom facilities on the property
-Accommodations for disabled persons (note that these requirements typically apply whether or not there are actually disabled persons boarding at the facility)
-Setbacks - minimum distances required between the property lines and buildings and fences
"Is it possible to make a profit, or at least break even?"
If the stable operator plans to take tax deductions related to the boarding business, they must have a business plan (formal or informal) that shows they can actually make a profit by doing what they plan to do.
Common startup expenses:
-Obtaining a permit or zoning variance
-Obtaining a business license. Business licenses are required by many counties and towns. Generally, they are relatively inexpensive, but if the stable operator does not obtain a business license in advance of operating the business, the penalties can be very steep. Note that a business license does not bear at all on the legitimacy of the operation. A business license is not a "seal of approval" stating that the business is lawfully operated (e.g., complying with rules and regulations other than those governing the collection of business license fees), but rather merely evidence that the business has paid a tax. Essentially, the business license process is no more than a revenue generator for the municipality.
-Incorporating the business. See Incorporating Your Horse-related Business for more information on why incorporation is a necessary element of starting an equine business.
-Obtaining the necessary boarding contracts and liability releases.
-Purchasing equipment necessary to maintain the property, such as a tractor and arena drag, fence chargers, etc.
-Purchasing office equipment, such as a computer and printer.
-Improving or repairing the property so that it can safely and comfortably accommodate boarders and their horses and so that it is in compliance with all applicable regulations as well as best safety practices. Examples of one-time expenses that may be needed to make the facility boarder-ready: leveling and matting stalls; installation of drainage, gravel and other mud-control measures in paddocks, parking lots and high traffic areas; replacing or repairing arena footing; replacing, repairing and/or installing lighting in barns, tack rooms, wash racks, arenas, and parking areas; installing or refurbishing a wash rack; installing or refurbishing tack rooms; installing or repairing tie areas; installing or repairing storage areas for bedding, feed and manure; installing or repairing arena, paddock and pasture fencing; installing or repairing gates on pastures, paddocks, arenas, round pens and property entrances and exits; and installing or repairing automatic waterers.
-Designing, purchasing and installing signs for the property entrance, arena rules, any warning signs required by state equine activity statutes, etc.
Common ongoing expenses:
-Insurance. At a minimum, the stable operator will need care, custody and control insurance, commercial liability insurance and property insurance. If the stable has employees, it will also need workers' compensation insurance. If the stable has tractors or other valuable assets, it will need insurance to cover those assets.
-Wages and benefits for employees. Note that the true cost of employees includes payroll taxes. Paying persons in cash to avoid payroll taxes is a false economy (and a short-term one at that).
-The cost of accounting software or hiring a bookkeeper.
-Supplies, such as bedding and feed, tractor fuel, weed killer, etc.
-Office supplies, such as paper, stationery, printer ink, and business cards.
-Utilities, such as electricity, gas, water and sewer. The stable operator can expect all of these expenses to multiply when additional horses and people come onto the property.
-Property maintenance, such as landscaping, repair, replacement of worn out materials, etc.
Common sources of revenue:
-Fees received for services and items not included in board, such as turnouts, trailer parking and extra feed.
-Fees received from trainers or clinicians who do business on the property.
-Fees received from temporary facility use, such as haul-ins for lessons or arena use.
What else should be considered?
In addition to the pure business considerations of running a boarding facility, there are numerous intangible considerations. For example:
-Stress. Running a boarding facility is stressful. The mix of personalities and intense passions of horse owners make for a volatile environment in the best of circumstances. Even if the stable owners have a good manager who is responsible for the day-to-day operations, the owners must still be involved in the occasional dispute or other problem.
-Cash flow. No matter what precautionary measures are taken, some boarders will not pay on time, and some boarders will not pay at all. The operation will need to have the cash on hand (or a line of credit) to be able to cover monthly expenses even if some boarders don't pay. Unfortunately, horses don't stop eating just because their owners haven't paid their board. And Murphy's Law is alive and well at boarding stables - the month when the stable has to hire an attorney to evict a troublesome boarder will be the same month that the barn roof develops a huge leak and the pipes under the wash rack need repair.
-Lack of privacy. Especially if the stable operator lives on the property, they will find that their "quiet time" is constantly interrupted, either literally or figuratively, by the goings on of the barn.
-Less time for the stable operator's own horses. Because it will be next to impossible for the stable operator to go out to the barn and get their own horses worked without dealing with some barn issues or stopping mid-ride to talk to a boarder, they won't have as much time to ride.
After going through the above analysis, many would-be boarding stable owners find that it is not feasible for them to operate a boarding facility, or that the number of boarders required to make a profit would be unduly burdensome on the property and/or their lifestyle. To be sure, there are innumerable investments whose potential return far exceed that of operating a boarding facility.
Decided to go for it? See Running a Boarding Business: What You Need to Know