This article was first published in The Plaid Horse on July 25, 2018.
BY PAMELA N. SAUL, CB
You have decided it’s time to start a new business — congratulations! You probably spent years as a kid hanging around the barn, graduating to a student intern or volunteer, then on to a journeyman, learning from the professionals, (or some variation of this route) to becoming a business owner. You have a plan and a name, but where do you go from there? In comes the three pillars of business – Legal, Insurance, and Financial – to support the foundation of your new business.
All three pillars are vital to your new business as there are many regulations, tax requirements, and guidelines that make it next to impossible to keep track. Don’t kill yourself trying to keep up… it takes people years of study, rigorous classes, and exams to get certified in each one of these fields. By using professionals, their expertise will support the creation of and help identify issues in the construction of your new business.
To ensure you have the best help, it is wise to make sure that you aren’t dealing with someone that talks down to you, won’t explain things in terms that you understand, or acts like they don’t have time for you; if that is the case, you should move on! Remember, these are allies to the foundation of your business, and should be working for you. If they aren’t the right fit, there are others that will be. I would recommend interviewing a minimum of two, but three is best practice to see which professional fits with your company’s needs.
Let’s look at each pillar in detail:
In most cases, a lawyer is needed to help guide you through the maze of setting up a new business. Depending on the state, there could be specific requirements for creating a business and I would recommend working with a lawyer that has a focus on equine and/or agricultural law. Be conscious of the differences and benefits of creating a Limited Liability Corporation (LLC) or Incorporation (Inc.), as well as other types of businesses, like Sole Proprietorship, Limited Partnership, or Nonprofit Corporation. Your lawyer should help with federal, state and local government requirements of a new business set up as well. Depending on the type of business chosen, it will determine what legal documents are needed such as, applying for a Federal Employer Identification Number (FEIN), State application for trade name, business license, tax accounts (like Personal Property Tax, Sales Tax, and Withholding Tax), and documents for the operation of the firm such as an Operating Agreement, Minutes, By-Laws and Business Plans.
With equine businesses being so different from the typical main street business, I highly recommend using the advisors in the industry with more experience to help you with your financial situation. You’ll need a Certified Public Accountant (CPA) for support with tax implications and to identify what bookkeeping requirements you’ll need and they should also keep you in compliance with tax regulations. If you don’t have one, ask for referrals from people in the industry that you trust.
Becoming a business owner means working “on” the company instead of “in” the company. A way to shift some of the daily financial tasks is to hire a Certified Bookkeeper. We work with our clients to take care of the paperwork needs so that they can get back to the barn! They know that we make bookkeeping a priority and invoices get sent on time, bills get paid on time, and the books are kept current so that any issues are addressed in a timely fashion.
You might also want to consider a Financial Advisor to work with you. A financial advisor can help you to plan short and long-term financial goals. An example would be building an indoor ring or being able to retire! These include provisions such as SEP or 401(k) arrangements and how to maximize contributions and take advantage of tax deductions.
It is very important to have someone knowledgeable in the equine-specific field and there are insurance companies that actively market to agriculture/equine entities. Find an agent that can ask the important questions to get the best coverage. For example, a boarding facility would need Care, Custody and Control coverage, which is usually an exclusion in most business policies. You may also want to add additional coverage for tack, since a saddle and other pieces can be so expensive.
A common mistake is thinking that a homeowner’s policy will cover the business property, while it may have limited coverage for storage, it most likely will not be high enough to provide adequate coverage and in some cases, it may have a specific exclusion on covering anything related to business in the homeowner’s policy. A knowledgeable and honest agent can make sure the new business has the necessary coverage and prevent a loss that could put you out of business.
Here’s where the benefit of the three-pillar support team really kicks in. Some of questions asked of the lawyer are the same questions to ask the financial and insurance agent, because all three are going to give valuable information from their own perspective.
Let’s use the question of whether to set up an LLC or Incorporation and what information should come from each section:
Difference of how owners are categorized (shareholders vs. members)
How ownership transfer happens in each
How management should be structured
Tax Structure – Financial benefits of the different options
What type of risks are common to cover
Options for limits (deductibles, limit amounts)
How best to protect the business
Using the information from all three gives the necessary information to be able to make the best decision on how to set up your new business. Using the professionals as a go-to resource for advice, along with desire to make a go of it, should help tremendously on the road to a new adventure.
This article is not to be construed as financial advice. It is given for educational and informational purposes only.