Financial Management Vital To Small Horse Operations
By Donald Stotts
STILLWATER--While many people are willing to invest money for the enjoyment of managing or owning horses, proper financial management is vital to getting the most out of the investment, said an Oklahoma Cooperative Extension Service equine specialist.
"Many horse businesses involve limited numbers of animals and types of horse-related activities," said Dave Freeman of Oklahoma State University. "As such, financial management for these small operations does not require complicated measures."
The first step is to account for the financial status. There are several evaluation tolls that may help: net worth statements, activity budgets, cash flow statements and income statements.
Net worth statements allow a horse owner to compare current, intermediate and fixed assets with current, intermediate and long-term liabilities.
Activity budgets provide receipt and expense information necessary to develop a cash flow statement. For example, a production farm might have an activity budget for mares producing yearlings, a stallion budget and farm overhead.
Cash flow statements show actual or projected cash transactions of a business over a given period of time, usually for a year.
Income statements measure the profitability of a business by presenting the flow of income for a business in a particular year.
"These financial instruments provide data for analysis," Freeman said. "These records are used to evaluate financial status and allow for educated decision making."
Record keeping does not have to be time consuming or complicated, especially for horse owners with a home computer and spreadsheet software, Freeman said.
"Business efficiency requires knowledge and an accurate accounting of costs," he said. "There needs to be some type of cut off, allowing the owner to adjust activities before losses become so large as to end business involvement."
Freeman said some people become involved in horse businesses as a way to afford their horse habit, not taking into account the factors affecting profitability. The result can be business decisions made from crisis management rather than from financially-sound planning.
Recommendations for sound business management of small horse operations include: Plan operational goals before building additional facilities, purchasing stock or entering into new activities.
Research the market for income opportunities, identifying factors which drive the market and make realistic projections of costs and returns.
Evaluate costs, incorporate ways to reduce the cost of supplies and services. When doing so, think in terms of net profit; reducing a cost without considering the outcome on profit may backfire.
Consider alternative means of income when projections for future income from the primary enterprise indicate a low potential for profit. Diversification into alternative income activities have allowed many horse operations to survive.
One all-important point is to seek out financial management assistance when needed, and to participate in the evaluation process with those who have the required general business expertise.
Freeman said it is not enough to pass along records to an accountant who may not be interested in or who may lack familiarity with an owner's specific horse operation.
"The more actively involved an owner becomes, the more likely it is the best production and management decisions will be made," Freeman said.
We would like to take this opportunity to thank Oklahoma State University for allowing us to provide you with this information.
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