Starting a cowboy school business in the Denver area

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.

Monthly, recurring

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, earning-per-share, and development costs. "IFRS favors a control model whereas U.S. GAAP prefers a risk-and-rewards model. Some entities consolidated in accordance with FIN 46(R) may have to be shown separately under IFRS" (Forgeas, 2008). Moreover, "under, IFRS, extraordinary items are not segregated in the income statement, while, under U.S. GAAP, they are shown below the net income" (Forgeas, 2008). Moreover, IFRS does not allow LIFO for inventory calculations (Forgeas, 2008). Finally, the IFRS earning-per-share calculation is different from the GAAP earning-per-share calculation (Forgeas, 2008). While these differences may seem to make IFRS incompatible with a U.S. run business that may have to explain accounting principles to partners and other businesses, the main differences between IFRS and GAAP do not seem as if they will impact this business, because of the nature of the business.

Neither of my preferred business forms will lead to open-trading of the shares of the business on the stock-market. In fact, once the initial business is formed, I do not expect ownership interest in the business to change hands, absent a sale of the guest ranch to a different group of owners. Therefore, I do not think that the regulatory environment will impact my accounting choices. I have chosen IFRS because the regulatory environment is moving towards that standard. Other than that, I do not believe the regulatory environment will have a substantial impact on the accounting choices. Moreover, this is a small business that is designed to be profitable, but to remain small; I do not anticipate it ever growing large enough to necessitate a different form of ownership.

Pro Forma Balance Sheet

A pro forma balance sheet can help me and my business partners "evaluate new ventures or new strategic initiatives, and a carefully designed spreadsheet allows managers to quickly produce alternative statements for different business scenarios or strategies" (Boer, 2001). This balance sheet will list my current assets and liabilities, and those assets and liabilities that I expect to incur in order to get the business up and running.

Asset Type

Value

Current Liability or Asset

Ford F250

$27,964

+$23,604, with $4,360 due

"Blue" Quarter Horse

(gelding)

$11,000

+$11,000

"Monkey" Quarter Horse (mare)

$14,000

+$14,000

"Jessie James" Bull

$12,000

+$12,000

Stock Trailer

$3,000

+$3,000

Tack

$2,000

+$2,000

Income Statement

An income statement "reports the revenues, gains, expenses, losses, net income and other totals for the period of time shown in the heading of the statement. If a company's stock is publicly traded, earnings per share must appear on the face of the income statement" (Accounting Coach, 2012). For a business that is not yet running, any income statement must be based upon projections. This is difficult to create because I do not know the nature of the business agreement that I will be able to create with one of the guest ranches. However, for the sake of simplicity, I have determined that our agreement will be based upon them receiving a percentage of profits, so that I do not have to factor in payments to the guest ranches as part of the income statement. Moreover, I have assumed that they will not charge me additional money for boarding the animals at their facility.

Account

Expenses/Income

Credit or Liability

Truck

$545.00

Liability

Feed

$300.00

Liability

Insurance

$9.00

Liability

Gas

$400.00 (variable)

Liability

Phone Service

$84.00

Liability

Veterinarian

$200.00 (variable)

Liability

Wages

$2,200.00

Liability

Weekly student

$350.00

Credit

Weekly student

$350.00

Credit

Weekly student

$350.00

Credit

Weekly student

$350.00

Credit

Weekly student

$350.00

Credit

Weekly student

$350.00

Credit

Weekly student

$350.00

Credit

Vacation student

$500.00

Credit

Vacation student

$500.00

Credit

Vacation student

$500.00

Credit

Vacation student

$500.00

Credit

Vacation student

$500.00

Credit

Vacation student

$500.00

Credit

Vacation student

$500.00

Credit

Vacation student

$500.00

Credit

The weekly student refers to a person who lives local to the Denver area and is taking a weekly lesson. These lessons will be 2 hours in duration and $75.00 per session, with a four-week or monthly income of $350.00 per student. The vacation student refers to a person who is vacationing at the guest ranch and chooses to have the cowboy experience, spending 2 hours a day during a typical week-long vacation learning cowboy-specific skills. The cost for this will be $500 per student. At maximum capacity, with one ranch hand working directly for me, with the animals I currently have, I should be able to handle 21 weekly students in addition to up to 5 vacation students per week However, I think it is reasonable to anticipate 7 weekly students (1 per day) and 2 vacation students per week, for a total of 8 vacation students per month.

Internal Controls

Ironically, because my most significant assets are stock, my internal controls are related to ensuring proper identification and maintenance of my stock animals. Therefore, keeping them branded is critical. At a guest ranch that is constantly occupied, the risk of theft is actually very minimal. The more serious danger is the threat to their health. I will take them to the veterinarian and ensure their health and will ensure that they have all applicable vaccinations and preventative care. I have looked into providing insurance for the stock, but the cost of the insurance is prohibitive; a better strategy would be to purchase another green Quarter Horse and work with that animal so that, should something happen to one of my horses, I have an additional horse to use as an asset.

The other risk to the business is the risk that occurs if someone is injured. Whether the business is set up as a partnership or an S-corporation, my personal assets will be protected from suit, but the animals will be business assets, and could, therefore, theoretically be sold to satisfy a judgment. Therefore, I will need to purchase liability insurance to protect myself in the event of a client injury. I will also have a lawyer draft a release of liability for all clients to sign prior to having lessons.