Country Vacation Profit$

 
 
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 Business summary | Operating targets | Financial benchmarks | Capital investment | Market factors | Critical operational variable | Sensitivity analysis | Risk factors | Management strategies

... profit planning tools on a start-up country vacation enterprise

Business Summary

This factsheet provides specialized business information on developing and operating a country vacation enterprise. This information was generated by a group of operators who arrived at a consensus of opinion concerning the investment, bookings, costs and revenues for a start-up, two-room enterprise.

The information is based on developing a two-room operation over a five-year period. It reflects a growth in bookings through an aggressive marketing program.

This information is intended as a business planning tool. Managers will have to assess all the key operating and financial variables that would influence the success of their enterprise.

Operating Targets

Guest Nights
Year one
30
Year two
125
Year three
250
Repeat guests 25%

In most cases, a farm or ranch is the primary enterprise and the country vacation enterprise is developed as an additional or supplemental enterprise. As well, the operator and family generally provide all the labour requirements.

Country vacation enterprises generally operate from May to October. However, those that can provide winter activities, such as cross-country skiing, are open for business year-round.

Financial Benchmarks

Gross Operating Profit
Year 1
($13,250)
Year 2
($8,872)
Year 3
($902)
Year 4
$5,474
Year 5
$8,662

Capital Investment

The capital budget reflects the investment required to develop a two-room facility. These enterprises tend to be operated in conjunction with an existing farm or ranch operation. This reduces the capital investment required to start the operation and provides the rural experience necessary for the operation to gain guests.

Cost
Share
Total Cost
Land
Yard site (5 acres)
$17,500
10%
$1,750
Improvements
Yard improvements
$4,500
100%
$4,500
Signs
$1,000
100%
$1,000
Utilities (farm share)
$22,500
10%
$2,250
Added costs associated with bringing two rooms up to standard
$11,000
100%
$11,000
Cost to develop hiking trails
$7,500
100%
$7,500
Cost to develop picnic sites
$5,000
100%
$5,000
Total Costs
$31,250
Equipment
Riding lawn mower
$2,500
100%
$2,500
Kitchen items, bedding
$17,655
100%
$17,655
Total Costs
$20,155
Total Investment
$57,905

Market Factors

Country vacation enterprises are distinct from "bed and breakfast operations" by providing guests with an agricultural experience in addition to overnight lodging.

Country vacation enterprises should be developed around an experience component or "draw" such as horseback riding or farm tours that give guests a reason for coming and staying at the operation.

Many country vacation enterprises have developed market niches such as serving European guests.

Cash Flow Projections - Country Vacation Enterprise

Cash flow must be looked at separately from revenue and expenses to assess the viability of the operation. This is due to the start up time required to achieve an acceptable level of bookings.

Conventional financing will likely be limited to home improvements. Equity capital will be needed to fund equipment and yard improvements.

Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Cash Outflows
Total capital investment
$57,905
Total Cash Operating
Expenses investment
$10,133
$16,348
$24,628
$31,252
$34,564
Personal withdrawals
$20,000
$20,000
$20,000
$20,000
$20,000
Debt payments
$4,237
$4,237
$4,237
$4,237
$4,237
Total Cash Outflows
$34,369
$40,585
$48,865
$55,489
$58,801
Cash Inflows
Borrowed capital
$17,372
Equity capital invested
$40,534
Total Cash Revenues
$5,700
$23,750
$47,500
$66,500
$76,000
Total Cash Inflows
$57,905
$5,700
$23,750
$47,500
$66,500
$76,000
Net cash revenues
($13,669)
($16,835)
($1,365)
$11,011
$17,199
Cumulative cash flows (operating)
($13,669)
($30,504)
($31,869)
($20,857)
($3,658)

Critical Operational Variable

The success of a country vacation operation depends on effectively marketing the accommodation and recreation activities.

Marketing Management

Three basic marketing objectives for country vacation operations are:
  • define the service
  • identify the target market
  • achieve a presence with the market
Key marketing activities include:
  • participating in industry marketing campaigns
  • gaining a market presence through brochures and websites
  • developing relationships with guests
The key marketing objective is to achieve acceptable guest nights and repeat guests.

Snapshot Annual Enterprise Budget Country Vacation Enterprise (Two-room) - Year 3

Projected Revenues
Revenues
Your Snapshot
Guest nights
250
Price per night
$190
Total Projected Revenues
$47,500
Projected Direct Costs
Marketing Costs
Alberta Country Vacation Association membership
$400
Local tourist bureau
$350
Alberta accommodation guide
$200
Individual brochure
$750
Other advertising
$3,250
Marketing phone calls
$1,250
Food Related Costs - $meal
Breakfast - $4.00
$1,000
Lunch - $7.00
$1,750
Supper- $12.00
$3,000
Facility use
$1,250
Trail maintenance
$3,750
Septic
$170
Power and gas
$750
Overhead Costs
Insurance
$1,000
Travel costs
$3,375
Business license
$50
Office expenses
$750
Professional fees
$750
Interest on operating
$833
Total Overhead Costs
$6,758
Total Projected Direct Costs
$24,628
Projected Indirect Costs
Operator labour (750 hours @ $20/hour)
$15,000
Depreciation - improvements
$2,783
Depreciation - equipment
$4,234
Total Projected Indirect Costs
$22,017
Total Projected Direct and Indirect Costs
$46,645
Gross Operating Profit
$855
Interest on Investment
Facilities and improvements
$920
Equipment
$733
Land
$103
Total interest on investment
$1,757
Total projected economic costs
$48,402
Return to management
($902)
.
Sensitivity Analysis

The number of guest nights and repeat guests will affect the profitability of most country vacation operations.

The table below shows the effect on return over direct costs in the third year with changes in prices per night and guest nights.

Price (per night)
Guest Nights
150
200
250
300
350
400
$80
($12,628)
($8,628)
($4,628)
($628)
$3,372
$7,372
$90
($11,128)
($6,628)
($2,128)
$2,372
$6,872
$11,372
$100
($9,628)
($4,628)
$372
$5,372
$10,372
$15,372
$110
($8,128)
($2,628)
$2,872
$8,372
$13,872
$19,372
$120
($6,628)
($628)
$5,372
$11,372
$17,372
$23,372
$130
($5,128)
$1,372
$7,872
$14,372
$20,872
$27,372

Risk Factors

Individual operators must address the following risk factors:
  • variable guest nights
  • government regulations
  • a high workload
  • significant time to develop a market presence
Management Strategies

Key management strategies that will contribute to economic performance:
  • achieving a desired experience for a particular client group
  • growing the client group and achieving return clients through effective marketing activities
  • keeping capital costs down by basing a country vacation operation on what is already in place on the farm
  • controlling operating costs through effective financial management
  • planning for additional rooms by accessing new markets (groups, retreats, families, etc.)
Resources

Websites
Alberta Agriculture, Food and Rural Development - Ag Tourism Initiative

Publications
Cultivating Agritourism: Tools and Techniques for Building Success, Canadian Farm Business Management Council. Available for purchase at http://www.farmcentre.com for $29.00

Country Vacation Enterprise Ag-Venture profile, Alberta Agriculture, Food and Rural Development, 2001

For more information contact:

Alberta Country Vacation Association
Roberta Macleod, Executive Director
P.O. Box 5245
High River, Alberta T1V 1M4
Phone: 1-866-217-2282

Alberta Agriculture, Food and Rural Development
New Ventures Specialists
Ag Info Centre
1-866-883-7677

Ag Tourism Initiative
Bill Reynolds
Phone (780) 427-4424
Fax (780) 422-7755

Sharon Stollery
Phone (780) 968-3514
Fax (780) 968-4709

Definitions
  • Gross operating profit: The amount remaining after direct and indirect expenses have been paid.
  • Cash operating expenses: Direct costs + taxes, licenses and insurance
  • Operator labour: Labour contributed by the owner/operator, valued at $20 per hour. Not a cash cost.
  • Depreciation: The reduction in the value of an asset over its lifetime.
  • Interest on investment: The cost of investing in capital assets rather than in a financial investment. Valued at 5.85% on all asset categories.
  • Return to Management: An amount left to compensate the owner/operator for risk and management.
Prepared by:
Dean Dyck, P. Ag. - Financial Business Analyst
Alberta Agriculture, Food and Rural Development

Source: Agdex 888-1. Revised May 2005.
 
 
 
 
For more information about the content of this document, contact Duke.
This information published to the web on June 1, 2001.
Last Reviewed/Revised on May 1, 2005.