Buck O'Neil thinks that many farriers - not just those starting out - don't truly understand how much income needs to be generated for them to make a comfortable living.
O'Neil, who has a bachelor's degree in accounting and a master's in tax administration, says you need to start out by deciding how much spendable income you want to make in a year (spendable income is what you have left after all the costs of doing business, paying taxes, etc). O'Neil has developed a worksheet that provides a rough estimate of the sales required to produce $50,000 of spendable income a year.
His conclusion: To get that $50,000, you probably need to generate gross billing of almost $135,500. That's 271% of your goal.
Beginning with that $50,000 goal, O'Neil adds:
- Federal And State Income Tax: $10,000 (Based on 12% to 15% federal and 5% to 8% state. May vary from state to state.)
- Self-Employed Retirement Plan: $2,000 (Based on maximum federal annual contribution.)
- Self-Employed Health Insurance: $6,000 (Estimate. May vary widely. May not be needed if on some other employer-sponsored plan.)
- Federal Health Savings Account: $2,500 (Based on maximum federal contribution. Many do not use these, but for an independent business owner, O'Neil thinks they are vital.)
- When the taxes and benefits are added to the goal, the income from farrier operations needs to be $70,500.
- Self-Employment Tax: Add 15.3% to the $70,500 (essentially your social security and Medicare tax). That brings the total net revenue needed to $81,287.
- Cost Of Doing Business: Add an additional 40% (to cover supplies, equipment, fuel, transportation, etc). That means your gross sales would have to be about $135,473.
What does it take to generate the kind of gross sales? An example O'Neil gives is based on charging $100 a horse, for all four shoes. Shoeing 50 weeks a year, that would require shoeing 27 horses a week - or just a little over 5 horses a day in a 5-day workweek.
O'Neil warns that this is just a rough approximation and isn't intended as a reliable financial calculation. But it also points out the importance of having a business plan.
"Farriers, like many small business operators, focus their efforts on creating cash flow and production. They overlook management, the part of operating the business that makes the profit."
O'Neil believes taking the time to crunch some numbers can help farriers avoid potential financial catastrophe.
"Small-business people often use the 'price and pray' approach," he says. "They set a price to attract more buyers and pray they can sell enough to make a profit. But they don't consider a minimum net income they need to make a plan plausible."
O'Neil also points out that its important to know your market size. Many farriers may not be able to find 25 horses a week to shoe. And obviously, there are going to be horses that only need trims, or will be shod in the front and left barefoot behind. That's just one more factor that will need to be considered in putting together a hoof-care business plan.