Turning a Hobby into a Business: This is Where the Cowboy Rides Away with a Profit
I was fortunate to spend part of my childhood on a working cattle ranch. I learned how to ride horses, rope, work cattle, shoot, and hunt. Though my uncle, who owned the cattle ranch, sold it when I was still relatively young, I have always considered "cowboying" to be one of my hobbies. I have not pursued the professional rodeo route of my hobby. While I have respect for those men and women that earn their livings in the rodeo, to me, being a cowboy or cowgirl is about having the practical skills one needs to live on a ranch. I have kept in contact with my uncle's old ranch acquaintances, and I have worked part-time on their ranches, keeping up my skills. For a long time, I thought that the skills I acquired while working for my uncle and for his friends had no practical utility in the modern world, unless I was resigned to the difficult and not very financially lucrative life of the ranch-hand. However, I have discovered that people actually have a tremendous interest in learning how to cowboy. This is evidenced in the number of dude ranches and ranch vacations that are offered all over the United States. My proposed business venture differs from these dude ranches, and focuses on the individual who wants to learn how to be a cowboy.
Describing the business
What I intend to open is a cowboy school. A cowboy school is different from a dude ranch, which is more likely to offer a high-end version of a vacation that involves horses than it is to immerse people in the true cowboy experience. At cowboy schools, guests can generally learn about horsemanship, learn how to ride, learn how to rope, and learn how to work cattle (King, 2012). Many of these cowboy schools are run as part of vacation packages, so that they operate with a guest ranch. My goal is to create a cowboy school program that I can present to various guest ranches that lack the cowboy school element at their current guest ranches. The target area for my business venture is in the Denver, Colorado area. There are at least a dozen guest ranches within a 50-mile radius of the Denver area that do not offer versions of cowboy schools. They have horses available for trail rides and some have cattle on the premises, but they do not allow the guests to have the direct interactions with the cattle, or off-trail interactions with horses. This business would offer them those experiences. My hope is to go into business with one of these existing guest ranches, which would provide access to their physical utilities and guests lists, and provide them with another option to offer guests. In addition, these locations are close enough to the city to offer my services to non-vacationing people who are interested in learning more about becoming a cowboy than they could in a traditional horseback riding lesson environment at the average Denver-area stable.
General staffing plan
Although I assume that there will be ranch hands at any of the guest ranches where I can pursue business relationships, I will need to begin the business with a full-time ranch hand. While I can handle the business end of the business, such as reservations, accounting, payments, and dealing with business relationships, the reality of teaching people to ride, rope, and work cattle means that I need an additional person available to handle the animals in the event that one of the students experiences some type of problem, making attending to them necessary. I think that this employee will be a critical part of my presentations to the guest ranches, because, without that employee, they may see chances for the business to interfere with their current business, rather than enhance their current business.
Form of the business
I would be open to forming the business in one of two ways: a limited liability partnership or an S corporation. I prefer the S corporation form, but, because I am presenting the business to others and cannot know, at this time, what their needs are as far as the form of the business, I believe I need to be open to more than a single form of the business. A limited liability partnership would allow me to become partners with either the corporation that owns the guest ranch or with the individual owners of the guest ranch, in a business owned separately from the guest ranch. It would allow us to structure the ownership interest as percentages and dictate profits. The benefits of a limited liability partnership is that "Generally, partners in a limited liability partnership aren't responsible for another partner's debts, obligations, or liabilities resulting from negligence, malpractice or misconduct" (LegalZoom, "Limited," 2012). This would also protect the guest ranch from any liability from injuries that occurred from their guests' participation in the cowboy school. However, I believe that an S corporation would be a better structure. "An S corporation is a corporation that elects to be treated as a pass-through entity (like a sole proprietorship or partnership) for tax purposes. Since all corporate income is "passed through" directly to the shareholders who include the income on their individual tax returns, S corporations are not subject to double taxation. Moreover, the accounting for an S corporation is generally easier than for a C corporation" (LegalZoom, "Definition," 2012). However, an S corporation may not be appropriate because of the limitations that are inherent in the form: all of the shareholders must be U.S. citizens, there must be fewer than100 shareholders, and the sources of income are limited (LegalZoom, "Definition," 2012). I find an S corporation appealing because it would simplify accounting for me and allow the revenues from the business that are received by the guest ranch or the individual owners of the guest ranch with which I eventually form a business relationship to treat their income from the business as pass-through profits. This would ensure that I would not have to worry about their accounting practices, since they would have responsibility for their profits. I also like the corporate structure because it limits my personal liability to that property owned by the business.
Asset or Liability
Asset- owe $4,360 in payments for a truck with a Kelly Blue Book value of $27,964.00 (KBB, 2012).
Monthly, recurring, variable
Veterinary care for the animals required for the cowboy school should run around $2,400/yearly
Without knowing the exact nature of the business relationship between me and the guest ranch with which I will eventually partner, it is difficult to make a thorough list of business-specific accounts. I will need to continue to make payments on my truck, to feed my stock, to cover insurance for the company, to pay for phone service (which includes internet service), to pay for the veterinarian, and to cover wages. However, I may also have additional expenses; I may need to pay some type of rental to the guest ranch for boarding my animals, although I plan for that to be included in our business agreement. I am unable to anticipate my fuel costs because I do not know where the ranch will be located. I am unable to know whether I will need to buy additional tack and supplies, or whether I will be able to use what is available at the guest ranch. I would assume an additional $500-$600 in expenses, particularly at the beginning of the business. Therefore, while my total costs are only $3,738, I would anticipate a monthly operating budget of at least $4,338.
Accounting Standards and Regulatory Environment
Choosing the accounting standard to use was probably the most difficult consideration in developing my business. I intend to run the business only the in the United States. Because I will have business partners, I know that I will need to comply with accounting standards that are clear and easily understandable so that all of the accounting is transparent to the other owners of the business at all points in time. It would probably be easiest to adhere to GAAP because most American business adhere to GAAP and the likelihood is that my business partners already adhere to GAAP for the purposes of their accounting. However, because the business will either be a partnership or a pass-through S corporation, the fact is that my form of accounting can differ from the accounting used by the guest ranch with which I partner without causing difficulties for them. Because I do not anticipate causing problems for my partners by choosing IFRS, I would choose IFRS.
The main differences between IFRS and U.S. GAAP are in consolidation, statement of income, inventory,…