Creating Your First Equine Business Budget
Wednesday 20th of July 2011 11:18 AM
When you decided to start your equine business, you may have been overcome with excitement to finally get to pursue your passion and share it with others. No longer would you have to work for someone else at a job you may have only taken out of necessity. Now you could spend every single day doing what you love and for the most part that is probably true. However, as many equine business owners have found, suddenly their fun pursuit has some additional strings attached. Budgeting and financial management must now be added to the pursuit, which for most of us, wasn’t part of the passion for creating the business in the first place. Quite often the business was started on a shoestring, so it especially critical to have a sound budget and plan for managing finances.
Here are a few pointers to get started:
Carefully consider how you are spending your money. A budget works if it reveals to you the ways in which you're overspending and the ways in which you're under-spending.
A budget should show where you want to be financially. Ask yourself what areas you feel are truly vital for the growth of your equine business and what it will take as you gain more customers and strive to maintain your level of quality.
Budgets are a work in progress. A budget for the following year is merely a guideline. When things go unexpectedly, adjust your budget and work from your new guidelines.
Don’t make it complicated. Don’t make your budget so complicated that it is no longer a helpful tool to use. Make your budget comprehensive, but not to such a level of detail that it is difficult to work with.
Seek help when you need it. If you are overwhelmed or stuck on your budget creation, seek the advice of a professional. A bookkeeper can save you time and headaches when creating a budget. You will be better off in the long run by having an expert help you set up your budget and eyeball the numbers.
Improve Profitability with EQ Bookkeeping
Friday 8th of July 2011 07:14 AM
If you have read any of the articles I’ve written for this magazine, you likely know I always write about business-related issues pertaining to the Arabian industry. This month I was asked to write about my business, EQ Bookkeeping, and the services we provide. I have never written about myself, so this is a new adventure for me.
EQ Bookkeeping provides accounting services solely to the equine industry. While the services we provide are vast, the primary functions are day-to-day accounting, tax preparation services, and consulting. What does this mean?
Shouldn’t that be obvious?
Well, maybe not. Recently, I was chatting with a judge from the Region 13 show, Brian Ferguson, and he asked me if EQ Bookkeeping tracked farm expenses. I said yes. He asked if it managed cash flow. I said yes. Then he asked me what hardware requirements it had. I was initially confused, and then I realized he thought EQ Bookkeeping was computer software. I was quick to point out that we aren’t a software program, we are people.
It was at that moment I realized that what I thought was obvious, wasn’t obvious to all.
So what is EQ Bookkeeping?
We are an accounting firm. We have a staff of accountants who work only with horse business owners. Our clientele includes breeders, trainers, farm owners, veterinarians, farriers, and other horse related businesses, including the shows themselves.
What does EQ Bookkeeping do?
Our services are wide-ranging and flexible. We don’t do exactly the same thing for all of our clients. For some of them, we do EVERYTHING:
· we pay their bills
· invoice their customers
· collect money from customers who haven’t paid
· process payroll and file payroll taxes
· manage cash flow
· create budgets
· give advice about purchases
· help secure financing money
· prepare income tax returns at year end
· give tax related advice.
We also negotiate with vendors for better pricing, analyze operations and provide recommendations for more profitable changes. For others, we only provide some of these services.
However, our goal, and THE most important thing we do, is to help the business owner make more money!
Believe it or not, horse businesses can be profitable! And our goal is to help them get there.
After explaining this to people, the next question I am always asked is: How do you do that?
And I always answer “It’s simple.” At least it is for us. The typical business owner sees accounting as an annoying necessity that has to be done at the end of the year to determine how much tax needs to be paid (or how much of a refund they will be getting.) Accounting is really a daily process of business tracking to provide factual data that can be used to make all business decisions. Thus accounting is THE most powerful management tool.
Why is this important and why do people hire us?
If you are a horse business owner, you don’t have time to sit in an office crunching numbers. You didn’t get into an equine business to do accounting. Your time is better spent working with horses and riders (doing revenue producing activities.) Not to mention the vast majority of you HATE accounting so you put it off until absolutely necessary.
It is important for you to know that putting off accounting can be detrimental to your business. Here are just some examples of how not doing accounting routinely and understanding the numbers had a huge negative effect on a business. (I will try not to get too “accountant like” in these examples.)
1) It was October 2009 and a breeder in Florida needed a new tractor to mow the hay field. He really didn’t think he could afford it at the moment, because he knew he needed to save his cash for his estimated tax payment due in January. He decided to put off the tractor purchase until spring and rent one in the interim. However, if he had bought the tractor in 2009, he would have been eligible to accelerate the depreciation and actually lowered his tax payment in January. He would have known this had he spoken to his tax professional. He could have afforded to get the tractor when he needed it. He also wouldn’t have wasted his cash on equipment rental.
2) A trainer was charging $0.55 per mile for hauling to/from shows. He had analyzed the cost of fuel and knew the money he was receiving was covering the fuel cost. What he didn’t take into account was repairs or wear and tear on the truck and trailer. When we did a complete analysis, we found he needed to be charging $0.67 per mile just to cover his costs. Because of this oversight, he lost $3,267 in 2010. And when the trailer needed a $2,500 repair, he had difficulty funding the repair cost.
These are only a couple of examples…I could give you many more.
The last of the major services we provide is collections. Yes, we call on your clients to collect the money they owe to you. It is very difficult for you to be the “bad guy” and collect money. It puts you in an adversarial position with your client, which is not productive and causes difficulties for you to do work with them and their horses. It is easier for us, an unbiased third party, to contact them on your behalf and they typically will pay us faster. Since we are an accounting firm, and not a collections agency, we don’t have the negative stigma associated with collections. We are simply the accountant trying to do accounting.
Earlier this year, we added a new equine mobile veterinary client who came to us with $48,000 in invoices that were over 90 days past due. Within 45 days, we collected $28,000 and within 90 days we had collected over $45,000. Collections is about having a system, and it is very difficult for equine business owners to manage a collections system when they are working with horses in the barn.
How do we actually do the work?
We are very technology driven. We don’t use any fancy equine accounting software. We simply use QuickBooks. It allows us to manage all of the accounting functions including segmenting revenue and costs by show, location or other differentiator. We host a QuickBooks file for all of our clients and provide on-line access for easy retrieval of financial information.
We receive detailed transaction information online from our customer’s bank or credit institutions and pay their bills using online bill pay from their bank.
We receive other information, like show closeout sheets, in a variety of ways. Some of our clients like to fax, some like to email and others upload the scanned documents into our online shared Dropbox. There are also a few who still like to send information via postal mail.
We communicate via phone, email and text messaging. We understand that those in the equine world don’t work 8am to 5pm so we are available evenings and weekends (usually from our barns.)
Now that you know what EQ Bookkeeping does and how we do it, there is only one remaining question: How much does it cost?
By far, the reason most equine business owners are afraid to call us is because they think they will never be able to afford our services. They have the perception that it will be cost prohibitive. They think “I pay my tax accountant $150 per hour and it takes 8 hours each week to do my own accounting, so this will cost me nearly $5,000 per month.”
There are two things wrong with this assumption. First, we don’t charge $150 per hour. Second, accounting is all that we do and we are very efficient at it; so what may take you 8 hours per week, takes us much less.
So how much does it cost? The answer is “it depends.” We analyze each client’s needs individually and provide a free quote in advance so you know what to expect. Our smallest client pays $250 per month for basic service and our largest client pays $2,000 per month for all of the services we offer.
EQ Bookkeeping is a business I started to fund our family hobby and has grown into a business filling a huge need in the equine industry. We love being able to bring accounting structure and order to a world where chaos is the norm.
We want horse business owners to focus on what they know best, horses, and let us focus on the day-to-day accounting.
Jennifer Foster, President of EQ Bookkeeping LLC, www.eqbookkeeping.com
Does Your Equine Business Stand a Chance of Succeeding?
Friday 24th of June 2011 07:51 AM
I’m sure you have seen them -- dozens of empty storefronts in strip malls that were once occupied by small businesses. As I drive by, I often wonder what happened. Was the rent too high? Poor management? No demand for the business’s products or services? Or was the business doomed from the start by not preparing a break-even analysis before launching full speed ahead? Although you cannot tell for sure if your equine business is going to be profitable, you can certainly research the financial soundness of your idea and the best way to do that is through break-even analysis.
Break-even analysis allows you to determine the business income necessary to pay all your business expenses. At the break-even point, a business doesn't make any money, but also doesn't lose any money. In general, you want to know a business's break-even point because it represents a sales level you must surpass to make money. You'll have to make educated guesses about your expenses and revenues. You should do some serious research, including an analysis of your market, to determine your projected sales volume and your anticipated expenses. You’ll need to estimate your fixed costs and sales revenues and then calculate your average gross profit for each sale and average gross profit percentage. Once you’ve done that, simply divide your estimated annual fixed costs by your gross profit percentage to determine the amount of sales revenue you'll need to bring in just to break even.
If you can easily bring in more than the amount of sales revenue you'll need to meet your expenses, then your equine business is in good shape. If your break-even point is higher than your expected revenues, you'll need to decide whether certain aspects of your plan can be changed to create an achievable break-even point. If that’s not possible, then you should reconsider starting your equine business. It’s better to learn this ahead of time instead of becoming an empty stable later on.
WHIA Networking Expo Set – And I Am Excited to be Part of a Panel “Making Your Equine Business Profitable”
Wednesday 8th of June 2011 11:17 AM
We are very excited here at EQ Bookkeeping! The Women’s Horse Industry Association’s Networking Expo is set to take place in Nashville, TN on October 6-8th, and I get to take part in a panel on Saturday, October 8, on making your business profitable.
I have been fortunate to attend and participate for the past three years, and I am still amazed at the wonderful group of women successfully working in an industry that is predominantly male. I have met some wonderful people and am looking forward to seeing them in Nashville this year, as well as making some new friends. I am also excited to see what fun and educational stuff WHIA has planned for this year.
As you probably already know, as a horse lover and enthusiast, I formed EQ Bookkeeping to provide equine business owners with the financial support they need to operate a profitable horse business. We provides day-to-day accounting, consulting, and tax preparation services to breeders, trainers, riding stable operators, farriers, veterinarians and other equine related businesses. EQ Bookkeeping services clients throughout the United States and worldwide.
Want additional information about the WHOA Networking Expo, please visit www.womenshorseindustry.com or call 615-730-7833. I look forward to seeing many of you there!
Maximize Deductions and Jail Time
Wednesday 1st of June 2011 11:31 AM
Tax season has just come to a close and there are probably some tax preparers out there enjoying their Caribbean getaway with all the cash they made. These preparers may have offered clients a bargain price on their returns and promised lots of tax savings. This can certainly sound tempting to a fledging small business owner, including those in the equine business who want the savings and don’t know taxes. In fact, one Midwest tax preparer convinced his home business-based client to go ahead and write off his entire home. Not a good move when it’s commonly known that the Home Office deduction is closely scrutinized by the IRS.
The Treasury Department conducted a study in 2008 to gauge the quality of tax preparation providers. Staff members of The Treasury made anonymous visits to 28 tax preparation specialists. The results were frightening: 61% were wrong, with two thirds errant due to misinterpretation of the tax code, and the final third of those through intentional misconduct. In the past four years, the IRS has initiated more than 850 investigations into tax preparers nationwide, and more than 600 cases were recommended for prosecution.
With statistics like these, it’s more important than ever for your equine business and you as an individual to choose your tax preparer with care. Find a trustworthy, reputable accountant to work with not only for taxes, but throughout the year to help with bookkeeping and tax planning. A cut-rate tax preparer may maximize your deductions, but you won’t be able to enjoy it when you are in jail.
Don't Delay on W-9's
Wednesday 18th of May 2011 11:00 AM
Outsourcing various duties of your equine business to independent contractors can save you a lot of time and money compared to doing it yourself or hiring full time staff. Making the decision to outsource is easy, but make sure you are aware of the IRS guidelines for paying freelancers.
You are required to report annual payments of $600 or more to individuals on IRS Form 1099-MISC, but before you do that, you need to have completed W-9s from your workers. The W-9 form is most commonly used with freelance employees who are responsible for paying their own taxes. This is one way for the IRS to keep track of what freelancers are making and to check the yearly W-9 numbers employers turn in versus what the freelancers claim they made.
The W-9 is an official request for identifying information for tax reporting purposes and should be resubmitted if the information it contains changes. The form does not have an expiration date, so updates are as needed. Don’t be left in a bind by not having your independent contractor’s information come tax preparation time for 1099s. Require every independent contractor to submit a completed W-9 form to you before you pay them the first time. That way, you are assured of collecting the necessary information in a timely manner. It’s also a good idea for you to request a new W-9 be filled out each year to ensure accuracy. My advice – do it now! Don’t wait until the next tax season rolls around!
Call Now! Seriously??
Wednesday 4th of May 2011 11:00 AM
I was waiting at a stoplight on my way to a dentist appointment last week, deep in thought about whether the hygienist would be able to tell I had an Oreo for a snack when a bright yellow hand-written sign caught my eye. I assumed it would be one of the many “Cash for Gold” or “Pillowtop Mattresses – We Deliver” signs, which by the way….who thinks “Wow, great sign! I should call now!” However, this sign was a first for me; it read “Outsource Your Bookkeeping 555-5555”. REALLY??? Now don’t get me wrong, I’m all for the entrepreneurial spirit, but is this really the way to instill confidence in your potential clientele?? And furthermore what sort of individual would think this is a good way to find a bookkeeper??
Bookkeeping is one of the most essential functions of your equine business and the accuracy of which can determine your success or failure. Three characteristics that instantly come to mind (and should come to mind) when thinking of a potential bookkeeper are professionalism, experience in the equine world and a good reputation. Now these aren’t the only qualities you should look for, but if a bookkeeper doesn’t have ALL of these things, then you should cross them off the list.
Let’s review the handwritten ad at the stoplight. Professionalism? None. My daughter’s sign for a lemonade stand had more thought and effort put into it than that! Experience? They could possibly know something about bookkeeping, but they sure don’t know anything about the business and standards. Good reputation? If they had one before, they certainly don’t now!
Don’t put your equine business’s financial future in the hands of a handwritten street sign advertiser. No legitimate, qualified and experienced bookkeeper or accountant would advertise that way. Do your research and find a true professional. Same goes for mattresses…but that’s just my opinion!
Retirements Plans for Self-Employed Part 2
Wednesday 20th of April 2011 11:00 AM
Retirement Plans for Self-Employed Part 2
Last time we covered a couple of the options (401(k)s and IRAs) that your equine business should think about - retirement savings. All small business retirement plans can help you save a significant amount of money toward your retirement and provide tax advantages at the same time. Best course of action is to know your options.
A SIMPLE plan is technically also an IRA but it is designed specifically for small businesses with 100 employees or less, and many equine businesses fall into this category. The plan is funded by employer contributions and can also be funded by elective employee salary deferral. Employer can make matching contributions between 1% and 3%. Maximum 2011 contribution is $11,500 with a catch-up contribution for those over 50 of an additional $2,500.
Advantages: Great way for you as the small business owner to save for your own retirement while also providing a way for your employees to save for their retirement as well. It’s easy to establish with low administrative costs.
Disadvantages: Relatively low contribution limits
SEP stands for Simplified Employee Pension and is also a type of IRA like the SIMPLE. SEP plans are specifically designed for self-employed people and small business owners who typically employ fewer than 25 employees, again many equine businesses fall into this category. Maximum 2011 contribution is 25% of income or $49,000
Advantages: Contributions requirements are very flexible, with contributions being 100% tax deductible which grow tax deferred. Substantial contributions are allowed.
Disadvantages: No additional catch-up contribution allowed. No employee contributions, but employer must establish a separate SEP for each eligible employee with immediate vesting.
There is no “one” retirement plan that is best for everyone that is self employed. How much money your business makes, how many employees you have, how much money you would like to contribute to a plan, and many other factors will help you to determine which option is best for you. The important thing is to start saving and take advantage of tax savings right away.
Just Started an Equine Business? Think About Retirement!
Wednesday 6th of April 2011 11:39 AM
When you are first striking out on your own and opening the equine business of your dreams, the last thing you might think about is retiring. Without an HR or Payroll department encouraging you to contribute to a plan, it’s easy to let that fall by the wayside. It’s more important than ever when you are self-employed to establish a savings plan, so you will be secure in retirement as well as take advantage of an important element of tax savings. In this two-part series, we will cover some plans available to the self-employed.
Self employed individuals can set up a solo 401(k) for just themselves, or if they have employees then they can set up a traditional 401(k) plan to cover themselves and their employees. Maximum 2011 contribution is $16,500 with a catch-up contribution for those over 50 of an additional $5,500.
Advantages: Offering a 401(k) plan is great way to boost employee retention since they are so well known. Contributions are an above the line deduction where money grows tax-deferred.
Disadvantages: Administrative costs are much higher than other options like IRAs and SIMPLE IRAs.
There are two main types of IRAs: traditional and Roth. Traditional IRA contributions are deductible in the year the contribution is made as an above the line deduction while the money grows tax deferred. Roth IRA contributions are not tax deductible, but money grows tax free within the account with no taxes due when distributions are made. Maximum 2011 contribution is $5,000 for both traditional and Roth for those under 50 and $6,000 for those 50+ years of age.
Advantages: Easy to establish, enjoy tax deductible contributions or tax deferred earnings depending on the type you choose.
Disadvantages: Not a plan you can offer your employees as a group with contribution matching, you can only make contributions to your own plan.
Next time we will cover more retirement plans such as SIMPLE IRAs and SEP IRAs available for the self-employed.
Health Tax Credit for Small Employers
Wednesday 23rd of March 2011 11:38 AM
Health Tax Credit for Small Employers
The massive healthcare legislation includes a tax credit for small employers, including equine businesses, who pay at least 50% of their employees’ health insurance premiums. Unlike most of the future healthcare bill provisions, this employer federal tax credit can be claimed for year 2010 tax returns due this spring. This new tax credit is reported on IRS Form 8941 – a one page tax form which requires completion of 7 different worksheets to accurately calculate the tax credit. You can review IRS Form 8941 with instructions at www.irs.gov.
“Small employers” who qualify for this 2010 income tax credit (including churches and section 501(C) (3) charitable organizations) must satisfy ALL of the following conditions:
- You paid at least 50% of the “single employee” premium cost for year 2010. Insurance costs are for primary health insurance and dental and vision insurance. Employer contributions to HSAs, HRAs and FSA medical accounts are not deemed insurance and thus are not eligible for the tax credit; AND
- You employed fewer than 25 “full-time equivalent” (FTE) employees during 2010; AND
- Your “average annual wages” paid to employees during 2010 were less than $50,000 per FTE employee, for this purpose “wages” are gross wages paid before any tax or retirement withholdings.
If you meet all three of these requirements, you may qualify for the tax credit. Form 8941 can be very confusing with all the calculations, so please contact your accounting firm or CPA for further information on how you can take advantage of this 2010 credit.
How Independent Are They?
Wednesday 9th of March 2011 10:30 AM
When starting your own equine business, it’s not unusual to be a workforce of one without any employees. The profits haven’t started rolling in yet, and you simply don’t have the income to justify hiring anyone. So, you do what you think is a smart thing to do. You "hire" independent contractors and tell the contractors to be responsible for their own taxes.
Sounds like a good plan, right? But watch out for misclassification of employees and workers. The Internal Revenue Service is cracking down on the "independent contractor vs. employee" question. As a result, small and large businesses alike are on their toes. Harsh penalties can result from incorrectly paying an employee as "casual labor."
For the IRS, telling the difference between a contractor and employee is a matter of determining just how independent the individual is from the company he's working for. An independent contractor negotiates their rate of pay, can set their own schedule, can refuse projects, provides an invoice on their letterhead for services performed, often works for other people, uses their own supplies and usually works on a project by project basis rather than for an indefinite period.
An employee is under the employer’s direct control, whether they are full or part-time. Employer offers them a rate of compensation, they work a schedule determined by the employer, and the employer provides work space and supplies. An employee typically is provided benefits such as vacation, health insurance and retirement plan options.
The IRS cannot simply declare that any worker with a specific characteristic is an employee or an independent contractor. Instead, the classification of employees and contractors is a matter that must be considered carefully, often on a case-by-case basis. Now is a good time to evaluate your working relationships to make sure you are in compliance with the IRS.
Don't Fly Solo Without Your Wingman
Wednesday 23rd of February 2011 10:30 AM
You ran with your dreams, and started your own equine business - and now are flying solo. It is great being your own boss and calling all the shots. Most likely, you now wear many hats including marketing, sales, customer service, development and operations and last, but not least, accounting. Accounting is not only listed as last in this list, but is often the last thing that many business owners tackle.
For any sized company, including your equine business, the bookkeeping system is vital because it lets you know exactly where you stand in your business at any given time. A weekly cash flow report will keep you on the pulse of your business showing accounts receivable, operating costs, return on investment for advertising and other costs. However, this is one area that we often see business owners struggle with, because they frequently want to “do it themselves.” That’s all well and good if you have an accounting background and plenty of time to keep up with the books.
But if you are like most owners, you are not in the business to sit at your computer and do bookkeeping, are you? And when you get busy with the part of the business you love , one of the first things that falls behind is keeping up the bookkeeping. Before you know it, you’ve lost your handle on the money. You need the numbers now to make decisions today, but your record keeping is a mess and inaccurate. There is no one else to blame because you are all on your own.
It’s exhilarating to fly solo, but it’s also smart to have a wingman that will handle your bookkeeping and accounting. Before you get too far off the ground, find a professional that is experienced with the equine businesses. Your bookkeeper can provide you with on-demand statements and keep you on track. Do this and you’ll always have a good pulse on your money and be ready to make the next decision.
New Year's Bookkeeping Resolutions #10: Get Help!
Wednesday 9th of February 2011 11:00 AM
All equine businesses, whether small or large, require bookkeeping. If you have a small equine business, you need an accurate, organized and chronological system that readily provides reliable information when needed. However, as a small business owner you may not have the background, know-how or time to operate such a system. Instead of letting your finances get out of hand in 2011, add the following resolution to your list:
Resolution #10: I will get help with my accounting if it is too much for me to handle.
Don’t be afraid to ask for help. As a small equine business owner, you may feel that you are losing some control by having someone else perform your accounting functions, but what you are really gaining is valuable time for business growth activities. Outsourcing your bookkeeping system to an experienced professional will assure that your books are handled in the most efficient and productive way. More time will be available to focus on the core activities of running the business and the stress of managing the books will be removed. Cost savings are instantly realized when you outsource as you will not have the administrative burden of hiring and training accounting staff or paying fixed salaries, insurance and benefits.
Accurate financial reporting is the key to knowing whether your equine business is successful or if changes need to be made. Any mistakes that are made can cost your company tremendously. Eliminate that fear and let an expert bookkeeper handle your accounting this year while you can focus worry-free on your business.
New Year's Bookkeeping Resolutions #9: Cut Your Losses
Wednesday 2nd of February 2011 11:00 AM
Most of us spend a great deal of energy and time to acquire new clients as that’s what makes our businesses grow. However, some clients are so bad that your equine businesses (and your sanity) are better off without them. I’m sure you know the type: constant complainers, slow payers, cheapskates and those who ignore advice. Deal with your problem clients this year and put an end to your headaches with this next resolution:
Resolution #9: I will fire my bad clients.
Start tracking your time for a couple weeks and see where your time consuming client activities are coming from. Do you have small clients monopolizing a great deal of your time with recurring complaints and questions? While every client comes with their own challenges, these are the ones whom you dread dealing with. They take up your time and energy and make you wonder why you ever got into running your equine business in the first place. When you see their name or number come up on caller ID or on an email message, do you automatically think “What’s wrong now?”
Take back your time by politely firing your trouble clients. This will free up time each week you spend dealing with their drama. Depending on the particular issue with your bad client, you can pleasantly part ways by raising your rates (for that one client!), explaining that your business is going in a different direction, suggesting a competitor or colleague that might be better suited to their needs, or letting those advice ignorers know that if they are going to hire someone to advise them, it’s not a good use of their money not to listen.
Parting ways with the troublesome clients will not only gain you time, but will make you happier. You’ll enjoy the clients you like and will be better able to serve them because you won’t be hassling with clients who aren’t a good fit.
New Year's Bookkeeping Resolutions #8: Payroll Priority
Wednesday 26th of January 2011 11:00 AM
Payday is eagerly anticipated by employees, but often dreaded by small business employers handling the payroll themselves. Hours of administrative work goes into making tax calculations, completing government reports, depositing tax money in various accounts, and writing and signing checks. Not to mention the quarterly filing and tax-payment requirements too. If there is one thing you don’t want to mess up in your equine business, it is payroll, which leads us to the next resolution:
Resolution #8: I will pay my employees first and stay current with the payroll taxes.
Your equine business will not be a success if you do not make it a priority to pay your employees first. Nothing saps motivation and morale more than delaying your workers’ pay for one reason or another. When you are having cash flow difficulties, it may seem like a good idea at the time to just pay your employees last in order to keep current with your vendors, but that plan is likely to backfire in more ways the one. Employees may be lost and your employer reputation will be compromised.
Not only must you pay your employees first, but staying current with payroll taxes is a must as the government is not forgiving of payment lapses. If the complications of handling payroll taxes are overwhelming, consider outsourcing payroll to a service or to your bookkeeper. When considering an outsourced payroll service, don’t let price alone be your guide. The IRS said that the average business pays $845 in penalties on late or miscalculated payroll taxes. Save yourself a huge headache and let an expert handle it who will stand behind their work in front of the IRS if need be. A botched payroll can be expensive in terms of both morale and finances.
For a small equine business, payroll may seem like an onerous task, but it doesn't have to be that way. Outsource this task or use payroll software and do it yourself, making payroll your payable priority in 2011.
Indiana, Michigan, and South Carolina Need to Pay Additional Unemployment Tax
Thursday 20th of January 2011 04:14 AM
We have gotten a couple of emails and calls regarding the 940 (FUTA) taxes for 2010. So I thought I would pass this information on:
A company usually pays .008 percent for employees wages on the first $7,000.00 for each employee. But Indiana, Michigan, and South Carolina have to pay additional amounts.
This is from the IRS and this is for the YEAR 2010:
Employers in “credit reduction” states must remember to calculate a credit reduction as an adjustment to their FUTA tax on their 2010 Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (PDF). “Credit reduction” states are states that did not repay the money they borrowed from the federal government to pay unemployment benefits.
The Department of Labor determines the credit reduction states for each year, and in 2010, those states are Indiana, Michigan and South Carolina. Employers in these states must reduce their .054 credit on their Form 940: by the following amounts:
* Indiana .003
* Michigan .006
* South Carolina .003
Employers in these states must use the Schedule A (Form 940) (PDF) to compute the credit reduction and attach the Schedule A to their Form 940. More information on the credit reduction, including an example on how to calculate the credit reduction is on the Schedule A (Form 940) and also in the Instructions for Form 940 (PDF).
As a result, if employers pay wages that are subject to the unemployment tax laws of a credit reduction state, the employers must pay additional FUTA tax. Employers must include liabilities owed for credit reduction in calculating their fourth quarter deposit.
New Year's Bookkeeping Resolutions #7: Implement a Collections Plan
Wednesday 19th of January 2011 11:00 AM
Closing the sale can sometimes be the easiest part of doing business compared with collecting accounts receivables. Making decisions to whom to extend credit to and collecting accounts receivables has always been a difficult part of running any business, including an equine business, as the wrong decision or procedure for handling collections can have disastrous consequences. Have a game plan for your accounts receivables this year with the following resolution:
Resolution #7: I will implement a collections plan for my customers that begins the first day their payment is late.
The first line of defense against late payments is a complete invoice. Your bills should be accurate, detailed and easy to understand. If your client has questions, it will only lengthen the payment process. The simple truth is the longer an account goes unpaid, the more difficult it becomes to collect. That being said, the biggest problem with any business and their collection department is that in many equine businesses, there is no collection department. Whether you take on the responsibility of collections yourself or delegate or outsource the activity, it is important to have a clearly defined plan.
Develop a process to track when an account comes due and know which customers have paid and which have not. Once an invoice goes past its due date, start the very next day by following up on late payers with phone calls and letters. Sometimes sending customer statements and making friendly reminder calls is all it takes. Don’t send out new merchandise or provide additional service if bills remain unpaid. Collection agencies charge hefty fees (often 30% or more of amount collected), so try to collect as many customer payments as possible through reminder letters and calls. Create a sense of urgency within your company about collecting money and establish a daily target for cash receipts.
Don’t make the mistake of extending credit to customers who aren’t credit worthy, in order to make that additional sale or that sale will end up costing you. Keep your invoices rolling and make it a priority to stay on top of your accounts receivable to collect your payments on time this year!
New Year's Bookkeeping Resolutions #6: Negotiate Rates
Wednesday 12th of January 2011 11:17 AM
Keeping costs low is a necessary way of life for most start-up companies and small businesses, including equine businesses. Negotiating rates with your vendors is a key way to control your costs. However, not everyone is comfortable negotiating. Many dread the adversarial nature of negotiation. Overcome your fears this year and make this your next resolution:
Resolution #6: I will negotiate rates with my vendors to try to decrease my costs.
Start by getting to know (as best as you can) the vendor with whom you’re negotiating. Even a few small details about them could help during the negotiation and lead to a more profitable relationship. Keep your objective in mind as you enter the negotiation. A successful negotiation will be one that falls between your goal and your bottom line. Here are some good questions to get the negotiation process started with your vendor:
§ What can you do to reduce our price per unit?
§ Can we save money by being flexible on our delivery dates?
§ Is there a lower cost version of the same product or service?
§ How much do your best customers pay for this same product?
§ Do you offer a cash discount?
§ Can you extend the highest volume discount to us at our volume?
§ Will the price go down if I order more? Can you offer me that price now?
Asking one or more of these questions will get the ball rolling and open up a line of discussion that will let you know how willing your vendor is to work with you on price. Another money saver is to negotiate payment terms. Whether it’s getting an extension on terms or pursuing discounts for prompt payment, both are proven ways to reduce costs. When negotiating payment terms, leave it for the last part of the negotiation – concentrate on securing other concessions first, and then close with payment terms.
Give negotiation a try this year and you might be surprised that sometimes all you need to do is ask for a discount.
New Year's Bookkeeping Resolutions #5: Prompt Payment
Wednesday 5th of January 2011 09:33 AM
How do you go about paying bills for your equine business? If you are like most, you probably put off writing that check until the very last possible minute - either because you misplaced the statement, are waiting to have enough money in the bank, or hate dealing with paperwork. Putting off paying bills will only lead to more problems and cost you more money, which is why you need the following resolution for 2011:
Resolution #5: I will pay my bills on time and avoid late fees, penalties and interest.
If you are paying late simply because you are disorganized and have a bill phobia, then you will incur added interest and late fee charges that could be easily avoided. Some vendors may even give you a discount if you pay by a certain time. Getting organized and paying your bills on time is even more important for business owners than for consumers. Dun & Bradstreet is a credit bureau that only monitors business credit. It maintains data based not only on whether you pay your bills on time, but gives a higher "Paydex" score to businesses that pay bills in advance. The higher your Paydex score, the better deals you may be able to get when you apply for loans to expand your business.
Start the new year by establishing a regular schedule - whether that means handling each bill as it comes in, sitting down with the checkbook on the 1st and 15th of every month, or handing the whole thing over to someone else. Contact your vendors to see if they offer automatic bill payments. Each month, payments will be automatically charged to your business credit card or debited from your bank account, and you’ll never have to worry about due dates or missed payments again.
In addition to saving your business money, paying on time will also help establish a good reputation in your business community and ensure excellent future service from your vendors. Most importantly, keeping current on your accounts payable tells you that you are taking the right steps to keep your business viable.
IRS Audit Red Flags continued - last of them for now
Monday 3rd of January 2011 10:42 AM
And final tips to the IRS red flags...
10. Unreported Taxable Income
The IRS discovers unreported taxable income when its computers match the taxable income you reported on your tax return with information gathered from banks, brokerages and customers of independent contractors. The most common example of this is unreported bank interest. To help avoid omitting income on your return, review last year's tax return to make sure you have the necessary 1099's, etc. from mutual funds, banks and other sources . Report income exactly as it appears on the 1099 Form. One of the most commonly audited items for the self employed and employees of companies who use their car in business is the deduction for business transportation. You need to keep good records of all tax deductible automobile expenses and a mileage log showing business miles driven. Try to keep the mileage log on a daily basis including the date, beginning and ending odometer readings, the location, the business purpose, and the client. At a minimum, record the automobile's odometer reading at the beginning and end of the tax year and have a calendar that you could use to reconstruct your deduction.
11. High Auto Mileage
IRS Audit Red Flags continued
Thursday 30th of December 2010 10:39 AM
Other things to keep in mind...
7. Complex Expenses/Transactions
You have complex investment or business expenses or other transactions on your tax return.
8. Rental Property
You have rental expenses on your tax return.
9. Prior/Related Audit
Once audited and found to owe taxes, you can expect to continue to be audited.
New Year's Bookkeeping Resolutions #4: Timely Taxes
Wednesday 29th of December 2010 09:32 AM
As the year is coming to a close, tax time might seem like a fuzzy, distant event that you don’t need to focus on quite yet. However, readying your equine business’s tax information in preparation for filing your 2010 return should be at the forefront of your mind as you are closing down the books. The last thing you want is an unpleasant surprise come April.
Resolution #4: I will get my 2010 tax information to my accountant before March 1, so he/she won’t have to file an extension.
Depending on your organization system, this resolution may be really easy or extremely difficult. If your company isn’t using a small business accounting system and uses overstuffed file folders or boxes to store papers and receipts, then this will be a huge mountain to climb. Many small business owners have this sort of haphazard record-keeping because they're so busy with all the other facets of running the business and/or they can't stand the tediousness of the job. If this sounds familiar, don’t wait until March or April to get a handle on things.
Close out your books this month and run your year-end financial statements. Get caught up on all of your receipts and paperwork. Hire someone to help you if you can’t find the time yourself. The sooner you can get your tax information organized and sent to your accountant, the better off your business will be. April 15th is not the time to be asking your CPA questions about your taxes. You want to have plenty of time for your tax preparer to complete your return and address any concerns you have. Falling back on an extension is not the answer, as you are not delaying tax liabilities interest free. If a tax liability is owed to the government, interest will be due on any amount not paid by the original April deadline.
Save yourself, your equine business and your accountant from a massive headache and organize your tax information at the beginning of the year for the prior year’s filing. It will be more beneficial and possibly save your company money in the long run.
IRS Audit Red Flags continued
Monday 27th of December 2010 11:38 AM
And some more...
5. High Itemized Personal Deductions
You have large amounts of itemized deductions on your tax return that exceed IRS targets.
If your itemized tax deductions on your tax return exceed a target range as set by the IRS, the chances of being audited by the IRS increase. This is especially true if you claim large cash contributions to charities in relation to your income on your tax return. This does not mean that you should not take tax deductions on your tax return that you are entitled to, but you should realize that your chances for an audit increase if your tax deductions exceed the averages for your income level.
6. Tax Shelter Losses
You claim tax shelter investment losses on your tax return particularly if one or both taxpayers have high income from other sources. The IRS will question whether there is an attempt to use the horse business as a tax shelter.
IRS Audit Red Flags continued
Friday 24th of December 2010 11:37 AM
Additional Red Flags to keep in mind...
3. Cash used routinely in your business
You own or work in a business which receives cash and/or tips in the ordinary course of business. Lesson income is definitely an example of a cash business so be sure that your tracking includes a list of checks/cash received and insure those amounts match your bank statements.
4. High Wages
As for the higher earners, returns showing income of $200,000 and above have a nearly 3 percent audit chance. The percentage jumps to more than 6 percent for returns with earnings of $1 million or more.
IRS Audit Red Flags
Wednesday 22nd of December 2010 11:35 AM
It is possible that sometime during your life you will endure the unfortunate experience of going through an IRS audit.
As an equine business it is almost certain that you will go through an audit at least once (and more likely multiple times in your life.)
How does the IRS choose who to audit? We will be posting for the next couple weeks some things that signal “red flags.”
1. Self Employment
The IRS believes most under-reporting of taxable income and abuse of tax deductions occurs among those who are self employed so they are audited by the IRS more frequently than employees. The temptation with some who are self employed is to deduct personal as well as business expenses on their tax return. Be sure there is a true business purposes for each expense.
The audit rate for self employed entities is greatest among sole proprietors. In 2008, a sole proprietor with gross receipts of between $100,000 and $200,000 had an audit rate of 3.9%. To minimize your risk of audit, consider changing your entity. You can, for example, incorporate and use S corporation status. The audit rates on S corporations, even if they are one-owner entities, are dramatically lower than the rates on sole proprietorships (S Corp audit rate was only 0.4% in 2008).
2. High Business Expenses
Your business expenses are large in relation to your income on your tax return or show losses continually, year after year.
New Year's Bookkeeping Resolution #3: Goals
Wednesday 22nd of December 2010 09:31 AM
Most large corporations have set clearly articulated goals with a plan on how to achieve them. Having a business on a smaller scale still means you need to set goals in order to grow to the next level. Your equine business success depends on your ability to set and achieve goals.
Resolution #3: I will set goals and create an action plan to reach them.
December is a great time to sit down and focus on what you want your business to achieve in 2011. If you don’t know where to start, use the simple tool of SMART goal setting. It’s a five step process that will give you an actionable plan on how to attain your goals.
Specific – A goal of “get more business this year” isn’t as powerful as “obtain 3 new equine clients every month.” Once you have a focus, it’s much easier to concentrate your energies and develop a plan of how to achieve the desired outcome.
Measurable – Set goals with concrete numbers so you can easily tell if you are on track or not.
Attainable – Your goals should challenge you, but they should not be impossible. It’s ok to dream big as long as you have one foot firmly planted in reality.
Relevant – With the on-going changes to the economy, keep your goals aligned with the current conditions. It wouldn’t be relevant to set a goal of increasing sales by 50% if you are in a recession and a couple new competitors have opened in your market.
Time-Based – Goals and objectives become nice ideas when you don’t tie specific time frames to them for achievement. Regardless of the type of goals, create an action plan to accomplish them by time period such as monthly, quarterly, etc.
Once your business goals are SMART, break down each goal into a specific set of tasks and activities to accomplish your goals. It’s important to periodically review your goals and make adjustments if necessary.
New Year's Bookkeeping Resolutions #2: Budgets
Wednesday 15th of December 2010 08:29 AM
Now that you’ve made your commitment to maintain accurate financial records for the year with resolution #1, it’s time to think about your budget. When you established your equine business, you probably took great pains to create a detailed business plan, but in order to carry it out and keep on track, you need a budget.
Resolution #2: I will create a budget and measure my results against the budget.
A budget is a translation of your business plan into numbers with a detailed plan of future receipts and expenditures - essentially a projected income statement. At the start, you can use your budget to validate the activities you have planned for the coming year. Will you be able to afford additional staff? Do you need to expand your facilities or purchase new equipment? When will be the best time to start your new marketing campaign? Do you have a period where the business is slow and making ends meet is a challenge? Knowing what all your business activities will cost and when such expenses will occur will help prevent any unexpected surprises that could lead to financial problems down the road.
Once the period for which you have budgeted is completed, you can compare actual results with anticipated goals. Take the time to make this a regular part of your business routine. You don't have to do anything elaborate - just compare your budgeted figures to your actual results. Then, ask yourself why the numbers are different. If some of your expenses, for instance, are higher than you expected, do you need to look for ways to cut them or has business increased? If your sales aren't on track, what has happened to cause the difference? Use the information constructively, so that you can make adjustments immediately, if needed, and improve your next budget.
When you complete your budget, you will have one of the most effective management tools of all -- a benchmark that you can use each and every month to check your progress towards your business goals.
New Year's Bookkeeping Resolutions You Should Make - Part I
Wednesday 8th of December 2010 09:25 AM
The New Year is upon us and it’s time to start thinking about some resolutions to make 2011 easier and more productive for your equine business. This will be the first in a series covering resolutions you should make to get your business finances in order and keep them that way for 2011. The first resolution is extremely important to your business’s financial health.
Resolution #1: I will accurately maintain my financial records every month.
Most likely, when you first considered starting your equine business, you went through the proper steps of researching the market, gathering information and creating a business plan that you used in order to get start-up funds. Unfortunately, for many new business owners, they get caught up in the excitement and demands of new ownership and often fail to keep accurate records. Don't let that be your story as well.
Financial record keeping is certainly not one of the more glamorous aspects of running a business and with the constant effort to grow and increase sales, business owners will often ignore financial matters and leave them to the last minute. This is fatal and, in fact, one of the main reasons businesses fail. Accurate accounting records and reports are vital to the successful operation of any business, including your equine business.
The key to keeping accurate records is to record your transactions as they occur. Waiting until the end of the month (or year for that matter!) only makes the task more difficult with paperwork getting misplaced, transactions forgotten and paperwork mounting up making the task overwhelming. Up-to-date records help you see what is really happening in your business, where your money is going, why cash flow might be a problem, how much profit you are actually making, etc. Knowing these facts in real time can help you operate more efficiently and profitably.
Although it may take a bit of time and effort to go through your company checkbook, take inventory and review bank statements, it will be well worth it to catch up on your paperwork. Make the commitment now to start your record keeping off right in 2011.
Small Business Tax Deductions Not to Miss
Wednesday 1st of December 2010 10:30 AM
Tax deductions for your equine business can save you a great deal of money, but you have to know what is allowable. Make sure you are aware of some of the commonly overlooked deductions you are entitled to in order to take full advantage. Follow the rules the IRS has established and take every legal deduction you can. If you don’t take the deduction, the IRS won’t do it for you! Here are a few deductions that are often missed:
You can deduct up to $5000 of start up expenses in the first year of operation. If it cost you more than that, you can expense the remainder over 15 years.
If you use your vehicle for business, and most in the equine business do, you can use it as a deduction based on the standard mileage rate or your actual expenses. You will have to keep track of all your expenses and how much you used your vehicle for business, but this also allows you to claim depreciation on the vehicle.
Section 179 of the IRS Code allows you to deduct as much as $250,000 of any money you spend for business equipment in 2010. But move fast as the write-off is going down 90% in 2011.
Incorporate some client and vendor meetings with your vacation, and you can deduct travel expenses like transportation, lodging and food. If you travel with family and they aren’t part of the business, you can only deduct a portion for yourself (another good reason to hire family members!).
Employ Your Children
If your child will be heading to college soon or is already in college, hire them to work for you instead of giving them tuition money. They can use their earnings to pay for college. The money that you would have spent to pay for college (and get no tax benefit) gets distributed as taxable income to your child (in a low bracket), and it’s a deduction for you.
Don’t always assume that your tax preparer will find all the deductions you are entitled to. Investigate what deductions are allowable, so you can plan your tax year accordingly and end up on the positive come tax time.
Are Employee Gifts Tax Deductible?
Wednesday 24th of November 2010 10:30 AM
With the end of the year rushing towards us, many business owners are starting to think about gifts for their employees to show appreciation for a year’s worth of hard work. As you are working on your budget for gifts this year, make sure to familiarize yourself with the IRS rules. The IRS determines tax rules and deductions based on the gift’s cost and whether it is tangible or intangible.
Cash gifts are viewed by the IRS as intangible. Businesses can deduct a maximum of $25 for each cash gift given to an employee. If the gift is more than $25, the IRS views this as taxable income and the amount is to be included on the employee's W-2 form. The IRS also views gift cards and gift certificates as cash and applies the same rules.
Employees who receive a tangible gift, such as a holiday ham, turkey or wine, do not have to report these items on their taxes. Like cash gifts, the company can deduct up to a maximum of $25 of the cost of the gift. The IRS also views these items as "indirect" gifts because they can be used or enjoyed by other people in addition to the employee.
Employers can deduct what the IRS rules as "incidental" costs beyond the $25 cash limit on gifts. Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift. A cost is incidental only if it does not add substantial value to the gift.
Make sure your employees know how much you value them this year and don’t forget to take your deductions!
Hiring Family Members to Save on Taxes
Wednesday 17th of November 2010 10:30 AM
Hiring Family Members to Save on Taxes
Own an equine business in which your family helps you out? Make sure to hire your family members and you can end up saving on taxes. Hiring a child or another family member in a family business can save taxes for both the business and for the family as a whole. The business saves taxes because it can deduct the compensation paid as a business expense, just as it could if the services were performed by an unrelated party. The family saves taxes because the income can be spread over more taxpayers.
To obtain the compensation deduction, the employment relationship must be structured so that real services are performed, and the compensation is reasonable for these services. Records should be maintained to show how wages were calculated. No business deduction is allowed to the extent the amount paid to the family member is considered to be a disguised gift or unreasonable compensation.
Hiring your child will generally offer the most advantages. A child can earn up to $5,700 in wage income during 2010 and pay zero federal income tax. The business owner claims a deduction and saves income taxes at their tax rate.
Hire your spouse to help build up their Social Security benefits and retirement savings. Wages paid to your spouse can be used by them to fund their 401K or SIMPLE IRA plan on a pre-tax basis. If the spouse does not earn wages, they cannot contribute to the business retirement plan. Also, business-related travel of your spouse or other dependent is tax deductible if they are employees of the business.
Don’t forget your parents! You can also pay wages to parents who work in your business, with the income taxed at your parent’s rate and the wage payments creating tax deductions at your marginal tax rate.
Spread the love and savings with your family by employing them in your equine business and truly create a win-win situation for everyone!
Small Business Tax Tips for Year-End
Wednesday 10th of November 2010 10:30 AM
The middle of the fourth quarter of the year hardly seems like time to think about taxes, but a little planning now can payoff come April. Here are a few tips your small business can use to save on taxes:
It may seem contradictory to buy things now to save money later, but every purchase your equine business will require in the first part of next year provides a deduction for the current year. As long as your cash flow permits, go ahead and purchase the office supplies and equine equipment you will need in the first quarter of next year. Go ahead and pay bills that are due just after the new year for utilities, rent and insurance. There are many great charities counting on end-of-year donations to meet their goals. Consider making a tax-deductible contribution in the fourth quarter. Every purchase you make will maximize your deductions.
As part of the Stimulus Act, you can accelerate depreciation on equipment purchases. So if you need a new computer, copier, bulldozer, or vehicle, purchase now and take the additional depreciation thereby lowering your taxable income.
Sounds a little crazy to do, but if your cash flow allows, delay customer receivables due in December until the first week of January. Every cent deferred until 2011 will not be taxed for 2010. Have a good handle on your profits and losses for the year to help determine what your deferral strategy should be.
Depending on your accounting methods, you may wish to check inventory for goods that have been damaged or have become obsolete. The drop in market value of the inventory can provide your equine business with added deductions.
Contribute to Your Retirement Plan
Would you rather pay Uncle Sam or yourself? When you contribute to an IRA, you reduce the amount of income taxed by the government, and you set aside money for retirement. Remember, you can contribute to last year’s IRA all the way up until April 15th.
The tips above will apply differently depending on your accounting method and business situation. Take the time to review the best strategy with a professional and make the most of year-end tax planning for your equine business.
Equine Nonprofits: Partner for Success
Wednesday 3rd of November 2010 11:30 AM
With all the reasons we have discussed this past month regarding nonprofits outsourcing their accounting operations, the one that sums it all up is having a dedicated partner for the success of your organization’s charitable endeavors.
Most in-house accounting departments are not nearly as productive as outsourced firms. Outsourced accountants conduct bookkeeping and reconciliation duties all the time and are experts in their field, as well as proficient in using accounting software. The outside firm is always motivated with the goal to maintain a competitive edge to keep their relationship with the nonprofit and help it grow. Many outsourced accountants also provide an array of other services to help save the organization time, money, and frustration – and finding one with a passion for equine is a plus.
The decision to outsource can be an easy one. If there is an outside firm that can do it better, faster, and less expensive AND be an active partner in the success of the organization, then the choice should be obvious. By turning over financial management to companies that consider these tasks their core competency, organizations now have the ability to become more profitable, more efficient and far more successful. We have a wealth of knowledge concerning nonprofit accounting, rules and guidelines and we are passionate when it comes to equine businesses. We welcome the opportunity to discuss with you how we can be your partner for success.
Equine Nonprofits: Outsource for Timeliness
Wednesday 27th of October 2010 11:30 AM
Most nonprofit leaders and managers have at least a general understanding of financial management. However, without a trained accountant on staff, the crucial function of handling the books goes to whoever volunteers or has the willingness to do it. Although the person who volunteers may have the best intentions of keeping up with the finances, their availability and skill set may be limited.
Outsourcing your accounting to a professional who is experienced and dedicated to managing your account will yield much more timely results. An equine nonprofit leader shared with me how frustrating it was to try to get the financial reports produced for the board meetings in his organization. He had delegated the accounting task to the treasurer, who was already over their head with work and family life. The treasurer was always a bit behind on accounting tasks, which made producing the financial reports a major undertaking at the last minute. It didn’t help that the treasurer wasn’t very familiar with all the accounting that needed to take place for a nonprofit. It ended up being a major headache for the leader as he scrambled to help the treasurer before each board meeting.
Eliminate all the stress and worry of not having financials produced timely and efficiently by hiring an outside firm to handle them. A professional accountant will have your accounting up-to-date and the systems in place to run reports as needed. Also, being able to take a look at the financial snapshot at any given time is extremely beneficial to managing the organization and keeping its head above water.
Equine Nonprofits: Outsource for Accuracy
Wednesday 20th of October 2010 10:30 AM
The number one reason nonprofits fail, equine included, is poor financial management. Not only do nonprofits have to administer their resources carefully, but they need to do it accurately. Expecting others in the organization to manage finances is asking for trouble. Lack of accounting training or background is not only frustrating for the individual(s) responsible, but also potentially risky for your equine nonprofit. You are under extra scrutiny from the IRS to ensure you are obeying all the laws.
Handing over the responsibility for accounting to an expert third party will afford your organization more peace of mind that the finances are being well looked after and the ability to spend more time on the charitable activities. The likelihood of errors is greatly decreased when outsourcing to an external professional as they are removed from the internal processes and can take an objective outside look at the numbers. The tax laws under which nonprofits must operate are complicated and it would be easy to make mistakes on tax returns without a complete understanding of the changing rules and regulations. Having a fully qualified accountant who is up-to-date with all the current industry standards for nonprofits, training, and a special interest in equine means you will always have a high level of expertise at your disposal.
Nonprofits must continually demonstrate where the money comes from, where it goes and what percentage goes directly to charitable work. Most organizations require annual audits in their bylaws to verify that the funds are being used properly and maintain the integrity of the organization. Again, an expert nonprofit accountant can ensure that the financials adhere to the audit guidelines of your organization and is invaluable in helping you maintain your tax-exempt status while you can focus on charitable works.
Equine Nonprofits: Outsource for Savings
Wednesday 13th of October 2010 09:30 AM
If you are running an equine nonprofit organization such as a therapy service or horse rescue, you know all too well that every dollar must be spent in the most effective and economical way. The quality of financial management will ultimately determine the success or failure of your organization. Hiring additional staff to handle the accounting inside the business can be very costly and often the funds simply aren’t sufficient to cover these employees.
A cost effective solution for nonprofits is to outsource their accounting activities. Eliminating the need to pay a consistent salary and benefits to an in-house accountant will improve the bottom line immediately. When organizations hire an outside firm to handle the accounting functions, they only pay when the services are used. Independent accounting firms often have a greater knowledge base and can handle the books more efficiently and accurately. An equine nonprofit client of ours recently told us that we saved them 50-60% over having an in-house employee! Now that is a significant savings that donors would like to know about.
The annual audit is an essential component for nonprofits closing the fiscal year and showing that they spent the donated money according to the mission of the organization. The audit is also fairly expensive since an auditor must pore over the financial documents to make sure everything is in line. If an organization has its books in good order and has readily available accurate statements, then the time it takes an auditor will be reduced. Our same nonprofit client told us we saved them 10-30% on their audit by having all their financials accurate and transparent to see.
An outside accounting firm that regularly works with nonprofits will be able to provide other valuable cost savings ideas that the organization may not have been aware of as well. Choosing to outsource will be a win-win situation for both the organization and its donors.
Keys to Successful Cash Flow - Surviving Shortfalls
Wednesday 6th of October 2010 11:35 AM
At one point or another, your company is bound to be caught in an economic downturn. The impact this will have may depend on how much you have planned ahead. Management should regularly assess the company’s ability to stay solvent during tough times. Plan, Plan, Plan
Have a plan in place ahead of time in the event it becomes difficult to pay your bills. No one can predict the future perfectly, so creating a plan to combat shortfalls is essential to keeping your business afloat. Creating a plan while you are in the midst of turmoil will be more challenging and often unsuccessful as it’s usually too late at that point. Manage results to your budget so you can see shortfalls coming
Become aware of the problem as early and as accurately as possible. Keep a close watch on expenses and receivables to catch any cost increases or customer payment delays that could be potentially disastrous. If the company is significantly missing its budget goals, management needs to focus quickly on the reasons for revenue shortfalls and figure out how to address the problems.
Use credit to get through shortfalls
There's an old saying that the time to arrange bank financing is when you don't really need it. If you assume from the beginning that you will someday be short on cash, you can arrange for a line of credit at your bank. This allows you to borrow money up to a preset limit any time you need it. Do not make the mistake of using credit as a regular means of doing business or you could quickly cause your own shortfall. Have a credit line established early on and revisit it periodically to make sure the size is appropriate. Don’t be afraid to ask for help!
Ask your accountant or bookkeeper to help you set up an accurate cash flow tracking and projection system, so you can closely monitor the financial health of your business. Work with bankers for loan solutions and even your suppliers can be of help. They may be especially interested in helping keep your business going and offer extended terms which would amount to a hefty, low-cost loan if you just ask.
Keys to Successful Cash Flow - Managing Receivables
Wednesday 29th of September 2010 11:34 AM
A steady flow of revenue is critical to keeping your business afloat. You may have customers placing orders, but if they aren’t paying on time this can wreak havoc on your cash flow. Receivables are the bills that are sent out to your debtors (customers). The payment received from these bills is the life and future of your business, so managing your receivables effectively is crucial to success.
Here are some tips for handling accounts receivable:
Timely Invoicing: This may sound like common sense and something that you would set in motion when an order is placed, but sometimes invoicing can fall on the back burner and stack up. Make a point of creating the invoice when the order is placed or contract agreed upon and deliver it to the customer.
Customer Deposits: It is also called Unearned Revenue and Prepaid Income and represents money the company received in advance of providing a service or product to a customer. Customer Deposits is classified as a current liability on the balance sheet because the company still owes the service or product to the customer. Customer deposits turn into cash as you earn them through the purchase of materials or services rendered, so don’t count (or spend!) the deposits before they are earned.
Final Payments/Retainage: Establish the expectation from the beginning that final payment and, if applicable, any retainage (money held prior to completion of a project) is due when the work is completed. The day before a job is completed, fax an invoice to your customer reminding them of the agreed payment terms and ask to have payment ready.
Contracts/Agreements/Up-Front Financial Discussions: Check the financial health of your customer before offering them credit by using a rating service such as Dun & Bradstreet. Also ask for five business references and don’t neglect to call them. Have your payment schedule outlined clearly in your initial contract to avoid problems later. Include accepted payment methods, cash discount amounts if any, late payment fees, customer deposits and final payment details.
Collections Process: Follow-up on late payers with phone calls and letters. Don’t send out new merchandise or provide additional service if bills remain unpaid. Collection agencies charge hefty fees (often 30% or more of amount collected), so try to collect as many customer payments as possible through reminder letters and calls. Create a sense of urgency within your company about collecting money and establish a daily target for cash receipts.
Keys to Successful Cash Flow - Managing Payables
Wednesday 22nd of September 2010 02:33 PM
Last time we tackled managing accounts receivable, and managing your payables is just the opposite. Instead of collecting at the earliest possible moment, you should never pay a day sooner than you have to, unless you get a discount for doing so. A lot of people believe in staying ahead of bills and paying them as early as possible, but that's just poor cash management. You want to keep your money in your hands as long as you can. When to pay vendors?
Some creditors are more important than others. Those that are essential to carrying on the business have to be at the top of the pile. Payroll, taxes, key suppliers, any necessary licensing or permits and insurance should be paid first, followed by rent and utilities. Less essential bills still need to be paid on time to maintain your financial position, and if there is a problem, you should speak to the vendor right away to arrange a payment plan. Don’t pay early
Pay your invoices on the last day they’re due and not before unless a large discount is given. Carefully consider vendors' offers of discounts for earlier payments. These may provide you with a way to reduce overall costs, but examine the terms closely. Make partial payments
If you are having difficulty making payments, ask creditors if you can make partial payments for a period of time until your cash flow returns to normal. With seasonal ups and downs that sometimes come in the equine business, try to negotiate partial payments in the off-season and pay in full during your peak time. Use EFT to make payments directly on vendor websites
Use electronic funds transfer to make payments on the last day they are due. You will remain current with suppliers while retaining use of your funds as long as possible. Discuss payment terms when choosing vendors
Don't always focus on the lowest price when choosing suppliers. Sometimes more flexible payment terms can improve your cash flow more than a discount price. Negotiate beneficial payment terms up front before signing a contract or agreeing to a purchase.
Always be shopping for better pricing on commodity products/services to keep your costs down. Just because you have been using the same vendor for years doesn’t mean they offer the best prices. If you are a longtime customer and find a better deal elsewhere, don’t hesitate to go back to your supplier and see if they will meet or beat the price. Consider outsourcing rather than hiring employees, which is the largest cost to most companies. Your savings on payroll, benefits, and workspace will be significant and often the outsourced employee will be more dedicated and knowledgeable in their role.
Keys to Successful Cash Flow - Budgeting
Wednesday 15th of September 2010 11:32 AM
Cash flow is said to be the lifeblood of any business, including your equine business. The first key to successful cash flow is budgeting. Budgeting is an important and necessary part of small business ownership. To begin with, lenders and investors are going to require a budget before they agree to partner with your company. More importantly, a budget can be a valuable tool to help you meet goals and stay up-to-date with the financial condition of your business. A budget must be based on figures that are supported by reasonable expectations. Those expectations are based on prior financial performance and anticipated growth.
Here are a few tips to get started:
Know your fixed and variable costs. Fixed costs can be closely estimated as they generally stay the same and changes can be easily projected since they are based on static or semi-static figures. Variable costs are tied to your production, so you can determine at the beginning of the year your production figures based on previous results. This estimate won’t be as precise as fixed costs, but you should still be able to get a pretty good idea. Know when vendor payments are due, so you can budget for them in the proper time period.
Understand your business cycle. With the passage of time, your equine business will go through various stages of the business life cycle. Learn what upcoming focuses, challenges and financing sources you will need to succeed. Changes in the economy and market can decrease sales and profits, so have a plan in place for such downturns.
Understand your customers’ payment cycles. Keep on top of your customers’ payments as late payments squeeze cash flow and can throw off your budget if payments aren’t received in a timely manner.
Project your sales revenues. In making a reasoned sales revenue projection, you’ll actually perform three separate analyses for Current Business, Sales in the Pipeline, and New Business. For each category, you’ll make an estimate of how much income you expect to realize on a month-by-month basis and enter these figures on a spreadsheet. The final result will be a monthly revenue projection for the next year or so.
Hidden 1099 Tax Change
Wednesday 8th of September 2010 11:30 AM
If you are a business owner, prepare to spend a lot more time collecting data, keeping records, and generating/sending paperwork. And if you have previously provided goods and failed to report income, know that that will change starting in 2012.
Currently, businesses must send 1099s to all individuals who provide more than $600 worth of services to that business in a calendar year. Independent contractors are used to receiving this form, and paying self-employment taxes on the income. Section 9006 of the health care bill -- just a few lines buried in the 2,409-page document -- mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.
So if your equine business buys $900 worth of wine and cheese for a party, you’ll have to send a 1099 to your supplier. As this Business Week article points out, the requirement will even apply to money you spend at places like FedEx or the local gas station. This is going to cause huge issues because even a small business may have to produce and send 100+ 1099s and report them to the IRS.
The government hopes the changes in 1099 reporting will generate additional tax revenue on income that has previously gone unreported – and it’s in the health care bill because that revenue could potentially pay for some of the bill’s costs. More details will be known about Form 1099 changes when the IRS releases further provisions – a date when those provisions will be released is not yet known.
The IRS Wishes You Many Happy Returns
Wednesday 1st of September 2010 12:30 PM
Once you have your bookkeeping system in place, it is wise to become familiar with some additional tax forms you may need when it’s time to file your yearly taxes. The Internal Revenue Service requires businesses and individuals to file “information returns” to report certain business transactions. An information return is not an income tax return - it is used for reporting purposes only. Businesses or individuals must disclose to the government the nature of payment transactions, the amount, and to whom the payment was made. Information on the return is used both to assist taxpayers in preparing their returns and to allow the IRS to match the information from the specified transaction to the other parties involved. Persons required to file information returns to the IRS must also furnish statements to the recipients of the payments.
Some of the most common filings that impact average businesses are as follows: Form 1099 Misc:
Payments in excess of $600 per individual for services rendered (such as subcontractors, landlords, and other nonemployee compensation)Form 1098:
For payments of mortgage interest in excess of $600 to individuals on loans owed by the businessForm 1099 DIV:
Payments in excess of $10 per recipient for dividends, and stock dividendsForm 1099 INT:
For payments in excess of $10 to recipients of interest incomeForm 8300:
Report of cash payments received by a business in excess of $10,000 per transaction or related transactionsForm W-2:
Payments to employees such as wages, tips, and other compensation, withheld income, social security, Medicare taxes, and advance earned income credit payments
When it comes to monitoring taxpayers, the IRS spends a lot time computer matching with information returns. Even a small discrepancy between what is on these forms and what you report on your tax return will be caught and could result in months of hassles with the IRS. Generally, issuers of information returns must provide copies to recipients by January 31 and to the IRS by February 28. Plan for many happy returns with your equine business by making sure forms are completed on time and accurately to avoid problems with the IRS.
Choosing the Appropriate Business Tax Year
Wednesday 25th of August 2010 12:29 PM
A year always means the same thing, right? Well, yes and no. A year consists of 12 months, but different types of businesses use different types of “tax years” when it comes to figuring taxable income. There are two different annual accounting periods, also known as tax year periods that a business may have to choose between: a Calendar Year or a Fiscal Year. A Calendar Year is exactly what it says, January 1st to December 31st. On the other hand, a Fiscal Year is a consecutive 12-month period ending the last day of any month, except for December.
There are limitations as to which tax year your equine business can use. If your business is a sole proprietorship, the tax year must be the same as your individual tax year. A partnership or LLC must use the same tax year as the majority of its owners. Generally these businesses will use a Calendar Year. Regular C-type corporations can usually elect either a Calendar or Fiscal Year without restrictions (unless it is a personal service corporation). Exceptions to these general rules may be made if you can establish to the satisfaction of the IRS that you have a business purpose for using a different tax year.
Often it is easier for small business owners, including equine business owners, to use a Calendar Year as it lines up with payers of interest and dividends and other income which report on a calendar year basis. Some businesses have "seasons" that don't follow the traditional calendar. If your business will have such seasons, you may be eligible to use a 12-month fiscal year to match your business’s income with the expenses that generated it. A winter ski resort open December to March is a good example of a business that would need to use a Fiscal Year for accurate tax reporting.
Whether you choose a Calendar Year or a Fiscal Year, you must choose it for your first tax return and use it for all your records and reporting. If you decide to try to change an existing tax year, an IRS Form 1128,
"Application To Adopt, Change, Or Retain A Tax Year" must be filed. If you need help deciding the tax period you should use or whether or not you should change, contact us and we can help.
Are You Seeing Double?
Wednesday 18th of August 2010 03:27 PM
I had an equine business owner once tell me how he was going to do his own bookkeeping to save money. I asked him what accounting method he was going to use, and he looked at me in surprise and asked what bookkeeping had to do with accounting! The word “bookkeeping” sounds much less daunting than “accounting”, but every business (including sole proprietorships) needs to keep track of sales, expenses and profits – which is, in essence, accounting. The “books” that are kept to record these transactions provide valuable financial accounting data.
The first common type of accounting is single entry, which works like a checkbook. All business transactions are recorded on one account with a running balance showing debits as checks are written and credits as customer payment deposits are made. This is a very simple method of accounting that can be used by individuals or small sole proprietorships as it’s easy to understand and record. However, this method is more limiting for accuracy, information and auditing. An income or expense is only posted once with no other account offsets, so it is more difficult to catch errors. Single entry can only calculate profit and loss and not a balance sheet, so it really doesn’t give a business a complete picture of its financial position.
The second type of bookkeeping is double entry accounting. In double entry accounting, every transaction has two journal entries: a debit and a credit. Debits must always equal credits which help to eliminate common bookkeeping mistakes. Double entry is more complex since it involves determining which accounts your transactions should be posted to and can involve more than one ledger, journal, and even schedules. While more involved to maintain, double entry systems produce income statements and balance sheets giving accurate pictures of a business’s financial position.
The good news is that whether you call it bookkeeping or accounting, the process doesn’t have to overwhelming. There are great software packages on the market that handle single or double entry accounting and simplify the steps for you. Some double entry packages run the second entry behind the scenes, so you only have to enter a transaction once. If that still sounds like too much accounting, contact us and we can help get your system up to speed and on track for maximum results.
Benefits of Outsourcing Your Bookkeeping
Wednesday 11th of August 2010 11:30 AM
All equine businesses, whether small or large, require bookkeeping. If you have a small equine business, you need an accurate, organized and chronological system that readily provides reliable information when needed. Accurate financial reporting is the key to knowing whether your equine business is successful or if changes need to be made. Any mistakes that are made can cost your company tremendously.
More and more, business owners are outsourcing their bookkeeping functions to improve accuracy, save time and save money. Outsourcing your bookkeeping system to an experienced professional will assure that your books are handled in the most efficient and productive way. Also a third party can be more objective regarding financial decisions that you, as the owner, may need to make. More time will be available to focus on the core activities of running the business and the stress of managing the books will be removed. Cost savings are instantly realized when you outsource as you will not have the administrative burden of hiring and training accounting staff or paying fixed salaries, insurance and benefits. An outsourced bookkeeper also saves you valuable office space that would be taken by another internal employee.
With all of the additional benefits, outsourcing a bookkeeper is more effective than doing it yourself or having one permanently in the office. Outsource today and start focusing on what matters in your equine business!
Who Needs Structure
Wednesday 4th of August 2010 12:00 PM
“As long as I keep track of everything, it doesn’t matter how the books are sorted – it will all work out in the end.” This sort of relaxed attitude will not give you a clear financial picture or help you make informed business decisions. I have seen entrepreneurs create expense categories that drill down to each specific client, which can mushroom uncontrollably as the list grows. On the other hand, I have seen such general categories created like “Travel Expenses” with everything thrown in, when it should have been broken down by categories such as “Business Meals”, “Entertainment” and “Transportation”.
If you are a breeder, horses can appear in either “Inventory” or “Equipment Fixed Assets” depending on what they are being used for. For example, your sale horses would be classified as inventory while those being used in lesson programs are equipment fixed assets.
A standard structure of your accounts is paramount to insightful bookkeeping. Creating an industry and business specific chart of accounts will provide a solid framework for establishing financial control of your business. If you are unfamiliar with the chart of accounts you should be using, your best option is to hire a professional bookkeeper or accountant. A proper chart of accounts will easily answer these three questions:
1. What are your variable costs?
2. What are your fixed costs?
3. What is your breakeven point?
One of the keys to running a successful business is truly understanding where your income is coming from and where your expenses are going. Getting your books set up properly from the start with the aid of a professional bookkeeper will eliminate future nightmares and helps you know the answers to how your business is doing right away.
Too Close to the Numbers
Wednesday 28th of July 2010 11:00 AM
I have had countless small business owners over the years come to me at their wit’s end after trying to handle the books on their own. A business may start small and the owner buys into the old adage of “keeping the books myself keeps me closer to the numbers”. However, they don’t stop and ask themselves if they have proficient bookkeeping, accounting and tax training for a small business and, more importantly, if they should be allocating their time to this endeavor instead of focusing on their core business. It simply does not make sense from a financial standpoint for owners to spend their time doing tasks that can be outsourced at a lower cost, vs. the owner’s hourly cost, to someone who is trained in small business bookkeeping.
Trying to multi-task running a business while trying to stay on top of all the accounting functions can pull an owner in all directions. Wearing too many hats often leads to mistakes and omissions in record keeping. When you are too close to the numbers, it is hard to see the big picture objectively as it’s easy to get caught up in all the details and not spot mistakes.
In time, many entrepreneurs realize they cannot handle bookkeeping on their own. They often turn to an office assistant, or a friend, or even Aunt Sally to handle the books. Does this solve their headaches? More often than not, the answer is no! It actually causes the headache to grow larger. In time, the business owner figures out that it was a bad decision, but feels bad firing a friend or family member so the cycle continues.
We are working with an equine client now who fell into this trap and it ended up costing them thousands of dollars and trouble with the IRS. You see, they had cash flow problems and their internal bookkeeper/cousin was having the owner sign the checks written to the IRS for payroll taxes, but wasn't mailing them because they were short on cash. She felt guilty about not being able to manage the cash flow, so she just hid the checks. This went on for months. When the IRS came knocking, they owed over $75,000 in taxes. Had the employee not been a relative, they would have terminated her, but since she was a cousin, they kept her employed. Unfortunately, that wasn't the only mistake she had made and eventually her issues caught up to them and the company had to file bankruptcy and close.
As you can see, choosing another untrained individual will only cost more in the long run. The bottom line is to hire a qualified and experienced bookkeeper who will properly track your finances accurately the first time, which saves you time, money and headaches in the long run!
Reconciliation Isn't Just for Relationships
Wednesday 21st of July 2010 11:00 AM
We’ve all been told that we need to reconcile our personal bank statements each month, but how many of us actually do it? If your funds are flowing just fine, you might just skip that step and assume that all is well. That assumption can be a huge mistake if you apply that thinking to your equine business as well.
Reconciling your monthly statement with your books is a fundamental aspect of bookkeeping. It certainly can be time consuming and fairly tedious, depending on the number of transactions each month. I had one client bring me almost two years worth of unreconciled statements who wanted me to find out what went wrong. After much research, I discovered the error, but the solution was a much more difficult task as the mistake occurred over a year before!
Banks do make mistakes, although they would like you to believe otherwise; companies do double-charge whether in error or for unscrupulous reasons; debits continue from businesses even after you have discontinued service; and accounting entries get entered incorrectly from time to time. With the potential for these sorts of errors and overcharges, it is worth the time and effort to hire an experienced bookkeeper who can stay on top of your finances each month.
Call for Back-up!
Wednesday 14th of July 2010 12:00 PM
As powerful and advanced as computers are, they are not infallible. But how many of us rely on them completely for our businesses? We all know things happen – floods, fires, and the spontaneous malfunction or even death of our computers. There is really no excuse for failing to back-up your financial data. Your processes must include regular and routine back-ups of all your bookkeeping activities, whether they are online or on your local hard drive.
The last thing you want to happen at the end of the year or at any point for that matter is to lose all your numbers. Losing your financial data means to many businesses not knowing who owes you money, and this will mean in many cases, missing out on getting paid. You may not be able to prevent a disaster or technical malfunction, but you should take precautions to lessen any damage these events could cause.
There are many products in the market today that make backing up data virtually effortless, from online back-up services which run whenever your computer is idle to capture any new information you have input to online accounting software which houses your information on their secure servers for retrieval from any computer. Even in this increasingly paperless society, having hard copy print-outs of quarterly and yearly financials are important to have on hand to be ready for any situation.
We worked with an equine client who was getting ready to prepare their 2009 taxes when they lost all of their QuickBooks data. It was unrecoverable. They didn't have time to recreate the data file so they hired us. It took us almost 80 hours to put together the information, which cost them about $4800. An offsite backup service can cost as little as $20 per month.
If you lack the confidence to use some of the accounting software packages available or don’t feel technologically savvy, hire an experienced bookkeeper and IT company to take care of it and to maintain your back-up of files. We work with both 411 Technology Solutions and LogicKey and know they will help you devise a back-up and disaster plan that will alleviate your worry.
Make backing up your financial data the one thing you don’t have to worry about, as there are sure to be plenty of other things to focus your attention on when running your own business!
Preparation Now Saves Time and Money Later
Friday 25th of June 2010 07:01 AM
Okay, I understand most people don’t get a thrill out of keeping track of every penny of their business – they would rather be keeping track of their horses. I have a successful bookkeeping business because of this and can keep track their financials accurately every month. What concerns me (as I sit here making estimated tax payments for many of our clients) are the many businesses out there, including equine businesses, just pushing all that to the side and deciding to deal with it later.
Too many equine businesses don’t do the sometimes tedious work of bookkeeping and record keeping, and then the owner ends up with a huge tax bill at year end. Then they have to devise a payment plan with the IRS - and the interest rate for the IRS is significantly higher than bank interest. We have one client who, before having us work on his bookkeeping, pushed it aside to deal with it all later. He is still paying his business’s 2007, 2008, and 2009 tax bills. With interest, he will pay about 135% of what was originally owed. I know I would rather use that money for something else than paying the IRS. Wouldn’t you?
Jennifer Foster, President of EQ Bookkeeping www.eqbookkeeping.com
Believe It or Notâ€”It is Possible to Make Money in the Horse Industry
Wednesday 16th of December 2009 11:39 AM
One of the running jokes in the horse world is this:
Question: What is the only way to end up with money after working in the horse industry?
Answer: Start out with a lot of money.
This isn’t necessarily true. I have several clients who run profitable horse businesses, live in nice houses, and take nice vacations.
What is their secret? They understand that 80 percent of horse businesses fail for four major reasons and they take the necessary steps to avoid these pitfalls.
1. They don’t have a business plan.
2. They don’t know how to market their services effectively. (If you don’t have a Web site and email address, GET THEM!)
3. They don’t legally understand their potential exposures so they don’t protect themselves.
4. They don’t understand the business/financial side of the business (in other words, they don’t know how to manage their money.)
Each of these topics requires an in-depth discussion, but since my expertise is in finance, I will focus on the last (but definitely not last in importance) reason for failure: the inability to understand the financial aspects of the business.
The Internal Revenue Service LOVES horse businesses. In fact, 27 percent of all small businesses audited in 2007 by the IRS were ranchers or farmers. On average, in each of these cases, equine business owners had to pay the IRS in excess of $40,000.
Why? Due to poor record keeping.
The easiest mistake to make is to mix personal and business expenses. Make sure you have separate accounts for your business and personal expenses and “pay yourself” by moving money from your business to your personal account to pay for personal expenses. Don’t pay personal expenses from your business account or vice versa. Intermingling funds is the first thing an IRS auditor will search for.
The first key of understanding the financial side of a horse business is to keep accurate financial records and documentation that supports them.
The second key is to understand profitability.
When I ask a horse business owner if their business is profitable, the most common answers I get are:
· “I think so.”
· “We do OK.”
· “We can pay our bills.”
· “Things are a little tight.”
What a business owner should be able to say is: “We made XXX dollars in profit this month/year.”
Unfortunately, most equine business owners don’t know this basic information.
To make money in the horse industry, you must understand your expenses. You should be able to identify the absolute cost of keeping each horse in your stable. The absolute cost includes all costs associated with providing for the horse including:
· Land and building
· Building and property upkeep
· Grain and hay
· Shavings and arena flooring material
· Veterinary care
· Manure disposal
· Employees and contractor laborers
· Barn supplies
As the stable owner, you should be able to say each horse in our stable costs $XXX per month. And most importantly, you should never take on additional horses if those costs aren’t covered and increased to add profit to your business.
Another important aspect of understanding the financial aspects of the business is to know which of your services is profitable (or not). For example, you may provide lessons, clinics, summer camp and a show program. Do you know which of these is the most profitable for your business?
One of our clients came to me at the end of the year and told me she wanted to stop offering summer camps because it was a lot of work and she didn’t really enjoy it. I pulled the data we had compiled and pointed out that three weeks of summer camp made her eight times (800 percent) what her lesson program made all year long.
Of course, she decided to keep summer camp and actually doubled the number of camps she offered. Because she didn’t really enjoy facilitating them, she hired a teacher to run the camps. By understanding where her profit was coming from, she was able to focus her sales and marketing efforts on a specific service which improved her financial position.
The third key to financial success is to create a monthly budget and to measure your budget against your performance. Did you have the revenue you expected? Were your costs in line with the budget? Did you forget to plan for the load of shavings that you received? Remember it is OK to deviate from the budget if you know and understand the consequences.
For example, a great opportunity for advertising may arise in March you didn’t know about when you created the budget. So you spend additional funds on advertising that month. Now, you can either adjust your budget or reduce advertising you had previously budgeted for later in the year.
A budget isn’t concrete. It can be changed. It can be adjusted.
The last key to success I want to discuss is the idea that it is OK to fire your clients.
“Acme is my largest customer, there’s no way I can afford to lose them.” This is what I recently heard from one of my clients. Then it became my responsibility to educate him on why he needed to end the relationship with that particular customer.
There are various things to consider when handling a customer relationship. A few of these are:
· Is the relationship profitable?
· Is there a strategic reason to do business with this customer?
· Does this client represent the morals and ethics of your company?
· Do you, and your staff, enjoy working with this customer?
Recently, one of our horse trainer clients turned away a new customer because he didn’t have space in his barn or time in his schedule to train another three-year old. It bothered him a little, but it bothered me a lot.
Why? Because he has a couple of clients who aren’t as profitable as they need to be. After all expenses, his time, and the time of his staff, the gross profit on this client who has six horses in training (at a discounted rate) is only $600 per month. He could replace this $600 with only three horses in training at full rates. If he were to add three more horses, he would double his profit.
So, the bottom line is that it is possible to operate a profitable horse business!
About: Jennifer Foster, CMA, CFM is President of EQ Bookkeeping LLC, a firm offering specialized bookkeeping/accounting services for the equine industry. She is a family owner of Arabian horses and her husband and children ride competitively. She's been riding horses since the third grade. Her recreational time is spent at shows, including the Youth Nationals in Albuquerque, New Mexico, and the U.S. Nationals in Tulsa, Oklahoma. Her company, EQ Bookkeeping provides specialized bookkeeping and accounting services for the equine industry. In addition to full service virtual accounting and tax preparation, they provide consulting services focused on improving profitability for their horse business clients. For more information, visit www.eqbookkeeping.com.
My Horses Wear Prada
Friday 4th of December 2009 01:24 AM
I was speaking with some friends recently about the state of the economy. They asked me how business was doing and my response was "it could be better." When they probed, I told them we need to buy two new horses this fall. A western horse for my son who will be moving up to the JTR classes and a country english horse for my youngest daughter who will begin competing in saddleseat walk/trot.
Because they don't have horses and understand the costs associated, I tried to explain the costs of owning and competing with horses. I told them the horse is just the beginning and there are monthly costs for board, training, veterinarian fees and the farrier. They asked me "what is a farrier?" After explaining that the farrier puts shoes on the horses, they said "that doesn't seem like a very large expense." The only way I could think of to give them a visual was to say "it's like getting a new pair of Prada every six to eight weeks."
Now they get it!
Jennifer Foster, President of EQ Bookkeeping
EQ Bookkeeping, your source for equine accounting and equine bookkeeping related information
Are Your Horses Stealing Your Profits?
Tuesday 10th of November 2009 09:47 AM
At some point, all professional horsemen realize that they can't keep every good horse that walks into the barn. Buying and selling horses is part of the business.
Becoming fond of your horses is a terrific benefit of being in the horse business. It is also a financial tie down that can ruin your business. The profitable horseman understands the horses in his or her barn are assets; they aren't pets.
A horse is either appreciating in value or depreciating in value.
As an asset, a horse is generating income as:
a lesson horsea leased horse
inventory for sale
rental for hire for ride or drive
If not, the horse becomes a financial dependent on your business's welfare roll.
Not only is it an operating expense, it is also an opportunity cost. Think about it, if a horse occupies a stall and generates no income or has little or no potential for future income, it is a thief horse.
Unlike a horse thief, a thief horse steals your potential to earn profit from the space and resources it occupies. That stall could be used for:
- A speculation horse "bought right"
- An empty stall for attracting the next opportunity
In economic terms, there is an opportunity cost for every decision you make in your equine business. An opportunity cost is defined as the cost of something in terms of an opportunity foregone.
Every fork in the road you come upon requires a choice. The road you choose is the path you follow.
The road not taken is your opportunity cost since you cannot travel two paths at the same time. Choosing the more profitable path that fits your business vision is the choice to make every time.
This week's tip is to consider whether or not you have any "thief horses" in your barn and if you do, how to find a new home for them.
The horse business is just like any other business in that assets have to directly or indirectly contribute to producing revenue. If your assets are non- producing, then it's up to you to make changes.
Written by: Doug Emerson www.profitablehorseman.com
Jennifer Foster, EQ Bookkeeping - Helping horse businesses make more profit! www.eqbookkeeping.com
Microsoft Axes Office Accounting Software
Sunday 1st of November 2009 08:14 AM
Microsoft quietly announced Friday that it plans to kill off its Office Accounting products, beginning Nov. 16.
"After evaluating the product over the past few years, we have determined that other Microsoft offerings, such as free templates in the Office system used with Excel and the Dynamics product, are able to meet our customers' needs," a Microsoft (NASDAQ: MSFT) spokesperson said in an e-mailed statement.
The package, the current version of which is Office Accounting 2009, provides templates, tools and other add-ons to support small-business accounting within Microsoft's Office productivity suite.
It has been a head-to-head competitor to Intuit's QuickBooks packages, among other rivals.
The company said it would drop the entire family of Office Accounting products in the U.S. and U.K., including Office Accounting Express, Office Accounting Standard, Office Accounting Professional, Office Accounting Professional Plus, Office Accounting 3-user and Small Business Accounting, according to an FAQ posted online.
Office Accounting Express, which is free, was introduced with Office Accounting 2007.
Microsoft said, however, that although customers may be orphaned, they can continue to run the products during the support lifecycle.
"Existing customers will receive five years of mainstream support and five years of extended support," the spokesperson said.
Meanwhile, some services supported in the software will expire Dec. 15. For instance, online sales from eBay as well as credit profile information from Equifax will be discontinued after that date, according to the FAQ.
Other services are expected to continue -- at least for now. These include the ability for customers to pay e-mailed invoices via PayPal, support for credit card processing services, and the ability to order checks and forms that are compatible with the software.
"The Office Small Business Web site has links to free templates for small businesses, such as invoices, expenses, time sheets, budgets and more," the spokesperson added.
In addition, it's not too late to get a refund for users who recently purchased an Office Accounting package. Returns will be valid within 30 days of purchase, according to the FAQ.
Microsoft has posted additional information for Office Accounting users online.
EQ Bookkeeping is able to transition all Microsoft clients to QuickBooks software.
www.eqbookkeeping.com We provide bookkeeping and accounting services to those in the horse industry.
Who needs a business plan?
Wednesday 28th of October 2009 09:16 PM
The only person who doesn’t need a plan is the person who doesn’t have or want to have a business.
We have seen all different types of business plans from 200 page books to notes written on a napkin. Both are acceptable types of business plans.
What is a business plan? Always a work in progress. A tool used for three purposes:
What does a business plan do?
- Defines biz
- Identifies goals
- Serves as a company’s resume
- Financial portion helps allocate resources properly
Elements of a good plan
- Executive summary – Provides concise overview of the company along with the history (should be brief, bullet points)
- Market analysis
- Company description – high level look at how the different elements of biz fit together
- Organization and management
o Company organizational structure
o Details about ownership
o Profiles of management team
- Marketing and sales strategies
o Marketing penetration (how to get your product to market)
o Growth strategy
o Communication – how to reach your customers and communicate your message
o Sales strategy
o Product or service line – what are you selling
o Funding request
Summary – if you don’t have a plan on paper, get one even if it’s only one page of bullet points!
Equine Disease Tracking: Kentucky's New System
Monday 19th of October 2009 01:05 PM
The University of Kentucky's Livestock Disease Diagnostic Center made a long-awaited switch to a new online file-keeping system known as Laboratory Information Management System (LIMS) in early August.
LIMS will serve as an integrated online system for farmers to report incidence of disease by county, and it will correlate with the technology used by the state veterinarian’s office. It will link incoming information from the state veterinarian's office, the Breathitt Veterinary Center at Murray State University, and the LDDC.
The system will help the LDDC track disease reports in near real time--a feature that has not been available before--and prepare for infectious outbreaks or other disease situations, particularly those affecting the state’s equine population. The goal of the new system is to avoid pandemics similar to the mare reproductive loss syndrome occurrences in 2001. While not a contagious disease, MRLS resulted in losses to Kentucky's horse industry of an estimated $340 million and about 30 percent of that season’s Thoroughbred foal crop. By organizing disease incidences by geographic location, scientists and veterinarians can predict trends and get a jump-start on treatments for seasonal illness (such as MRLS was). The system makes information available to farm managers and private practitioners, so they can administer appropriate vaccinations and implement necessary protocols to keep up with any predicted rise in diseases.
LDDC Director Craig Carter, DVM, PhD, Dip. ACVPM, said, "In the short term, it helps to get diagnostic test results down to the farm level in an accurate, timely fashion (to) help the local vet manage single outbreaks. In the long term, it's part of a statewide animal health information network that will give us a broad awareness of what's happening all across the state."
LIMS also will aid in maintaining agricultural biosecurity by detecting potential outbreaks of diseases caused by any previously unidentified pathogens.
The new system will simplify recordkeeping for LDDC and its clients by delivering lab reports and invoices electronically. Carter asks clients to be patient and report any problems they experience as they adjust to the new technology.
For more information contact LDDC at 859/253-0571 or visit www.lddc.uky.edu/.
Natalie Voss is a UK equine intern and undergraduate student in equine science.
Jennifer Foster, President of EQ Bookkeeping...virtual bookkeeping services for the equine industry.
QuickBooks Error #2
Thursday 15th of October 2009 08:54 PM
Can’t get your bank account to reconcile correctly?
If you're having a problem reconciling your latest bank statement, the problem might be with outstanding bank account transactions.
When you entered the opening balance for your bank account into QuickBooks, you most likely used the last bank statement dated previous to your start date. If there was any lag time between the date of your statement and your start date in QuickBooks, make sure that you also entered any checks or deposits that happened in between.
For example, if your QuickBooks start date was 01/01/06, you'd use the ending balance on your December 2005 bank statement as your opening bank account balance. Let's say the end date of that statement was December 20th, which means that all the deposits and payments you made from December 21st until December 31st are "outstanding," or accounted for in your bank statement's balance, but not in QuickBooks. To fix the problem in this example, you'd go back to your January 2006 bank statement, and enter into QuickBooks all the transactions that occurred between December 21st and 31st
To help you avoid this and many other common mistakes, Foster Results LLC offers professional training on your Quickbooks software.
QuickBooks Mistake #1
Tuesday 13th of October 2009 07:15 PM
Don't deposit your money twice.
Many users group their payments to deposit them all at once through the "Undeposited Funds" account. A mistake that some users make is that they also enter each payment as a single deposit. The result is two deposits for one payment. (You think you have more money than you actually have.)When you use the Sales Receipt or Receive Payments forms to track money coming in to your business, you have the option to put payment into the "Undeposited Funds" account, which is like a cash drawer where you keep checks and currency in between trips to the bank. If you select this option on either form, QuickBooks won't recognize the money into your bank account until you tell it that you've actually taken your money to the bank.
When you do go to the bank, tell QuickBooks by using the Make Deposits window, and select the payments you've just deposited. Do not enter a separate deposit into your bank account register to show this money.
For questions about this and other common mistakes, contact EQ Bookkeeping at (877) 399-8920
Tips to Avoid IRS Audit
Monday 5th of October 2009 10:15 AM
Congress recognized a long time ago that taxpayers will try to claim federal income tax losses for activities at which the taxpayer has no genuine intent to create profit. The so called Hobby Loss provisions are found at section 183 of the Internal Revenue Code. Horse owners are a prime target of IRS "hobby loss" challenges, reflecting, of course, the fact that it is very difficult to actually make money in horses, yet many engage in the pursuit for the sheer enjoyment of it anyway. Here are seven tips that will make it easier to survive a so called "Hobby Loss" audit.
Tax courts are concerned with the steps that the taxpayer took to make the business profitable. So, along with the education about the horses themselves, the taxpayer needs to engage experts in the field of making that particular equine business a profitable one. Even if the taxpayer hired experts, if they were the kind of experts that advised the taxpayer about what kind of horses were best and how to become proficient at breeding them, and not necessarily how to make money at that business, then the court may not count that. That is, at least one court has ruled against the taxpayer overall, noting that the professionals hired were the same kind that the taxpayer would have hired if she was just engaged in a hobby (e.g. trainers.)
- In the planning stages, consult with experts, self educate, and hire professionals in the area of financial acumen and in helping the business to become profitable.
Self education is an important aspect of this; going to seminars, buying books and periodicals, attending shows, and engaging professionals for advice on particular issues, all of which will show a profit motive for the court. Also, get involved in the trade organizations, as this is usually a positive factor mentioned by the court. Using a trade organization to retain an expert that will help demonstrably change behavior in order to generate profits, is one way to help produce the profit motive ruling.
More tips to come...Jennifer Foster, President of EQ Bookkeeping, providing bookkeeping and accounting services for horse businesses
Horse Purchase Agreements: What do they really mean?
Tuesday 15th of September 2009 07:18 PM
Today I had a meeting with a customer of one of our clients. The customer had agreed to purchase a horse from another farm (a trainer who is a friend of my client.) The agreement was made for the purchase price with a down payment and monthly payments for six months until the agreed upon price was paid in full.
This particular customer defaulted on paying for the horse. His comment was “they can just come and get him.”
I then had to explain to the buyer that it just doesn’t work that way. Since the horse was used for a full show season, they seller can sue for loss of use and all of the income they could have received from leasing the horse to another party.
In addition, they can also sue for damages because the rider wasn’t very good and actually lowered the value of the horse so if they were to sell it again, it would be sold for less money.
In this situation, the Seller had the Buyer sign a contract covering several contingencies. It is a great contract for the Seller.
Unfortunately, that usually isn’t the case. Most trainers/breeders use old contracts they pulled off the internet or out of a book. These contracts are typically very basic and don’t take into consideration much other than the selling price.
In this particular case, the seller is actually able to sue for more than twice what the buyer agreed to pay for the horse.
How good is your contract?
Jennifer Foster, President of EQ Bookkeeping
Accounting and bookkeeping services for individuals owning a horse business
Women's Horse Industry
Monday 31st of August 2009 08:27 PM
I have recently agreed to participate in the Women's Horse Industry Networking and Marketing Conference. I joined the group a month ago after learning about it. It was started early this year and already has more than 500 members! I encourage you to check it out http://www.womenshorseindustry.com/
Bookkeeping and accounting for the horse industry
Weâ€™re Sorryâ€¦the Voice Mail Box for XXX-XXXX if Full
Friday 10th of July 2009 12:06 AM
Do you ever miss calls and wonder how much money it has cost you?
One my our clients receives so many calls each day that her mailbox regularly fills up and she misses calls from potential customers. She had no idea how much it was costing her until we ran a test.
The stable advertised in a direct mail campaign that had resulted in a past return of 300%, but rather than using her own phone number, she routed the calls to our office where an office manager answers the phone from 8am to 5pm daily.
In a 30-day test, we found she had only received 30% of the calls that were being made to her. Since she closes 50% of the potential clients she speaks with about lessons, she was suffering a huge loss of clientele and money. When we did the calculations, we found the stable was missing out on over $17,000 in lesson sales annually.
What did it cost her to have someone else answer the phone? $120 for the 30 days. So it will cost her $1440 for the year, but will make net over $15,000 additionally because the owner is smart enough to hire someone else to do something she doesn’t have time to do.
What else are you spending your time doing that someone else could do better so you could focus on building your business?
Jennifer Foster, President, EQ Bookkeeping
Specialized accounting services for horse businesses
Accepting Credit Cards - If You're Not, Maybe You Should Be
Monday 6th of July 2009 09:42 PM
In the current economy, our clients have seen increased collections time. On average, the number of days it takes to collect moneys from customers has increased 25 days.
Having customers pay late can cause huge cash flow issues for small businesses.
One of the ways we have helped our clients get paid faster is by encouraging them to accept credit card payments. Many people will pay on time if using a credit card since they have another 20-30 days to actually pay the bank (or longer if they carry a credit card balance.)
There is a cost associated with accepting credit cards ranging anywhere from 1.7% to 4.5% depending on the type of card accepted and the terms of payment for the card customers (rewards cards and Amex cost more to process). The credit card processor also charges a monthly fee of $10 or more.
You may be using your own credit cards to pay your vendors and paying interest on those cards or you may be drawing on your line of credit and paying interest to your bank while you are waiting for payment. If you have employees, you may need the cash faster so you can make payroll.
Only you can weigh the advantages or disadvantages of accepting credit cards as payment from your customers, but most business owners have a credit card they can use so you may get your money faster by choosing to accept credit card payments.
Specilized accounting for the equine industry.
Typos Cause Embarrassment
Monday 15th of June 2009 08:21 AM
Today has started out as a low in my career. Why? Because I paid for advertising, sent an email blast to 23,000 subscribers of the Arabian Horse Times, and when I received the email a typo was GLARING at me.
It is hard for me to imagine anyone taking my company seriously when we are supposed to be the "detail people" and we make such a HUGE MISTAKE. (In case you are interested, we spelled "specializes" incorrectly. We wrote "spacializes.")
I am continually telling me children that being able to spell is one of THE MOST IMPORTANT things they will learn in school.
It is so crucial to me personally that I throw away resumes received with typos, eliminate vendors from my recommended list because of typos in their marketing communication, and steer clients away from using services of those who make spelling mistakes.
Now...I am one of those who I would skip over. I guess mistakes can happen and in the future I shouldn't be so quick to judge.
We specialize in bookkeeping and accounting for the horse industry.
Monday 15th of June 2009 10:27:43 AM
The Times may have 23,000 email addresses, but I doubt that they have even half that many subscribers.
A Bookkeeper’s Tips for New Business Accounting, Part 1
Wednesday 31st of December 1969 06:59 PM
There are a million things going on at once when you start your equine business. The last thing you need is to complicate your finances. When you are first starting out, the best thing to generally do is to keep your equine business accounting clean and simple. As the first of a two-part series, here are a few tips to getting your finances in order:
Establish a simple accounting system
As an owner and operator of an equine business, don’t just write checks and deposit them when they come in without any tracking. Spend some time and a little money with a simple accounting system, like Quicken Home and track your revenues and expenses. Once you have it set up, it will be easy to maintain going forward and will help tremendously come tax time.
Use a separate bank account for your business
I can’t stress this one enough. Once you start co-mingling personal and business funds, your accounting process will be useless. Keep your business account completely separate and make all payments and deposits in this account. Without the separation you won’t have a true picture of how your business is doing and you more than likely will not be able to calculate your taxes correctly.
Don’t put personal assets in the business
You might think it is a good idea to put your personal assets like a car or home computer into your equine business and then try to write them off. Beware of doing this as the rules for expensing items easily used for personal stuff are tricky and cumbersome. The rules are complicated which makes them easy to break unknowingly. If you still want to do it, you should really work with an accountant to make sure you are doing this correctly.
Next time we will cover some more tips to keep your new equine business’s accounting procedures simple and straightforward.