| | 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.)
Source: Agdex 888-1. Revised 2005. |
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