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Old 11-08-2015, 09:14   #1
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Need advice on charter business plan

Hello,
I have a friend who presented me with the following very raw business plan for future consideration…I don't know this business at all, therefore I apologize in advance and maybe someone on this forum can give me some good answers, feel free to criticize and why not, make some suggestions. The numbers are looking too good to be true.
The Boat (new)…Leopard 58 Catamaran charter version (six cabins)… replace boat with a new one every 5 years

Scenario:
Location...Caribbean islands (based on USVI)
Trip...7 nights/8 days (1 week)
Estimated trips/year...20
Max people...10 (5 cabins + 1 cabin for the crew)
Potential profit per day...$325 pp/day * 10=$3,250
Total potential income/day...$3,250/day
Total potential revenue/year...$520,000/year (@160 average sailing days/year)
Other revenue sources...scuba diving, kitesurfing, SUP, kayak rentals/lessons...not showed here (might offset some of the skipper and cook costs)
Expenses:
Skipper...$300/day
Cook...$150/day
Provisioning (meals)...$500/day…all-inclusive
Fuel....$20/day
Total expenses /day...$970/day
Total above Expenses/year...$155,200/year ($970*160 sailing days/year)
Adjusted Income/year...$364,800/year ($520,000-$155,200)
Other Expenses:
Catamaran Loan...$84,000/year ($1mil loan @ 6% interest/20 years)
Insurance...$17,000/year (premium insurance @ 1.7% of the hull value)
Docking fees...$6,700 (@$33/day long term storage for 205 days)
Maintenance...$5,000 (average in the highs)
Total other expenses/year...$112,700
Net Profit for 160 days of sailing ...$252,100 ($364,800 adjusted income - $112,700 other expenses)
Two more things to consider...
1- Even with half of the potential profit $252k/year these numbers are very attractive
2- I was told that the catamaran could be moved from the Caribbean when the off season starts to a different location as Mediterranean Sea or South Pacific (by a crew or by a large transport boat), therefore is it possible to increase the revenue, number of trips per year.
I am looking forward for your comments.
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Old 12-08-2015, 02:48   #2
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Re: Need advice on charter business plan

I've always adhered to the maxim that "if it sounds too good to be true - it probably is"

First I doubt if you can find a bank that will go 20 years - 10 years is more like it.

On the income side - you figuring a 20 week season. I don't know if there is a 20 week season there - but you're expecting to be fully booked all 20 weeks. How likely is that?

You're also expecting to have 10 guests all the time - is that likely?

On the expense side

You're going to sell the boat every 5 years, but you haven't figured in depreciation. Selling a 6 cabin charter boat after 5 years might be difficult. Big boats can take a long time to sell. Especially one with 6 cabins. Say you can sell it for $600/700K. During those first 5 years you've paid off something like $100k on the principle of the loan so you've got to come up with $200/300k out of pocket - unless you've taken $50/60 out of earnings to put into depreciation.

Not sure you can get a skipper and a cook for $450 total, but you might.

$50 per day for provisions sounds like a lot but you guests are going to expect top of the line food - this sounds low to me.

$20 for fuel? No way - this boat probably burns something like 2+ gallons per hour. A few hours of motoring against the wind and you'll have blown this budget

Other expenses

You might be able to get the boat insured for $17k but you're running a business - so you'll need insurance for your guests. What if one drowns or get injured on the boat? This is a significant expense. Not to mention licenses, etc.

Docking fees - the boat will need a home harbour to at least pick up and drop off the guests. Something this size will cost significantly more than $33 per day

Maintenance - $5k per year is lala land. Figure closer to $100k. New sails for this baby probably will cost say $40K. NOt to mention new lines, blocks etc etc etc.

Not to mention refits - guests paying that kind of money will expect the boat to be first class, meaning you can't let it look like it is run down. New cushions, woodwork redone etc etc etc. it all adds up

Finally, (this also will blow your fuel budget). Guest use a lot of water. So your watermaker will be running a lot. The also use electricity like they are at home so your genset will also be cranking most of the day (more fuel burn)

Not to say that it isn't possible to earn money on this. But those numbers look inflated.

Just for your information - here is a link to a 48 footer from 2013 for sale for $595. What will yours sell for after 5 years?

http://www.leopardcatamaransbrokerage.com/catamaran/?BoatID=5081271&-Robertson-and-Caine-Leopard-48-UnitedStates&boatprice=$595,000

Just my 2 cents
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Old 12-08-2015, 06:12   #3
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Re: Need advice on charter business plan

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Originally Posted by carstenb View Post
Maintenance - $5k per year is lala land.
I agree. This is the only number I looked at. Laughable, especially since it will all be hired labor.

Dave
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Old 12-08-2015, 06:40   #4
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Re: Need advice on charter business plan

How are you going to get bookings? Advertising? Booking agents? That all goes in the expense side. I guess your friend who drew up the plan thinks if you have the boat charterers will flock to it. But it doesn't work that way.

Also a 20 week season is unreasonable, not to mention all income based on the peak season rate. The business plan is a joke.
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Old 12-08-2015, 06:49   #5
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Re: Need advice on charter business plan

The first rule to remember when trying to make a million dollars in the marine industry is that you have to start with two million. :-)

Most marine "lifestyle" businesses dont make a gajillion bucks and I think your numbers look too good to be true- especially annual maintenance. Your cat would have two main diesels and most likely dive compressors and gen sets to service each year. On top of that will be antifoul, anodes and "stuff" that will get broken. Just a lost anchor will be quite expensive to replace. A torn sail the same. Then there is the dive gear all the way through to lost knives and forks.

The biggest hole in your numbers aside from that is marketing. You would need to be spending a LOT of money to attract the amount of people you are looking for. Dont expect a facebook page to do the work for you. I would expect it to be in the tens of thousands to get the business up and running. Of course, once you have a data base of regulars, your marketing budget will get somewhat smaller.

Also if I had just spent my hard earned cash to get on board as a "customer" I would be pretty Peed off if you then wanted to charge for kayaks on top of the $325 per day you are already charging.
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Old 12-08-2015, 06:51   #6
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Re: Need advice on charter business plan

Any self respecting loan shark is going to require you to do a great deal more research than you have I think.

Have you ever worked in the tourism business? 100% capacity is an incredibly unrealistic goal. Base your business plan on %30 or %40 capacity, and hope that you're able to get something close to that after a few years of marketing and positive reviews or rock bottom pricing.

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Old 12-08-2015, 06:59   #7
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Re: Need advice on charter business plan

Quote:
Originally Posted by hirtop View Post
Hello,
I have a friend who presented me with the following very raw business plan for future consideration…I don't know this business at all, therefore I apologize in advance and maybe someone on this forum can give me some good answers, feel free to criticize and why not, make some suggestions. The numbers are looking too good to be true.
The Boat (new)…Leopard 58 Catamaran charter version (six cabins)… replace boat with a new one every 5 years

Scenario:
Location...Caribbean islands (based on USVI)
Trip...7 nights/8 days (1 week)
Estimated trips/year...20
Max people...10 (5 cabins + 1 cabin for the crew)
Potential profit per day...$325 pp/day * 10=$3,250
Total potential income/day...$3,250/day
Total potential revenue/year...$520,000/year (@160 average sailing days/year)
Other revenue sources...scuba diving, kitesurfing, SUP, kayak rentals/lessons...not showed here (might offset some of the skipper and cook costs)
Expenses:
Skipper...$300/day
Cook...$150/day
Provisioning (meals)...$500/day…all-inclusive
Fuel....$20/day
Total expenses /day...$970/day
Total above Expenses/year...$155,200/year ($970*160 sailing days/year)
Adjusted Income/year...$364,800/year ($520,000-$155,200)
Other Expenses:
Catamaran Loan...$84,000/year ($1mil loan @ 6% interest/20 years)
Insurance...$17,000/year (premium insurance @ 1.7% of the hull value)
Docking fees...$6,700 (@$33/day long term storage for 205 days)
Maintenance...$5,000 (average in the highs)
Total other expenses/year...$112,700
Net Profit for 160 days of sailing ...$252,100 ($364,800 adjusted income - $112,700 other expenses)
Two more things to consider...
1- Even with half of the potential profit $252k/year these numbers are very attractive
2- I was told that the catamaran could be moved from the Caribbean when the off season starts to a different location as Mediterranean Sea or South Pacific (by a crew or by a large transport boat), therefore is it possible to increase the revenue, number of trips per year.
I am looking forward for your comments.
Um... Is person giving you the "pitch" suggesting the Cook and Capt share a cabin? That may be inappropriate as your cook will most likely be a female and your capt male.. ( thats not being sexist- its the math of the industry)
So unless its a husband/wife or GF/BF team, they will need separate cabins- thus removing one of your sellable cabins.
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Old 12-08-2015, 07:26   #8
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Re: Need advice on charter business plan

Rubbish. I've been around the charter industry for decades and never encountered a single midsize boat that cleared anywhere near $250K/year...maybe 10% of that. Business plans always look great on paper...reality is often different.

Challenge: find one single vessel charter operation that nets over $250K/year.
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Old 12-08-2015, 07:56   #9
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Re: Need advice on charter business plan

1. Not going to get $3250/day for 160 days even with a skipper and cook.

2. Will cost more than $5000/year for maintenance.

3. There is a reason why Charter Companies don't own their own boats.
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Old 12-08-2015, 08:10   #10
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Re: Need advice on charter business plan

Provision budget of $50 per day will be taken up by alcohol alone, what are they gonna eat)-|
I'm not sure what it's like in the carribean but what about business licence, taxes, bribes ect.
After purchase, expenses such as household(linens, galley supplies ect) safety, toys.
Who is doing the laundry and cleaning up after the sea and booze sick passengers. $150 a day wouldn't convince me to do it as the cook, and skipper is busy driving.
Advertising is a big one.
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Old 12-08-2015, 08:18   #11
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Re: Need advice on charter business plan

One last thought.

You've noted that the $50 per day is for food only. If I paid $325 per day for a bunk here - I'd expect the booze to be included. The same is true for dive equipment, kayaks windsurfers etc (good sized investment here to buy all that stuff also)
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Old 12-08-2015, 08:43   #12
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Re: Need advice on charter business plan

Posted this business plan to a good friend who manages about 6 boats, all cats 45-65', in all-inclusive luxury charter service. I work as a charter captain for him occassionally and have for many years so know his operation.

His response:


"...
Would love to hire this guy as boat recruiter if he gets even one person to believe that. The best our owners do is $60K take home after expenses but does not include boat payments.
...
"


So, if you gross $60K per year before debt service and have a $1M loan at 6% ($60K interest per year, not $84K as shown in plan)....then you break even...which realistically is about what most boat owners do (maybe a little better in good years). Then at the end of 5 years you have a depreciated boat and no money in the bank for a new one. In the end all the revenue went into other peoples pockets (crew, vendors, bank...) and you are stuck with the depreciated asset which is very expensive to carry....which is also where most charter boat owners end up. That's a business plan based on reality.
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Old 12-08-2015, 08:50   #13
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Re: Need advice on charter business plan

The raw plan exhibits a classic tendency of assuming best case scenarios for both revenue and expenses. You may want to consider re-running the #'s in a worst case scenario and see if you have the potential to break-even, or incur an acceptable loss.

Do some more research - you can find data on expected utilization rates, review charter rates from competitors like Moorings to find an average daily rate weighted for seasonal variations, etc. Apply the more conservative figures for things like on-going maintenance.

You don't say how much you would put toward boat purchase, but just using Leopard's pricing on their website, you should plan on a purchase + delivered price closer to $1.5M equipped for charter ops so a $1M mortgage would mean 500K initial outlay on the boat itself, not including other start-up costs.

You will be competing directly with the Moorings with this boat as they also offer crewed Leopard 58 charters. Therefore your price point will need to be significantly lower or you will somehow need to be able to differentiate yourself with services/amenities. Both of those actions cut into total revenue.

You and your friend aren't the first to do rough back-of-the-envelope calculations convincing you that there's no way you can loose. History says otherwise. It's not that it can't be done, but you won't see anywhere near the #'s you have mapped out.
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Old 12-08-2015, 09:02   #14
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Re: Need advice on charter business plan

I ran a charter operation for too many years in the Caribbean. 130' topsail schooner.

The enlightening (read depressing) thing that I found out the hard way was that most of my competition were vessels owned by corporations that didn't have to return a profit. In fact these vessels were corporate write-offs used for "team building" when not being chartered by the general public.
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Old 12-08-2015, 10:27   #15
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Re: Need advice on charter business plan

Quote:
Originally Posted by belizesailor View Post
...
"
So, if you gross $60K per year before debt service and have a $1M loan at 6% ($60K interest per year, not $84K as shown in plan)....then you break even...which realistically is about what most boat owners do (maybe a little better in good years). Then at the end of 5 years you have a depreciated boat and no money in the bank for a new one. In the end all the revenue went into other peoples pockets (crew, vendors, bank...) and you are stuck with the depreciated asset which is very expensive to carry....which is also where most charter boat owners end up. That's a business plan based on reality.
Assuming you could get a 10 year loan at 6%, you're looking at monthly payments totaling something in the neighborhood of $120K/year. Could create a cash flow problem even accounting for depreciation.
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