Are your clients getting burned by horse show fees?

Horse jumping

If you are one of those savvy trainers that has started to charge flat fees for travel costs at horse shows, kudos. The rest of you need to get on board. Long has it been the practice of horse trainers to split all of their travel costs and their’s employee’s travel costs between clients at a horse show.

 

You might say “what’s wrong with that? Shouldn’t the client be prepared to cover those costs?”

 

Yes, I do think think the client should have to cover these expenses but it’s the manner in which most trainer’s bill these costs that I take issue with. A flat fee for travel, say $50/day per client, is a predictable cost that the client can budget for. It also requires that the trainer make wise spending decisions while on the road to stay within that budget and maintain profitability.

 

Most trainers do not employ flat fees but instead collect travel expenses over the course of a horse show and bill the clients for the exact costs.

 

Expensing the client directly for costs with no budgeted daily total is problematic. First, it creates no incentive for the trainer to watch their spending. Second, the costs are unpredictable and therefore not easily budgeted by the client. Third, there is a lot of potential for abuse on the trainer’s part.

 

I know for a fact that this abuse exists, having overheard a trainer bragging on his cell phone at a horse show about sneaking charges into this discretionary spending so he could make an extra buck.

 

Ultimately, the trainer is shooting themselves in the foot with unchecked spending. Most clients do have fixed horse show budgets and every dollar they spend at horse show A is a dollar they can’t spend at horse show B.

 

So what’s the solution? Come up with an average travel cost and start charging a flat fee. Build in extra room for fluctuation in costs and be transparent about what this charge is covering.

 

Flat fees make it really easy to provide a horse show cost estimate for your client as well. Professional, well run businesses should be able to provide cost estimates for their services prior to performance.

Sarah Judson is a lifelong equestrian with a passion for finance. She has combined these two interests with Brave Accounting, a financial services firm focused on serving the equestrian industry.

7 Employement Costs You Should Know About

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You’ve been working hard to add clients to your business and are finally at a place where you think you can afford to hire your first employee. That is a huge step for a small business owner.

 

Before you make that leap, make sure you know exactly how much that new employee is going to cost.

 

Wages

Make sure you know what the minimum wage is in your area and what your competitors are paying for similar positions. Take a look at job postings for similar positions to get a feel for the prevailing rate. You don’t want to overpay for work but you may have trouble finding someone to take the job if you underpay. Don’t forget about overtime pay. That can be a significant hidden cost for employers.

 

Taxes

Employers are responsible for Federal taxes and in some cases state payroll taxes. Check out this site to get an estimate of applicable taxes for your state:

 

https://www.adp.com/tools-and-resources/compliance-connection/state-taxes/2016-fast-wage-and-tax-facts.aspx

 

Worker’s Compensation Insurance

Most states require that you carry Worker’s Compensation insurance. This type of insurance covers medical care for on the job accidents. Check with several insurance agencies to get a quote for your area.

 

Unemployment Insurance

Most states require employers to pay an unemployment insurance tax on payroll. Some employers can qualify for exempt status if their payroll totals are below a specified amount or they fit into a certain type of employer category.

 

Health Insurance

ACA mandated health insurance coverage only applies to employers with 50 or more full time employees. However, you may want to offer supplemented health insurance coverage to your employees. Make sure to shop around for the best rates and check out healthcare.gov for goverment supplemented options for small businesses.

 

Paid Time Off

Several states have recently mandated paid sick leave for employees regardless of their part-time or full time status. The cost of offering this time off should include both the expected wages for the regular employee and any wages for hiring a substitute to cover the employee’s duties.

 

Payroll Costs

Whether you are running the payroll checks yourself or paying an accounting firm to do it, there are costs involved. Make sure you include the cost of the payroll software and your time to create the payroll checks, pay applicable taxes, and complete tax reporting requirements. Payroll firms are typically very competitive and often times the cost to outsource is well worth eliminating the stress and hassle of completing the work yourself.

 

If you would like to learn more, check out the links below and contact us to set up a free consultation to discuss your business needs.

Sarah Judson is a lifelong equestrian with a passion for finance. She has combined these two interests with Brave Accounting, a financial services firm focused on serving the equestrian industry.

 

Resources:

 

Payroll Taxes:

 

https://www.adp.com/tools-and-resources/compliance-connection/state-taxes/2016-fast-wage-and-tax-facts.aspx

 

https://www.oregon.gov/EMPLOY/Businesses/Tax/Pages/Payroll-Taxes.aspx

 

https://esd.wa.gov/employer-taxes

 

http://www.edd.ca.gov/payroll_taxes/

 

Health Insurance:

 

https://www.healthcare.gov/small-businesses/

 

Overtime Costs:

 

http://braveaccounting.com/?p=238

 

How To Write-Off Your Horse Expenses

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Wouldn’t it be great if you could write off all of those pesky bills you pay each month to keep your horse? You are planning on selling him one day, maybe even for a profit. That should count as business income, right?

 

Many horse owners have followed this line of thinking and attempted to claim their horse expenses as business expenses that can be deducted against ordinary income. Ordinary income is the good stuff. It’s the income that appears on your W-2’s and 1099’s among others that is generated from completing standard “work” as opposed to passive income received from investments. Most people have a lot more ordinary income on their tax returns than passive income so any deduction against it is very valuable.

 

If you run a business and are actively participating in its daily management and operations, your losses associated with that business can be claimed against ordinary income. However, there are some significant hurdles to overcome to qualify. For equestrian businesses, you must show a profit in 2 out of 7 years. You have to actually be attempting to make money. By that I mean that you should have a business plan and strategy to make the business profitable. The goal should not be to break even each year or post a loss. The IRS will see right through that strategy. I would also suggest keeping a separate bank account for the business revenue and expenses and hiring out the accounting to show you have third party oversight.

 

Horse syndications have gained in popularity and they are considered passive income generators, thereby restricting loss deductions to passive income only. Typical hallmarks of this type of investment are hand’s off owners who write the check for the expenses but don’t have enough knowledge or interest to participate in the daily care of the horse. If you have an ownership interest in a horse, there are some generous depreciation options for the purchase price of the horse that can offset any gains you receive from the investment. Accounting for these types of investments is tricky and I recommend using a quality tax professional to help you navigate the nuances.

 

You will notice that I have not discussed how you can deduct your personal horse expenses. Unless you can prove to the IRS that your riding expenses are business related, these costs are considered hobby losses and not deductible. There have been a few unusual cases where riders have been able to deduct the expenses but they have all been predicated on the assumption that the activity ultimately served to generate business income. My favorite example is this woman, who successfully argued that her riding participation was a marketing tool for her high end barn and interior design business.

 

If you would like to learn more, check out the links below and contact us to set up a free consultation to discuss your business needs.

 

Sarah Judson is a lifelong equestrian with a passion for finance. She has combined these two interests with Brave Accounting, a financial services firm focused on serving the equestrian industry.

 

Related Links:

 

http://smallbusiness.chron.com/tax-writeoffs-commercial-horse-boarding-facility-72390.html

http://www.journalofaccountancy.com/issues/2011/nov/horsebreeders.html

http://www.thehorse.com/articles/35597/cracking-the-tax-code

 

Why Your Clients Need a Horse Show Budget

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If you are a trainer, you should be prompting your clients to budget their horse spending. Knowing when and how much they are willing to spend will help you forecast your revenue for the year and plan accordingly. Nothing spells disaster like planning for a big show group and having people cancel at the last minute because they can’t pay the bill. Encouraging your clients to think proactively about their spending can eliminate these types of problems.

 

The Chronicle of the Horse recently posted a great article written by an amateur rider lamenting the high cost of show horse ownership. The author discusses how she has made many tradeoffs, including living in an airstream full time, in order to fund her equestrian pursuits. At one point, she states that she was asked to add up her annual spending and she was “horrified” and “didn’t want to know”. It’s clear though as you read through her piece that she has actually put considerable amount of thought into her spending and her careful planning has allowed her to compete and train her horse.

 

Wanting to avoid the realities of our spending is a normal and commonplace reaction. Especially when we put a large amount of our resources towards recreation. But it’s your money and you worked hard for it and should be able to use it as you see fit.

 

If you want to reduce the guilt factor, I suggest practicing responsible fiscal management by developing a budget for your horse related costs. Think about your goals for the year and align your spending to support those goals. For example, if you want to qualify for the state championships, determine which horse shows will give you the best bang for your buck for point accumulation and attend those. Spending thousands on out of state horse shows might not make sense if you can double the amount of shows you attend by staying in state.

 

Budgeting is all about tradeoffs and opportunity cost. You are given a finite resource and you need to add and subtract expenses in order to stay within your limit just like the author in the Chronicle post had to downsize her living situation in order to keep her horse. Knowing what that limit is at the beginning of the year and creating a plan, gives you control over your spending and minimizes surprises.

 

4 Documents You Must Collect From New Employees

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You’ve interviewed the candidates, checked all the references, and finally decided to hire your first employee, now what? Do you know what paperwork you need from your new hire in order to set up payroll? Do you know how to verify whether someone is legal to work in the US? How about a background check, can you benefit from adding this to your documentation?

 

An employer with a clear process for onboarding employees creates a professional work environment and protects the company from IRS and legal pitfalls. Even the most casual work environments should have a clear hiring process in place.

 

Here are the absolute must haves that should be in your employee’s file:

 

Employment Application

Include space for the employee to add their contact information as well as date of birth. You will need this information to complete payroll. You can also include employment history and education fields. Tidy Forms has several templates available if you don’t want to create your own.

 

W-4

The W-4 helps your employee determine how many tax withholdings they would like to apply to their paycheck. Your accountant must have this document in order to set up payroll. Make sure you have a signed copy before entering any withholding information for an employee.

 

I-9

Employers are required by the federal government to verify employment eligibility and keep a copy of an I-9 on file for each employee. What is an I-9? It’s simply a step by step process that you follow to check a person’s legal forms of identification (driver’s license, passport, etc) in order to verify that they can legally work in the US. It is certainly possible for a person to forge these documents but having the I-9 form on hand will go a long way towards protecting your company if you are a victim of this type of fraud.

 

Emergency Contact Information

Accidents happen and when they do, you should know who to contact on the employee’s behalf. This would also be a great place to ask for an employee’s health insurance details in the event that you need to provide this to emergency personnel.

 

You can make the onboarding process as simple or as complicated as you want. If you run summer camps and your employee will be working with children, it would be a good idea to run a background check. If you are hiring office help, you might want a copy of their college transcripts to check that they have the required training. Perhaps you are just hiring a high school student to feed the horses in the evening, you’re probably fine with the basics.

Want to learn more about hiring? Sign up for a free consultation with Brave Accounting and check out the links below.

 

Related Links:

 

https://www.sba.gov/content/hire-your-first-employee

http://www.tidyforms.com/basic-job-application.html

https://www.irs.gov/pub/irs-pdf/fw4.pdf

https://www.uscis.gov/sites/default/files/files/form/i-9.pdf

Avoid a Lawsuit with Accurate Employee Classification

night-office-shirt-mailEmployee classification is one of those tricky subjects that has huge implications for both employers and employees. If you get it wrong, as an employer you can be subject to fines and tax penalties as well as legal recourse from your employees.

 

This issue comes up a lot in the agricultural industry, including equestrian businesses, because there is a tradition of a migratory workforce and long hours on the job. There are many examples of misclassification of stable hands and grooms including this example of a teen barn worker that won a sizable lawsuit in Maryland.

 

How do you determine employment status for your employees? The best advice is to error on the side of caution and assume they are employees unless you can build a solid case showing they should qualify for contractor status.

 

Always document contractor status in a signed agreement between you and the individual you are hiring.  

 

Let’s define employee and contractor

 

An employee is someone whom you pay by the hour, with a salary, or with commissions to perform work for you. You pay employment taxes and worker’s comp on their behalf and in return govern their schedule and direct their work responsibilities. The work they perform is essential to your business.

 

A contractor is an individual who performs work for you for an agreed upon price, which can be hourly or a flat rate. You don’t pay employment taxes or worker’s comp on their behalf. You don’t have control over their work schedule and they have control over their work priorities and how they complete the job.

 

If you are wondering whether you should classify someone as a contractor or employee, ask yourself these questions:

 

  1. Do you control or have the right to control when and how they do their job?
  2. Do they use your equipment or do they provide their own? Do they pay their own expenses?
  3. Is the activity performed a key aspect of the business?
  4. Are you providing benefits like health insurance or paid time off?

 

The nuance is in the degree in which you control or have a right to control the way they perform their duties. A contractor manages their time and the project and often takes on expenses to complete the project. An employee uses their employers resources to complete a project and looks to the employer for scheduling and direction in their day to day tasks.

 

Here are some examples to help illustrate the classifications.

 

Contract Examples:

 

Example 1: You are at a horse show and hire a groom to care for the horses during that week. The groom is paid a daily fee for care and grooming of each animal. They agree to be available as needed during the week but they don’t clock in and out. They perform this duty for multiple clients throughout the year.

  • This is a contract employee; you are paying the groom by the job and reviewing the finished product rather than directing the actual work. They also have several clients that they work with throughout the year, which further clarifies the issue.

 

Example 2: You own a boarding stable and hire someone to clean stalls in the morning. This person agrees to clean each stall for $5 a piece. You ask that they get the work done by noon but the individual is free to arrive when they see fit. You don’t supervise their work beyond verifying each day that all of the stalls have been cleaned. They perform no additional tasks beyond the stall cleaning. They perform this service for multiple barns in the area and bring their own equipment.

  • This is a contractor; you aren’t directly supervising the job, they don’t perform duties beyond what is specified in the contract, and they have control over their schedule. They also serve multiple clients and bring their own equipment; theses are hallmarks of a business.

 

Employee Examples:

 

Example 1: You run a lesson barn and hire someone to teach lessons. You pay them per lesson but your office handles the scheduling and payment from the students. The teacher uses your horses in the lessons.

  • This is a tricky one because the payment arrangement may seem like they are a contract employee BUT because the lesson stable has control over the scheduling, the service performed is a key function of the lesson business, the stable handles payment from the student, and the stable’s horses are used, this individual is considered an employee. Further, this employee may be subject to overtime pay depending on how much they earn each year.

 

Example 2: You have a stable hand that is responsible for feeding and care of the horses at your boarding stable. They have set hours from 8 to 4 that they are expected to be at work. You give them a list of tasks each day to complete and supervise the work performed. Occasionally they perform duties outside the scope of their daily tasks.

  • This is an employee and may be subject to overtime.

 

Employee 3: You are a trainer and hire an assistant. They receive direction from you but have control over their daily workflow and supervise working students in the barn. You pay them a monthly salary and pay a portion of their insurance premium.

  • This is an employee and may be non-exempt depending on whether their salary meets the minimum salary threshold, eliminating your obligation to pay overtime.

 

Related Links:

 

http://equinelegalsolutions.blogspot.com/2009/03/are-your-stable-workers-independent.html

 

http://equiery.com/blog/?p=1343

 

https://www.irs.gov/pub/irs-pdf/p15a.pdf

 

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

 

Are You Ready for Higher Overtime Costs?

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Long hours and 7 day a week schedules are commonplace in the horse industry particularly during show season. Have you stopped to consider whether you should be paying your employees overtime?

 

The current annual salary minimum for exempt employees is $23,660, meaning you have to pay your employee at least that much in order for them to be exempt from overtime pay.

 

The Department of Labor has proposed increasing this minimum to $50,440 in 2016

 

This will have a huge impact on employers in every industry, increasing their labor costs either because of wage increases or additional overtime pay for newly non-exempt employees.

 

On the positive side, these changes may also encourage employers to be more mindful of excess hours worked by their employees, which ultimately should lead to better work life balance.

 

What can you do as an employer?

 

First, make sure your employees are classified correctly under the current minimums. You don’t want to end up with an expensive lawsuit for back pay.

 

Second, make an honest assessment of your employee’s work hours. Consider having your employees record their hours for a month to get an idea of the potential overtime costs.

 

Third, compare the cost of increasing your current exempt employee’s salary up to the proposed minimum versus paying them overtime. You can use this information to build a strategy for coping with a potential salary minimum increase.

 

Related Links:

 

http://www.dol.gov/whd/overtime/nprm2015/factsheet.htm

Check Your Company’s Financial Health: Part 2

The All Powerful Income Statement

Last week we dove into the Balance Sheet, which I am the first to admit is a bit of a snore (though very useful). This week we are going to take a look at arguably the most versatile financial report available (queue drum roll)…the Income Statement.

 

QB or Xero or whatever accounting software you are using is going to have a canned version of this report that focuses on your net income for the entire company. What is net income, you ask? Net Income is the profit you make from sales after paying all of your bills.

 

Looking at net income for the entire company has obvious uses and companies’ typically track this on a monthly basis as a pulse check for profitability.

Here is an example of a standard IS report from Xero:

Xero Income Statement

 

But what makes the Income Statement special is its ability to be applied to segments and even single products to measure profitability. Want to know whether your light bulb department makes more than the garden department? The Income Statement can do that. Want to know whether sales of that moon moon t-shirt justify the high printing costs? The Income Statement can do that.

 

With careful collection of revenue and expense data, you can create an income statement for any product or division of your company. I have even produced income statements for sales personnel that show the cash they bring in less their travel and salary expenses. Even a sales superstar can put you in the red if their compensation and expense budget is too high.

 

Here are a couple examples to give you some inspiration for your next Income Statement:

Income Statement by Sales Team

IS Example 1

Income Statement by Product

IS Example 2

Check Your Company’s Financial Health: Part 1

The most basic accounting software is going to be able to produce two reports using the accounting entries you have already made: the Balance Sheet and the Income Statement. These two reports are at the heart of financial reporting.

 

Today we will discuss the Balance Sheet.

 

The balance sheet is a snapshot of a company’s financial position at one given moment. So if you log into Quickbooks and run the balance sheet for January 31st, 2015, the report produced will show your account balances as of that date.

 

A balance sheet is organized into 3 major sections

  • Assets
    • Cash
    • Outstanding invoices
    • Expenses paid before they are incurred
    • Long term investments like inventory, real estate or equipment
  • Liabilities
    • Outstanding bills
    • Customer Deposits on future work
    • Short term and long term debt outstanding
  • Equity
    • Past year income
    • Ownership Shares in the company
    • Current year Income

 

The balance sheet always balances! Meaning Assets = Liabilities + Equity. This is the heart of double entry accounting but for our purposes, we will skip the mechanics.

 

What should you care about?

 

Cash

 

If you run the BS report for the last day of the month, this account balance should match the account balance on your bank statement at the end of the month. It gives you a quick view of how much cash you have in the bank.

 

Hint: I highly recommend having a cash flow budget to help track your spending needs throughout the month. This reports uses your anticipated income and expenses to predict your daily bank balance.

 

Accounts Receivable

 

When you create an invoice in your accounting system, an entry is made in the accounts receivable account to track the total amount outstanding for services or products sold. This account balance can tell you exactly how much cash you can expect from your customers.

 

Hint: AR accounts have a supplementary report called an aging schedule, which will show you how long the invoices have been open. This important information can help you determine how likely you are to receive the payment and who you need to follow-up with for late payment.

 

Accounts Payable

 

This account is the offset to your receivable account. It tells you how much you owe vendors based on how many bills you have entered into the accounting system. I emphasise that last part because if you haven’t entered the bill into the system, it’s not going to show up on the report.

 

Debt & Equity

 

If you have to borrow money to run your business, it’s going to come from two sources: creditors like a bank (Debt) or individuals with an ownership interest into your company (Equity). Both sources are expecting compensation for their contribution but typically a creditor has a set payment plan whereas an equity partner relies on management to disperse unused cash as it is available.

 

Let’s take a look at an example QB balance sheet:

BS Quickbookd

Our dummy company, Pinnacle Construction, has a high cash balance and accounts receivable balance in relation to their accounts payable balance. This suggests that the company has plenty of operating cash to handle its bills. However, when you take a look at the liabilities section, there are two loans listed that will impact the availability of cash and a large amount of outstanding work that hasn’t been completed (contract liabilities).

 

To add to the mix, the net income, which generates from the Income Statement, listed under the Equity section is negative. Meaning they earned less than they paid out for operations as of this date. That expected negative cash flow plus the high loan balances and the possibility of increased cash needs to complete the outstanding contracts should be a red flag. This is a situation where a cash flow projection could save this company from defaulting on its obligations and alert them to potential shortages.
A bank considering extending credit to the company might wonder whether Pinnacle can actually meet its obligations and this is a question the business owner should be asking themselves as well. The balance sheet serves as a jumping off point for you to dig into the details of your finances and truly test the financial health of your company.

 

Stop Bleeding Cash With These Three Reports

Poor cash flow management is one of the leading causes of small business failure. Money is fast going out but slow coming in, particularly for new businesses that are still building their customer base. Having a monthly budget is a first step to understanding your cash needs but you can go one step further with a daily cash flow projection.

 

This report uses your starting bank balance for the month and adds your anticipated bills and invoices to determine your working cash balance on a daily basis. If things are tight, knowing whether you will have enough receivables in by the date your rent is due can save you a bounced check.

 

You should be reviewing and updating this report throughout the month. Checking the report regularly against your paid bills will alert you quickly to anything that is past due and give you a heads up for potential low cash events.

 

Revenue Collection

If your business is repeatedly low on cash throughout the month, it is worth investigating the supplemental reports available in your accounting system. A collections report will show you the average number of days it takes for you to collect cash from an issued invoice. Speed up those collections and that will provide you with more working capital during the month.

 

Xero has a great Aged Receivables report that you can drill into for details. It can even be converted into chart form for those that prefer visuals:

Xero Aged Receivables

Inventory Turnover

On the flip side, an inventory turnover report will show you the average number of days you are holding inventory before it is sold. Inventory ties up valuable working capital. You want to keep your product on your shelves for as little time as possible. Analysing sales trends on a monthly and annual basis can help highlight changing inventory needs so you don’t over buy in the future.

 

Xero has a great Inventory Detail report that can be used to calculate Inventory Turnover and they are promising to add the ratios in a future release:
Xero Inventory Report

Related Links:

 

https://www.xero.com/blog/2015/07/whats-new-with-inventory-in-xero/

https://help.xero.com/us/Report_AgedReceivables