1. Equine Business Breakdown For AGBS 2300 and 2700

2. Market So you want to buy/sell a horse…. – How are prices determined? Function of Price and Quantity – Other influences, but for simplicity we will assume these two Demand – Inverse Curve – Luxury Items Supply – Positive Curve

3. Individual Business/Horse What are the monetary transactions associated with a business/horse? Positive Flows – Revenue If it’s a business, this is money from goods/services – Selling a horse, Training Fees, Etc – Any Others? If it’s just a single horse then this is usually winnings or value from sale

4. Individual Business/Horse Negative Flows: – Costs Have many breakdowns Fixed Costs – Costs that are steady and not impacted by the number of horses* » Note: Economies of Scale Here and Exceptions » For simplicity, we assume that these remain constant – Examples: » Truck, Trailer, Barn, Tack*, Rental Fees* » Others?

5. Individual Business/Horse Variable Costs – Costs that alter with the number of horses » Again economies of scale – Examples » Shoeing, Hay, Grain, Bedding » Others? Total Cost: – Fixed Costs + Variable Costs » Usually Looks Like: TC = FC + VC*Number of Horses

6. Total Cost Example Fixed Costs: – Barn: $350/Month – Truck/Trailer: $200/Month – Tack: $100 Month Variable Cost: – Hay: $75/Month/Horse – Shoeing: $65/Month/Horse – Bedding: $60/Month/Horse

7. Total Cost Example (Cont’d) Fixed Cost – $350 + $200 + $100 = $650 Variable Cost – $75 + $65 + $60 = $200/Horse Total Cost – $650 + $200*# of Horses – If I have 4 Horses, Then the total cost is: $650 + $200*4 = $650 + $800 = – $1450

8. Average Cost The average cost is a way to measure what each horse is costing you. It is calculated by taking the Total Cost and dividing it by the number of horses. From our previous example: – Total Cost was $1450 – 4 Horses Average Cost is $1450/4 = – $362.50

9. Marginal Cost Marginal refers to being on the edge or “margin” As such, Marginal Cost refers to the cost of adding one additional unit, in our case, a horse. Due to the simplicity of our setup, the cost of adding one additional horse is the variable cost.

10. Special Costs – To be noted Sunk Costs- – These are costs that can no longer be recovered. – For example, once the horse has shoes, you can’t get that money back As opposed to hay, which you could sell and recoup $. – This is useful for decision making. Opportunity Cost – This is a cost that is incurred by taking a specific course of action. – Not a monetary cost, but rather a lost opportunity. For example, buying one horse instead of another.

11. Revenue! There is only Total Revenue and Marginal Revenue. Fixed/Variable doesn’t really make sense Average is arguable, but isn’t all that useful. Marginal Revenue is the revenue by bringing on one additional horse. Total Revenue is just that, the total.

12. Revenue and Income Income (net) is the result of taking your revenue and subtracting the costs. – The result can be positive (income) or negative (loss). – Example: You have four horses in at $750/month – Total Monthly Revenue: $3,000 – Marginal Revenue: $750 – Using our previous Total Cost of $1450 then our income would be $3,000 - $1450 = $1550

13. Full Example Type of Farm Costs – Fixed – Variable Revenue What does this snapshot reveal about the business?

14. Income Given this knowledge, how do you increase your income? – Only 2 Options Increase Revenue Reduce Costs – How to increase revenue? Up Prices, Marketing, Generate Demand for your Biz – How to reduce costs? Take care of your items, make it yourself, economies of scale, BUDGETING

15. Additional Notes With this type of business, it’s important to remember: – Horses are creatures, not machines, you can’t predict them – You can’t always hire someone to fill the need – Injury is a legitimate concern – There’s plenty of fish in the sea, don’t waste your time on something that might not work out – Seasonal Business – Demand is VERY fluctuating, try to stabilize it

16. Types of Businesses Stallion Farm Breeding Farm (with or without stallions on site) Training Facility Personal/Performance Farm

17. Assignment Pick a Business Type Identify Relevant Costs Suggest a price to charge for services – Depending on the type of business, this is very open for interpretation – Give some sort of justification for it Breakdown whether it is a business worth pursuing Can be in groups of up to three Written summary