Thinking about a chartering business

[Lihuedooley77]

To the OP,

JM and others are correct on what is required to run a charter boat for compensation
or hire.

Thar aint no free lunch.

If you wish to run a charter business , and take out a group of six persons or less
in the U.S.A you will need a U.S.C.G lic, ( called a six-pac). You will have to prove
that you have 360 days of documented time, And report to the U.S.C.G licensing
authority and take and pass their several individual section written exams.

Testing : No B.S, factual.

Took me a day and half, after the six or so different exam catagories that took a full day. I came back the following day to take and pass the Navigation exam, 90% required.

Many or the evolutions required a 90% to pass, some were 70 %. If you failed the particular exam that you were working on, you were DONE. Go home, come back the next day, and if you failed it again,. Super done, you had to wait 30 days before re- testing that section again. And then continue on.

If you plan on more than six passengers, then the requirement is 720 days at sea documented time. That will be a U.S.C.G Merchant Marine Officers License.
Usually 100 tons.

As to getting charter guests, that is a whole other problem.

If you mickey mouse anything, the U.S.C.G will be on you fangs out.

I held a U.S.C.G. License for vessel up to 500 tons . This was after
the 100 ton lic. for 4 issues. The 500 tons was my 5th issue and , you have to
renew every five years by test or sea time or both.

Those renewals are every five years.

Also, you need to inquire about running a " head boat", that is separate individuals
in your charter party and not just one person and his friends or family.

Also be prepared and learn about the requirements for Sub Chapter T, that requires the vessel to meet very definite standards if you try to operate a head boat.

There you go, take the advice of other posters as well, and understand what
is required .

It took me FIVE YEARS working as a sailing instructor and charter capt, to earn the
720 days of sea time. . That sea time was documented by the computers of the Sailing Club that i worked for.

That is just the basic requirements , there are more hoops to dance thru.

If a charter biz is your passion, then get the sea time and go for it.

[Medved]

Originally Posted by Lihuedooley77

To the OP,

JM and others are correct on what is required to run a charter boat for compensation
or hire.

Thar aint no free lunch.

If you wish to run a charter business , and take out a group of six persons or less
in the U.S.A you will need a U.S.C.G lic, ( called a six-pac). You will have to prove
that you have 360 days of documented time, And report to the U.S.C.G licensing
authority and take and pass their several individual section written exams.

Testing : No B.S, factual.

Took me a day and half, after the six or so different exam catagories that took a full day. I came back the following day to take and pass the Navigation exam, 90% required.

Many or the evolutions required a 90% to pass, some were 70 %. If you failed the particular exam that you were working on, you were DONE. Go home, come back the next day, and if you failed it again,. Super done, you had to wait 30 days before re- testing that section again. And then continue on.

If you plan on more than six passengers, then the requirement is 720 days at sea documented time. That will be a U.S.C.G Merchant Marine Officers License.
Usually 100 tons.

As to getting charter guests, that is a whole other problem.

If you mickey mouse anything, the U.S.C.G will be on you fangs out.

I held a U.S.C.G. License for vessel up to 500 tons . This was after
the 100 ton lic. for 4 issues. The 500 tons was my 5th issue and , you have to
renew every five years by test or sea time or both.

Those renewals are every five years.

Also, you need to inquire about running a " head boat", that is separate individuals
in your charter party and not just one person and his friends or family.

Also be prepared and learn about the requirements for Sub Chapter T, that requires the vessel to meet very definite standards if you try to operate a head boat.

There you go, take the advice of other posters as well, and understand what
is required .

It took me FIVE YEARS working as a sailing instructor and charter capt, to earn the
720 days of sea time. . That sea time was documented by the computers of the Sailing Club that i worked for.

That is just the basic requirements , there are more hoops to dance thru.

If a charter biz is your passion, then get the sea time and go for it.

Thank you. This is very helpful. My plan is to initially hire Capitans to run my boat until I obtain those credentials and learn from them. My overall goal is 15 years away, so I do have time.

[john61ct]

The lost opportunity cost of the capital invested plus the huge wear and tear, ongoing maintenance costs required to keep the boat shipshape, plus slip fees all the other running costs.

Before you even look at break-even for variable per-charter costs.

Really means your actual costs of sailing would be so much hire than just being a charter **customer** for those 15 years.

Plus eliminating the very risks involved, and relative peace of mind avoiding being owner of a startup using money you can't afford to lose.

Then from the income / appreciation over 15 years, you'll have **lots** more money to buy the boat you want **after** you're ready to stop working so much and enjoy getting out on the water more, fresh up to date and you in control of keeping it in good shape.

[Medved]

Originally Posted by john61ct

The lost opportunity cost of the capital invested plus the huge wear and tear, ongoing maintenance costs required to keep the boat shipshape, plus slip fees all the other running costs.

Before you even look at break-even for variable per-charter costs.

Really means your actual costs of sailing would be so much hire than just being a charter **customer** for those 15 years.

Plus eliminating the very risks involved, and relative peace of mind avoiding being owner of a startup using money you can't afford to lose.

Then from the income / appreciation over 15 years, you'll have **lots** more money to buy the boat you want **after** you're ready to stop working so much and enjoy getting out on the water more, fresh up to date and you in control of keeping it in good shape.

I will be paying attention to the numbers as I continue my search. As far as being a charter customer for 15 years... I am not so sure that math would favor that. If i can spend every weekend plus 5 weeks of vacation from April to November on the boat, I highly doubt that the math will work in my favor if I just chartered vs running this as a business and initially being an unpaid crew and then graduating to a Capitan.

[john61ct]

Yes, if truly that frequent, buying is better.

But still leaving the pseudo business out, just buy older, "just good enough", not new. Even with higher initial fixup costs, overall annualized will be a small fraction, you might even get a little back when the time comes to upgrade.

[Medved]

Originally Posted by john61ct

Yes, if truly that frequent, buying is better.

But still leaving the pseudo business out, just buy older, "just good enough", not new. Even with higher initial fixup costs, overall annualized will be a small fraction, you might even get a little back when the time comes to upgrade.

Not a pseudo, but a real business my friend

[Medved]

And to provide a bit more details for my specific situation... I am single, my daughter is graduating from Penn State this Saturday and already has a job lined up, so I do not have any commitments on the weekends or vacations. I do not mind the hard work of cleaning the boat, doing basic maintenance, provisioning, or whatever else will be required. Since I will have a licensed capitan onboard for the first 3-5 years, I can learn the "ropes" and work on my certs. So I am exchanging my time and manual labor for an opportunity to sail and learn. The last thing is this, I have a well compensating job with a skillset that will be in need for at least another 10 years if not longer, so if I am unable to make this business profitable within 5 years, which is what IRS looks for in a small business, I will sell the boat, pay recapture tax, and get out. While it is a risk, based on my other income it is a justifiable risk in my opinion. That said, I may have a very different opinion in few years after I do this

Again, truly appreciate feedback from the community that was constructive.

[Cool Hand Luke]

Originally Posted by Chotu

My Feedback is, is that how you want to spend your weekends and vacations? Working? Because it’s a real job. It’s not easy. You get plenty of jerks. You won’t have that much fun. It’s actually work. Just remember that.

Not necessarily... I did it for a while and I enjoyed it. You get to go out sailing and you get to meet some "interesting" people. I agree with you some are jerks, but most are excited to be on the water. Remember - for them, it's a once in a while opportunity and they're happy to be out on the water while for you it may be a daily or weekly outing.

I did it on my Jeanneau SO409 and it was fun. I would keep doing it other than two things:

(1) wife didn't want me to be out all the time while she was left home alone, and
(2) your boat does get damaged a lot faster; both interior and exterior.

If you have any additional questions or would like to talk in more detail, just ask!! PM me. I was doing it for about 2 years around the NYC harbor.

[Cool Hand Luke]

Originally Posted by jmschmidt

And your MARAD waiver for a foreign built boat cost $500 the last time I check. To get one you have to demonstrate a need that you can't realistically meet with a comparable US made boat or boats or the are unavailable in your area of operation.

An MARAD waiver is issued for a designated geographical location. If you get one for the Chesapeake you can't use it in cape Cod or San Francisco Bay and they are not transferable to a new owner.

Yep, I paid $500 for my MARAD waiver. If your boat is not US-built, then you MUST, MUST, MUST have it. Fines are extremely steep if you're caught without it.

I live in NJ, but I got the MARAD waiver for RI, CT, NY, NJ, PA, DE, MD, and VA. You can make the geographical area as large as you want (as long as it's feasible and you can show that you may visit that area), so long as you don't request all 50 states

[TrentePieds]

Quote: "The lost opportunity cost of the capital invested..."

Bravo, John! A business plan for this proposed business, as for any proposed business, must take the Opportunity Cost (the income from other investment opportunities foregone by choosing THIS one) into account.

My gut feel is that doing that in this present investment market will show a TRUE COST of operating a yacht charter business, in preference to employing the investment capital AND THE HUMAN RESOURCES elsewhere, to be double the cost indicated by a pro forma income statement omitting Opportunity Cost.

Still, showing that must be for MedVed to do. It's his money — unless he's predicating this venture on borrowed capital, of course. Let's hope for his sake that any loan application he may make for this purpose will be refused, for borrowing for such a venture is a sure road to fiscal perdition.

And Medved: Please don't fall in the trap that many aspiring entrepreneurs do, viz letting your determination to do it rise in direct proportion to the strength and cogency of the contrary advice given by experienced people. Be aware also that by the time you could possibly have your six-pac in hand, the economic climate will have changed, so any business plan you may formulate at this time is sure to need drastic revision then.

Go get your six-pac. Then we can talk again :-)

TP

[Medved]

Originally Posted by TrentePieds

Quote: "The lost opportunity cost of the capital invested..."

Bravo, John! A business plan for this proposed business, as for any proposed business, must take the Opportunity Cost (the income from other investment opportunities foregone by choosing THIS one) into account.

My gut feel is that doing that in this present investment market will show a TRUE COST of operating a yacht charter business, in preference to employing the investment capital AND THE HUMAN RESOURCES elsewhere, to be double the cost indicated by a pro forma income statement omitting Opportunity Cost.

Still, showing that must be for MedVed to do. It's his money — unless he's predicating this venture on borrowed capital, of course. Let's hope for his sake that any loan application he may make for this purpose will be refused, for borrowing for such a venture is a sure road to fiscal perdition.

And Medved: Please don't fall in the trap that many aspiring entrepreneurs do, viz letting your determination to do it rise in direct proportion to the strength and cogency of the contrary advice given by experienced people. Be aware also that by the time you could possibly have your six-pac in hand, the economic climate will have changed, so any business plan you may formulate at this time is sure to need drastic revision then.

Go get your six-pac. Then we can talk again :-)

TP

Thank you for your continued and unrelenting discouraging feedback. It had been heard and noted.

Have you run a charter business in US in the Chesapeake Bay area? If not, then go do it and we can talk again

[john61ct]

Originally Posted by Medved

Hi all, looking for advice.
…
Any thoughts and feedback is greatly appreciated. Alex.

OK then,

I honestly do not think the "discouragement" is based on anything to do with you specifically,

just the parameters you've laid out yourself.

In any case sincerely, best of luck, we're just trying to help.

[Medved]

Originally Posted by john61ct

OK then,

I honestly do not think the "discouragement" is based on anything to do with you specifically,

just the parameters you've laid out yourself.

In any case sincerely, best of luck, we're just trying to help.

Cool Hand Look and CSY Man, as well as few others were helpful because they actually did it and could provide some very specific feedback. It could be an overhang of my job, where I deal with the naysayers all day long, but my initial request for feedback was from people that had experience with it, and not people that theorize about it. Appreciate your well wishes

[jmschmidt]

The IRS does not look at net profit after depreciation which is almost always negative for new businesses. If you are managing the entire operation yourself (generally considered to mean 750 hrs. per year) it should not be considered a passive activity loss so you may have tax benefits from the paper loss for your personal taxes. As you said, upon sale of the entire business (not just the boat) there will be a recapture of depreciation which will amount to taxable income.

I looked at cold northern climates but the short season and low weekly charter rates made the effort unrealistic and probably more prone to a tax audit as a hobby farm as opposed to locations where the boat is busy year around and it is clear that you have a profit motive. I don't think there is any magic in the "five year profit" stuff that you hear. The IRS can come at you anytime for any reason and so can the state if your state taxes this type of business income. It is essential that you get accurate tax guidance from a real professional.

[Medved]

Originally Posted by jmschmidt

The IRS does not look at net profit after depreciation which is almost always negative for new businesses. If you are managing the entire operation yourself (generally considered to mean 750 hrs. per year) it should not be considered a passive activity loss so you may have tax benefits from the paper loss for your personal taxes. As you said, upon sale of the entire business (not just the boat) there will be a recapture of depreciation which will amount to taxable income.

I looked at cold northern climates but the short season and low weekly charter rates made the effort unrealistic and probably more prone to a tax audit as a hobby farm as opposed to locations where the boat is busy year around and it is clear that you have a profit motive. I don't think there is any magic in the "five year profit" stuff that you hear. The IRS can come at you anytime for any reason and so can the state if your state taxes this type of business income. It is essential that you get accurate tax guidance from a real professional.

Absolutely agree on having a CPA involved. 1 in 5 is something i read during research. It is technically 3 years, but you can file for a 2 year extension.