Thinking about a chartering business

[St Pete Gipsii]

When considering your tax implications be certain to include the tax laws of your state. Some states to not comply with federal tax law. I wouldn’t want you to get hit with an unpleasant surprise. Do have a written business plan including an estimate of hours of participation to protect yourself from the tax authorities. I think it will be more work than you can imagine but with the right attitude and support of your spouse (if you have one) you can have fun. Look at charter companies in your area that may take your boat in service and handle some of the maintenance, insurance, and promotion issues.

[jmorrison146]

Originally Posted by Medved

Again, Jeannau is built in US down in South Carolina. That said, there are plenty of foreign built boats in charter on Chesapeake.

Not all Jeanneaus are built in SC. Our 44DS is and a few Beneteau are as well, but not all.

[Captain Graham]

I have just started a part time Boat Delivery/Training business and asked for advice on this forum.
http://www.cruisersforum.com/forums/...ss-212463.html
Spend some time reading thru this tread and you can see you will get a full range of advice from people on this forum.

In general I think your idea is OK, start a business that will help pay for your toys.

I would recommend you investigate the following
1. How to setup the legal business for Taxes, etc.
a. I talked with my tax guy and we decided a LLC was best.
b. Licenses that may be required.
Not just the Captains License but also other licenses that may be required.
c. Insurance - Just what type of insurance should you get.

2. Review all of the costs in starting the business and try to minimize them as must as possible.

3. How will you find Customers?
In your case, you are only looking to charter part time, on weekends and vacations, so you can spend the weekday evenings finding customer.
Even with this advantage, I think it will be hard to find customers.

4. How much chartering do you realistically expect to do per year?
Not being already in the business this will be hard for you to realistically predict how mush work you can get and handle.

5. Do a simple Profit and Loss statement just to give you an idea of how much risk you have.

How for some advice.
If I was going to get into the Charter Business, I would

1. Talk with some Charter Boat Business Owners in markets outside my target market.
They will be more open to give you some advice if you will not compete with them.

2. Get the cheapest boat that I could use for the business.
I am talking about less than $10,000 under 30 ft. range.
After a few years you can always move up to a bigger boat.

3. Figure out how to find Customers.
For me this is the biggest issue.
You can plan to do charters every weekend, but can you find the customers and do you really want to work every weekend?

Below is a summary of what I learned maybe some points will help you with your business.
http://www.cruisersforum.com/forums/...ss-212463.html

Originally Posted by Captain Graham

I will summarized that I have learned over the past 5 years talking with Delivery boat Captains, general life and from this thread.

1. Being a one person operation it is hard to have fulltime work as a Delivery Boat Captain or mate.
But it is a great business if you want to do it part time.
This is the same problem most one person contract business have.
I am a project engineer and I have seen many good engineers leave a large company and become a one person engineering consultant.
They normally fail because they did not realize how hard it is to get customers and spend more time selling, less time doing engineering and getting paid.
I have also seen many good engineers retire and have a very good part-time consulting engineering business.
I see delivering boats in the same way.
If you need a full time income make Delivering Boats just one part of your business.

2. You do not need to get your USCG Masters (Captain) License but it helps and some insurance companies will require it.
To get the USCG Masters License you will need to
a. Pass the 5 part USCG Test.
b. Have a medical and drug test.
c. Get a Transportation Workers Id Card that requires a background test.
Even if you are only looking to be a mate getting your License will help you get work.

3. Be prepared for the boat to be in poor condition when you arrive.
This is something that happen to me a lot in my engineering work.
I send out a detailed list of things what must be ready before I arrive have, a remote meeting to review the list but still some customers do not do the work before I arrive.
Not a problem, I see this as an opportunity for making more money.
Now much we charge is dependent on many factors and yes sometimes we do not charge the customer.
The same is true with when you arrive at a dock and find something wrong with the boat.
Just deal with it and make a few extra bucks or use it as a good will gesture for future business.

4. Gain the skills to do at least some simple boat repairs.
I think it would be wise to know how to repair the simple things on a boat if you intend to deliver them.
In my case, I have owned 5 sailboats, all in bad shape and spent the time and energy fixing them up.

5. Finding work.
All have said you need to develop relationships in the business to find work.
I have a 5 year plan of developing relationships in the NYC area by teaching the USCG Approved 100 Ton Masters Class.
This gives me the opportunity to get to know people in the business in the market I am targeting.

6. Be professional
It seem to me the marine industry is full of unreliable and unprofessional people.
People who will not show up, show up late or show up drunk.
By getting your USCG License and developing personal relationships with people in the industry, you can demonstrate that you are professional.
The 6 delivery boat Captains that I have met over the years all told me that this was the most important issue when hiring a mate to help them with a delivery.

7. Setting up a business.
I talked with my tax guy and he setup an LLC for me.

8. Should I get Insurance.
I am not sure if I should get insurance for the next 5 years when I will only be a mate.
As a mate I am under the Delivery Boat Captains insurance and also the boat owners insurance.
But as some have said that does not stop you from being sued.
I will get a dash cam and have if recording so it anything does happen I will have supporting evidence.

9. Equipment to bring for a delivery.
Just for safety I will bring with me a few items
a. Small plot charter with current charts as a backup.
b. Hand help VHF radio.
c. A good pair of binoculars.
d. My PFD that has a light, knife and whistle attached to it.
e. Maybe some tools
f. Sleeping bag, warm cloths and rain suit.

10. Know yourself.
Do you get seasick?
Do you panic when things go bad?
Do you get mad when people do not do what you ask them to do?
Do small things bother you?
Can you eat crap food for days?
Can you handle less then 8 hours sleep per day?
If you have answered yes to any of these questions, delivering boats may not be for you.

[jmschmidt]

I can guaran-damn-tee you that the SBA doesn't know squat about maritime law, the US Coast Guard regulations, state and local laws regarding commercial boat operations or the charter boat business, or much about any other business of any complexity.

Ask the first SBA person what a "TWIC" card is and wait for the blank stare. The short answer; you don't need one for the operation you are contemplating.

PM me if you'd like to chat on the phone.

[hellosailor]

Medved-
From (casual social) discussions with CPAs, tax attorneys, and former IRS agents? If you are not making a profit in any 3 out of 5 years, especially the first, the IRS may decide to target you for an audit and declare it to be a hobby. Requiring you to recompute your taxes (plus fines, penalties, interest) and if they do that, they can go back ten years in a flash.
Now, that's for "business" in general. But since you've said you are trying to defer ownership costs, presumably using the boat for both pleasure and business, that's a red flag to the IRS. The only *safe* way to do that, and what I'd expect any CPA or EA to tell you, is that you have to put the boat in arms-length charter service, with a professional manager and everything else. And then when you want to use it, YOU CHARTER IT the same as anyone else, at market rates. Yes, you pay to use your own boat. But if the business is legitimate, the money you pay for charters comes back to you as profit.

The folks I spoke to said this was the *only* way to set up boat or aircraft ownership that would avoid IRS scrutiny and eventual audit. The fact that you have a major asset with commingled business and personal use is what sets off the red flags.

Putting your boat into a charter fleet or one of the "boat club" charter programs takes it out of your control, and draws a clear line for 100% business use.

No, I'm not an IRS agent, CPA, or attorney, but I've been found in the company of all of those, at one time or another. They sing like one choir on this topic.

It doesn't HAVE TO be done that way, but anything else can come back to haunt you. Tax court is not a fun place to be.

[jmschmidt]

It's those casual, social discussions with CPAs, tax attorneys, and former IRS agents that will get you into trouble. It's not as draconian as hellosailor may think.

1. Your choice of depreciation options will determine if you risk "hoppy farm" exposure. My operation has decent positive cash flow but no taxable income in 2 years. When the depreciation runs out most of that positive cash flow will be taxable.

2. Forget the advice someone offered that you only have to spend 100 hrs. a year actively running your business. Its more like 750 hr. a year.

3. If you can get any immediate use from a tax loss depends on a number of things.

4. Your personal use of the boat with my type of business (LLC) is limited to 10% of the revenue charter days up to 14 days per year max for family and friends. Over that, yes, you do have to pay the rack rate or the average discounts rate that your customers pay.

5. How ever since this is a relatively complex business involving and expensive piece of equipment, two to three "sea-trials" by the owner (and required crew) for 2-3 of days per year, especially after any significant maintence or modifications, is not view as unreasonable personal use.

5. Hellosailer is right when he says "putting your boat into a charter fleet" is best way to avoid tax and legal entanglement but nothing is guaranteed. But many of these secondary fleet operators are nothing but moorage, utility and maintenance middle men who pay others for moorage and other services and mark it up to you. They pay their own employees peanuts and market up their labor times ten.

[SharAndy]

We looked at that idea as we purchased a 3 cabin power cat. With all the correct 'qualifications' we decided not to after reading numerous articles that doing so makes one a huge target for IRS audit. Lots of info out there.........

[hellosailor]

jm-
As you note, it can be a complicated business with lots of room for interpretations and fine lines. All of which is part of why those folks all said "Set it up arms length" which generally bulldozes away all the questionable areas. Leaving, as they used to say, a "simple exercise for the reader" of finding a competent manager for the company, or a reputable fleet to put the boat into. But at least that clears away most of the complications from commingled use.
Heck, for a while the IRS was going so crazy about things, that they only allowed chefs to deduct the portion of the spices that were actually used, as opposed to just writing off the whole jar when it was bought, or some such crazy thing. They just don't like the idea of "sharing" or "play nice", they're happier with black and white.
Not that the OP can't DIY or commingle the use of the asset, just that it leaves SO many more issues that can (and likely will) be questioned. I had the IRS actually call me in and question me on why I showed so little cash income or expense. I told the guy, I basically pay cash three or four times a month. Once at the barber, two or three more times at the greengrocer, both only take cash. Here's the bank account, have yourself a nice day.
Short interview, fast letter saying thank you and goodbye.

"It seem to me the marine industry is full of unreliable and unprofessional people.
People who will not show up, show up late or show up drunk."
It isn't just the maritime industry, or even just one location. That's the New America. New hires just don't show up. Folks quit by simply not showing up. Plumbers show up six hours late, and the infamous cable guy, haha. Remember how radical "We deliver in 30 minutes or it is free!" from Dominos was?
Heck, even physicians (who one might hope were professionals) run hours late, routinely. They may know medicine but their business skills and practice management **ck, which is one reason why so many of them join medical groups and leave all that to someone else. I've even seen doctors from one group send out split bills: A "facility fee" that covers the office, which the group owns, and a separate item for "professional services" which is the doctor.
Forgot about good help--simply competent help is getting damned hard to find.

The tax man? Doesn't really matter how you follow the rules, as long as you can pick a set and be Real Damn Sure they can't say you did it wrong. Careful records, detailed log book, all the "sailing commercially" papers...lots of ducks to keep in a row. I believe the term is RFPITA, for most of us.

And I'm afraid to ask, what the last year's many tax law changes do to affect everything. In Charlie Brown's famous words, AAAAARRGGGGHHHHHH!

[redneckrob]

Originally Posted by hellosailor

jm-
As you note, it can be a complicated business with lots of room for interpretations and fine lines. All of which is part of why those folks all said "Set it up arms length" which generally bulldozes away all the questionable areas. Leaving, as they used to say, a "simple exercise for the reader" of finding a competent manager for the company, or a reputable fleet to put the boat into. But at least that clears away most of the complications from commingled use.
Heck, for a while the IRS was going so crazy about things, that they only allowed chefs to deduct the portion of the spices that were actually used, as opposed to just writing off the whole jar when it was bought, or some such crazy thing. They just don't like the idea of "sharing" or "play nice", they're happier with black and white.
Not that the OP can't DIY or commingle the use of the asset, just that it leaves SO many more issues that can (and likely will) be questioned. I had the IRS actually call me in and question me on why I showed so little cash income or expense. I told the guy, I basically pay cash three or four times a month. Once at the barber, two or three more times at the greengrocer, both only take cash. Here's the bank account, have yourself a nice day.
Short interview, fast letter saying thank you and goodbye.

"It seem to me the marine industry is full of unreliable and unprofessional people.
People who will not show up, show up late or show up drunk."
It isn't just the maritime industry, or even just one location. That's the New America. New hires just don't show up. Folks quit by simply not showing up. Plumbers show up six hours late, and the infamous cable guy, haha. Remember how radical "We deliver in 30 minutes or it is free!" from Dominos was?
Heck, even physicians (who one might hope were professionals) run hours late, routinely. They may know medicine but their business skills and practice management **ck, which is one reason why so many of them join medical groups and leave all that to someone else. I've even seen doctors from one group send out split bills: A "facility fee" that covers the office, which the group owns, and a separate item for "professional services" which is the doctor.
Forgot about good help--simply competent help is getting damned hard to find.

The tax man? Doesn't really matter how you follow the rules, as long as you can pick a set and be Real Damn Sure they can't say you did it wrong. Careful records, detailed log book, all the "sailing commercially" papers...lots of ducks to keep in a row. I believe the term is RFPITA, for most of us.

And I'm afraid to ask, what the last year's many tax law changes do to affect everything. In Charlie Brown's famous words, AAAAARRGGGGHHHHHH!

Doctor's excepted, I've found a direct correlation between the rate I pay a service provider compared to others in their industry and their reliability and skill. The problem isn't "labor these days", it's picking someone in the bottom 25% of cost and somehow expecting top 25% level service.

[hellosailor]

Rob-
My ophthamologist's office used to have a framed sign up on the wall, something about 'You wouldn't pick the cheapest place to get your parachute packed, why would you shop for cheap eye care?'
Some things I'll shop on price, others I know that if you're lucky, you might get what you paid for. The problem is with some things, you can't shop prices easily, or find out who the real pros are.

[jmschmidt]

Hellosailor, great analysis and great analogies.

As for the medical profession, most of their inefficiencies could be solved by tort reform but since most heavy-weight politicians who could get that done are lawyers themselves and have no interest in messing with the unjust enrichment of their fellow brothers of cloth. So it won't get done.

As you remarked, for a single injury or illness you now get split billings from several different providers in the same medical group, hospital, department, specialty, etc. This is to spread the liability around in case you have legitimate malpractice claim. You now have to file suit against twenty differed people and/or their departments. This increases the cost of litigation by a factor of ten.

As the spinnaker trimmer on the boat I race on at my club, I was prepping my lines for a jib-set at the weather mark while the foredeck was ready to hoist. Jibe completed, kite started up, boat with rights dead ahead, skipper does a crash-jibe back the other way without warning to the crew, I'm hit in the head with the boom of a 42' Beny. One night in the hospital, MRIs, follow ups, etc. I'm still getting bills (or my insurance is) and that was a year and half ago.

New normal I guess.

[hellosailor]

Ouch. I've only been kissed by the boom on a J/24, and remember thinking "How'd that get down here?" in the companionway and "Wow, sounds just like an aluminum baseball bat". It was an anxious afternoon of "Do my pupils both look the same?" but back then we weren't as aware of concussion issues. I tend to keep one hand on the boom whenever it is on the same half of the boat as me now.

Funny thing about the billing. A lot of medical offices simply manage to forget to bill the secondary when there is one. And some don't wait to get paid--they just bill the patient if the insurer has been slow. Then the insurers, play games about rejecting bills or "losing" them. I have a friend who is a doc and he has to play that game every week. He's got a small collection of "Call me personally if..." phone numbers from places like the insurance regulators. The game isn't new--sadly.
I'm thinking I should do what the insurance companies do, and just say "Sorry, you submitted your claim more than 90 days after the date of service. We don't pay those."
Especially the ones that make no mention of what the service was, just a billing code number. Which is not available to the public--you've got to be in the system to get those.

[Hazer]

Originally Posted by Medved

Hi all, looking for advice. I live within an hour driving distance from Chesapeake bay and thinking about starting "owner/operator" charter business that I can run on weekends and vacations. So the idea would be to purchase something like Jeanneau 440 and take people sailing in either Chesapeake or Delaware bays or coastal crusing around that area. Looking for anyone who has experience in this space. I have a well paying job, which can help me to offset some of the risks, meaning I will not be solely relying on this as income. Any thoughts and feedback is greatly appreciated. Alex.

Someone may have already answered this for you I haven't read the entire thread. I currently have gone through all the pitfalls of starting a chartering business in Michigan and I got a kick in the teeth. First of all the DNR who handles all the licensing of OUVP boats does not fully understand (at least in my office) that a vessel over 5gt engaged in commercial activities has to be documented. Has to be USA built or wavered (extra costs and not guaranteed) and owned and operated by US citizens. Your French built yacht is going to give you trouble with becoming coastwise eligible for commercial activities. My season was over before it began when we realized that state registration and license wouldn't be the only criteria. Don't be lead astray as we were by the DNR's simplified paperwork and answers. We bought a Canadian built C&C 35 for a small addition service for our vacation homes. Was about to order the last dockside inspection when I started poking around the VDC website and realized that my boat didn't meet the criteria without a waiver which takes two to three months. We thought about operating anyways and just throw the DNR under the bus if confronted by the USCG. The DNR says we are good to go....they are wrong and didn't even know what coastwise documentation meant. If thier paperwork had the proper list of licensing criteria we may have had time to get the waiver for this season. Their paperwork only said state registration or proper documentation if applicable. Understand what that means. Don't be naive like we were.

[jmschmidt]

And hear I thought that I, and others on this forum, had beat this subject to death (state registration vs USCG documentation, vs foreign built, vs US Maritime Admin. waivers, vs demonstrating local need to get one, vs only good in designated operating area, vs non-transferable if you sell the boat, etc. etc.) but I guess there are always those who didn't get, or didn't read, the memo.

[Captain Graham]

Originally Posted by KeitHamuci

As someone who has gone through the licensing process, I can tell you that it's not easy. You'll need to have 360 days of documented sea time, and you'll have to pass several written exams.

I teach the USCG Captains Class and it is hard but not that hard.
The 360 days onboard a boat is for your lifetime and 4 hours count as a day.
You do have to get the boats registration numbers and have the owner sign off.
You can look at old photos to get the boat registration numbers off the side of the boat.

The exams are hard but there are many schools around that have good programs to teach you and give you the exams.

Our program is
9 Days in a classroom with an instructor (1 weekend, 5 weekdays and 1 more weekend)
Then 1 week online doing practice exams where I am available to help via phone.
After you are doing well in the online practice exams you can take the real exams in a classroom with an instructor.
The weekends are 8 hours each day and the weekdays are 4 hours at night so you can still work during the day.
When I do the class I come in 1 hour early each day and will stay late.
I tell my students I will not give up on you so do not give up on yourself.

If you pay attention in class, study the homework and do the online practice exams you will most likely pass the exams.

Don't get me wrong some people do not pass but it is mostly because of lack of effort.

There are 4 exams
1. Rules of the Road - Hard (90% to pass)
2. Charting - Hard (90% to pass)
3. Navigation General - easy (70% to pass)
4. Deck General - easy (70% to pass)