One question that arises for many beginning farrier businesses is whether your practice needs to “go legit” if you’re just starting out and there are few sales. The simple answer is do it right to begin with and avoid any future complications.
If the government finds out you’re not running a legit business, you could become subject to fines and penalties as well as your business being shut down. If you don’t pay taxes on your earnings, the Internal Revenue Service can track you down and impose criminal charges and even jail time. Never think that you won’t be caught
This is especially so if you accept credit cards, as your business is easily exposed. It can be quite intimidating to officially register your business, but it isn’t that complicated to fill out the forms.
Where To Begin
First, obtain a Federal Employer Identification Number or FEIN. Technically, as a sole proprietorship, you don’t need to obtain a FEIN, however, it will allow you to fully separate your business from your personal affairs. It is easy to obtain from the IRS website. At a later date you may take on a customer or barn that will provide you with a 1099-MISC for what they paid you for your farrier service. You will find it safer to give out your FEIN than your Social Security Number. In general, any service provider (such as a farrier operating as a sole proprietor, partnership or LLC) that has been paid $600 or more can be issued a 1099-MISC.
Second, register your business with your county courthouse as a “Doing Business As” or DBA. If you plan on using a name for your business that doesn’t contain your name, you will need to file a “Fictitious Business Name” or FBN. The government makes you file for an FBN in order to allow customers to locate the owner of a company without too much effort.
Third, obtain a state seller’s permit or sales tax permit. The main reason for such permits is to allow you to collect state sales tax from your customers, which is required. Sales tax is only collected if you sell goods or services to someone that resides in your home state.
Unfortunately, even if all of your customers are out of state, you still have to get a seller’s permit. You can obtain a seller’s permit by contacting your official state taxation department.
Each state is different when it comes to what gets taxed. In some states, only new products used (new shoes and nails) are taxed. In New York state, we have to charge sales tax on the final bill, including labor, no matter if new products are used or not. Check your own personal state laws for further information.
The Essentials
Your records do not have to be complicated. If you are starting out, a simple ledger should suffice.
It is also important to keep information about your individual clients. Here is a trusted list that Hall Of Fame horseshoer Red Renchin makes sure is entered on every client entry he uses.
- Client Information. This includes your clients’ names, addresses and phone numbers. Be sure to get home, cellular and work numbers from clients. If you use a computer, get their email address, too. This can help you later, should you need to simultaneously contact multiple clients on issues such as achieving certification or if you change your phone number.
- Horse Information. Here you’ll list the horses, their owners, when the horses were last worked on and what they will need next time. The latter will be important for deciding what equipment you need on the next barn call. Be specific about what you did with each horse, as it will help you provide the client with a detailed bill. You may want to include other information here, such as the client’s preferred veterinarian.
- Income. For each client, list the money you have made, as well as what you are still owed. Be sure to record the dates for when you notified the clients of any outstanding bills.
- Expenses. Detail how much you have spent on each job and on what items. Account for everything from the nails driven to the shoes used to pads or any other extra item. It is important to be detailed on what you have done for each horse, as it will help you itemize what you spent per horse when trying to understand your overall costs.
Keep Thorough Records
So you’re legit — now what? The “dreaded” bookkeeping and paperwork come next.
Keeping track of your business can be done in a simple ledger. As your business grows, I suggest obtaining an easy-to-use software program designed for farriers to make accounting easier and less time consuming. Simply keep track of all your expenses and any income received. Maintain all your personal and business finances separately, including bank accounts and credit cards.
You will also need to keep a mileage logbook in your vehicle for proof when it comes to tax time. With the current deduction for mileage, it would be foolish not to take advantage of this.
There are two main ways to maintain your business books: the cash method and the accrual method. In general, a farrier business that carries inventory must use the accrual method of accounting. What this means is that income and expenses are treated and taxed when it is earned (the day you present a bill) rather than when the money is actually received.
As a new small business owner, you’re also required to give your customer a receipt for their purchases and keep a hard or electronic copy on file. You can start by purchasing a simple carbonless two-page receipt book, plain or farrier geared.
A bill and a receipt are not the same thing. A bill is an acknowledgment that a specified sum of money is due for goods or services. A receipt is a written or printed acknowledgment that a specified article or sum of money has been received as an exchange for goods or services. A bill marked as paid becomes a receipt.
Receipts may include any messages from the farrier, warranty, return details, advertisement, billing fees, etc. A physical or electronic copy of the receipt must be kept on file and is a really good idea for more accurate business records.
Under the Consumer Protection Act (2005), a receipt must show such information as: the amount of money paid by the consumer; the date on which the purchase was made; a description of the goods or services sold; and where applicable, the professional fee charged. It’s also the consumer’s right to refuse receipts that do not itemize the purchased goods or services. The receipt must also state that the service or goods was paid.
Plan A Budget
Now that you’re a legitimate business that is tracking business income and expenses, you must operate under a budget to be successful. Remember, you are the only one who can maintain your budget. Making purchases without careful thought and planning may destroy your financial and savings plans.
For every dollar you receive, about 30 to 40 cents will go towards expenses, while another 35 cents will go toward taxes. This leaves you with 25 to 35 cents for actual income. Keep this in mind when some bright and shiny new tool is begging you to purchase it.
Another point that many people don’t know is that the average tax per person is 31%. Nearly one-third of what you make will go to your local, state and/or federal government.
Save The Remainder
Now we can discuss saving and investing your money. Saving money merely means to put it aside for a “rainy day.” Investing money means to commit your money to a financial institution in order to earn a financial return at a later date. As a new farrier business owner, saving your money will be an important financial decision.
Saving money will help you have a cushion to protect you in the event of an unexpected financial event such as injuries, repairs, etc.
Start off simple and small. Open a separate, high-yield savings account. Of the 25 to 35 cents per dollar you are making, place 10 cents of it into your savings account each week. If you earned $300 for the week, you would deposit $30 into your savings account that week. It may not seem like much, but it will add up very quickly. As your savings account grows, you can work on building a financial future by investing in a retirement account.
Now more than ever, saving for retirement has become extremely important as Social Security may not be enough to support you through your retirement years. Regardless of age, now is the time to start building a “nest egg” in order to maintain a comfortable lifestyle throughout your retirement.
Having a list of general operating procedures — or “Respective Responsibilities” — for your farrier business will help provide clear and concise rules and expectations to customers. This guideline shows your customers what you expect and how you will conduct your business. List your guidelines for scheduling, work conditions, horse behavior expectations, fees and billing procedures.
Peace Of Mind
The last task for a new farrier business owner is to obtain insurance. In order to make an informed decision about what insurance to purchase, it is important to determine the risks that you and your family face.
Decide whether purchasing insurance to reduce risks or depending on your own resources to cover those risks is right for you. Medical and auto insurance are a must in the farrier profession. Certainly liability, disability and professional insurance should be considered later on as your farrier business becomes more established. Read more about insurance start-up on page 48.
These introductory suggestions will help you correctly get your business up and running from the start. As your business grows, you will have to make adjustments along the way.
