When Elisabeth McMillan was asked by a member of Equestrian Professional, "How do I figure out my costs per horse?" This is part one of her answer as reported in Equestrian Professional's latest newsletter.
Determining your horse expenses
To figure out your costs per horse you will need to look at both your variable and fixed expenses and there are two ways you can approach this: you can go for an overall cost per horse or a more specific individual horse cost.
To figure out your costs per horse you will need to look at both your variable and fixed expenses. For today's tip, let's start with your variable expenses like feed and bedding. There are two ways you can approach this, you can go for an overall cost per horse or a more specific individual horse cost.
For example: If you have sales horses, school horses or other horses you own, it is a good idea to do horse specific costs because they will have a direct affect on your profitability. If you are doing a specific per horse cost on horses you own or support, be sure to add in their shoeing, vet and/or horse show expenses.
On the other hand, if you have a group of clients' horses it is usually more productive to look at average cost per horse. Let's look at how to figure out overall average cost because the principles are the same for both. This is one of the best ways to find out your true costs. It may sound overly simple but it will give you important information that you can use to improve your profitability and so, it is worth doing.
Count how many horses you have.
- Go feed your horses for one day (or follow your groom) and count how many bales of hay you used. Write down the number of bales. Look up your per bale cost. Divide that cost by the number of horses you fed.
- Let's say you have 20 horses and you feed 5 bales per day at a cost of $10.00 per bale. Your calculations would look something like this:
5 bales @$10 = $50.00 per day in hay costs
Divided by number of horses - $50.00/20 = $2.50 per day per horse
Average Monthly hay cost per horse $2.50 x 31 days = $77.50
TIP:
If you pay per bale at the feed store it is easy to find out your per bale costs, just be sure to add in sales tax and delivery costs if applicable. If you buy hay in bulk (pay by the ton), call you supplier and ask how many bales are in a ton and how many tons (1 ton = 2000lbs) you received on your last delivery.
Sometimes they know the exact number bales they brought you and sometimes they give you an average. If they give you an average, use the lower number - I'd rather see you overestimate than underestimate your expenses.
This also helps you account for some wasted hay - like a bad bale. Planning for some waste is also why I recommend going with a 31 day expense plan rather than a 30 day.
Now, lets move on to bedding. Bedding is trickier because you have the initial bedding and/or bedding when you strip the stall and you have maintenance bedding. So in order to track this accurately you will need to track use over a longer period of time.
Even though many of you don't clean your own stalls, it is still a good idea to witness this in person. I cannot stress enough how important it is to know exactly what is going on in your business rather than having a rough idea. Spending a morning watching your help clean stalls is a good place to catch waste or labor issues that need to be improved or addressed.
For calculating bedding costs, I would recommend using an Excel checklist that your employees can write down how much bedding they used for each individual horse for 2 weeks to 1 month. One month being preferable.
Then, average each horses bedding costs by adding up the total number of bedding costs for each separate horse and divide that by the number of days you tracked your bedding costs and you will have an average cost per day. Then multiply that number by 31 days and you will have your bedding cost per individual horse.
Why do this for each individual horse? Because you will find out which horses are "bedding hogs" and you may want to make some changes in your management of them. After you have your chart of individual horse bedding costs, we are now going to average those costs so you have an average per horse bedding cost.
To come up with this average, simply add your individual monthly horse costs and then divide that number by the number of horses you have. For the purpose of space, I'm only going to use five horses for this example rather than the 20. It will look something like this.
1. Ben $50.00 per month
2. Jerry $40.00 per month
3. Mickey $75.00 per month
4. Daisy $65.00 per month
5. Honey $55.00 per month
Total = $285 per month
Average shavings cost per horse per month = $285/5 = $ 57
For many of you the mathematical skills of calculating averages that I just explained seems obvious. However, I also know many extremely bright horse professionals who have never used them before and also some very well educated horse business operators who only run their businesses from their books.
What I hope this exercise demonstrates is that running the numbers through your bookkeeping system and seeing what is actually financially happening at the barn is critical for success.
So now that you have these numbers, what should you do next? Stay tuned we'll talk about that next week.
Members and Future Members of Equestrian Professional: Want to get a great start on 2015? Join us for our members only session tonight where we will discuss " Smart Horse Business Action Steps for 2015.
"This members only webinar will take you through a quick step-by-step that will save you loads of time by helping you focus your efforts on the things that have the greatest effect on your success. Next we will move on to an open Q&A to give our members a chance to ask questions about any aspect of their business. These sessions are informal, fast paced and a fun place to learn from both the EP team and our members.
Article by Elisabeth McMillan