If you couldn’t tell from some of our previous posts, we really like playing in the snow when we get a chance (and it seems like a lot of you do, too). So, today, we thought that we’d look into running what we would have thought is the ultimate snow business – running a Cat ski operation. Ok, ok, running a ski mountain sounds like a bit more fun (you can see a slightly dated list of ones we’ve found here, although we’ve learned that Oak Mountain in Speculator has since sold for $1 plus $50,000 on the third anniversary of the sale, and they think that they’re going to have to put about $1 million of expenses into the mountain over the next three years), but we think that running a cat operation could be incredible. For those of you who don’t know what cat skiing is, it’s when you get into a snowcat (a grooming machine that’s designed to go up very steep slopes), drive up a mountain and then ski or snowboard or freeheel down virgin powder. It’s hard to describe what this feels like – you know that your feet are touching the mountain, but you somehow feel like you are gliding over it and you have the whole world to yourself as a playground.
Today, we’re going to stick with what we did on the Boulders Inn and evaluate an operation that’s actually for sale. In this case, it’s the San Juan Ski Company, based in Durango, Colorado. This is Colorado’s largest cat-skiing operation, operating on 36,000 skiable acres and with 750 priority user days per year. The entire operation is for sale for $375,000 on their website (and for those of you who just want to own a small piece of the company, you can get a pair of their Icelandic Powder Skis for $500 instead). Included in the sale are four snowcats, ten snowmobiles, a 15-person van and a lot of stuff that you’d need to operate and maintain your equipment, from explosives (gotta get rid of those avalanches!) to fuel tanks to maintenance buildings.
So, our basic formula for figuring out if we’d want to buy a vacation business is pretty simple – can we make back whatever money we spent on it in a reasonable time frame (we usually want to make sure we’re making a profit by year three or four)? If you have to borrow the money, then the question is if you can at least service the debt (which means pay off the interest, although you should also be paying off your debt). In this case, we’re talking about $375,000 that you have to make up. Well, what we know about this company from the public releases is that they’re allowed to take 750 people up into the backcountry per year to go skiing, and from their website, we also know that they charge $250 per person (others in the area charge a bit more). So, if you sell-out – the best possible scenario – you’ll end up with $187,500 per year in revenue. If you’re running at normal service business margins, that means that 20% of this revenue will turn into profit – that’s about $40,000 per year in profit for you to split between paying off the business and paying off what you spent on the business. If you just used that money for paying off the business purchase, it’s going to take you about 10 years to break even on your investment. Ouch!
But wait! That’s not the only way to look at buying a business. There’s also what’s called the replacement cost, which means (duh), what would it cost to buy all of the stuff that makes this business special and do it on your own? Well, in this case, you’ve got four big pieces of equipment in your snowcats, and those go for between $20,000 and $40,000 used (new, we’re talking about $80,000). So just to replicate what they have in snowcats, you’re talking at least $160,000 in equipment if you found good used equipment; if you’re buying it all new, you’re talking $320,000. And then there’s the value of all of the other stuff – you’re probably talking $5,000 a pop for the snowmobiles, another $40,000 for the van (that’s another $90,000 right there), and we haven’t even gotten to the buildings and fuel and explosives and junk. It’s safe to say that the value of the actual stuff that you’d be buying here is worth well over the $375,000 asking price to you (if you really wanted to start a new snowcat operation, of course).
We’ve still got a problem, though – you’re just not making enough revenue to get yourself into a good place over the course of three or four years. The question is, then, what would you do to make it so that you could not only cover your debt, but make sure you (and maybe your family) could live well? The folks at San Juan clearly thought that selling skis was one way to do it; we think that you might be better off taking all of that great knowledge you’d get of the mountains and starting a summer tour business as well. Or you might be able to get some extra permits (although safety first – you can’t take down more people than the mountain can handle, and these places are pretty wild). Tell us – what would you do to make this snowcat operation work?