On a crisp day last fall, I met Joanna (known to her friends as JoJo*) for the first time. The leaves had already turned and many trees were bare. A stone driveway wove its way between two large pastures where several horses were grazing.
Inside the barn, I find JoJo, who has just finished riding. She firmly shakes my hand and introduces me to Hawkeye, a gorgeous gray gelding. Hawkeye is JoJo’s newest OTTB and she is retraining him as an event horse. It is hard for her to hide her excitement about Hawkeye.
Cry for help
JoJo and I go to her office as Hawkeye heads to the wash stall. Framed images of riders with blue and red ribbons and goofy summer camp pictures line the wall in the office. Cards from students are stuck to a corkboard next to her desk. JoJo sits down, takes one deep breath and begins to cry. For five minutes, she wavers between apologizing for crying, sobbing, and telling me she is a disaster. The cool, confident, collected horsewoman was the exact opposite at this moment.
JoJo slowly pulls herself together and admits she is completely overwhelmed every time she tries to tackle her finances. She looks down at the floor and mumbles that in addition to being perpetually broke, she hasn’t filed tax returns in three years. “Help, I need help,” she says. She is waving the white flag.
JoJo moved ten miles down the road to an impeccably maintained facility with an attached indoor, six more stalls, and all for a considerably lower rent! Her boarders went with her, lesson enrollment was up compared to the prior winter, and Hawkeye is out on a full lease.
An outside perspective
Already, I like JoJo. Her horses and boarders look happy and healthy. She gives OTTBs a new education so they can continue working, and she teaches countless people how to ride.
As we tour the barn, JoJo tells me she feels stuck. She has no health insurance and can’t get any credit to buy a new truck and trailer. She would love to buy a house and put down roots, but says she’ll never be able to get a mortgage. Saving for retirement garnered a look of, “Are you out of your freaking mind?”
We come around to the detached indoor ring and JoJo lets out a groan. The roof leaks and is in desperate need of repair. She shudders at the thought of the upcoming winter, knowing she will have trouble making the barn rent come January. Most parents will pull their kids out of lessons over the winter, and a few boarders will go elsewhere.
JoJo and I part ways and I get to work building her books and getting her back into compliance. Instantly, I spot two major problems. The first glaring issue is that JoJo pays almost double the barn rent compared to other horse farms in the area.
The first change she needed to make was obvious. When it was clear her landlord would not renegotiate the lease or remedy the drainage and roof hazards, she knew she had to leave. JoJo moved ten miles down the road to an impeccably maintained facility with an attached indoor, six more stalls, and all for a considerably lower rent! Her boarders went with her, lesson enrollment was up compared to the prior winter, and Hawkeye is out on a full lease.
Balance your bank account
Another issue is overdraft fees. In 2010, US banks collected $32 billion in overdraft fees from financially struggling Americans. And since the bank controls your bank account, they will always get their $35 overdraft fee. I have observed banks stacking the order of transactions in a day to their benefit. For example, some banks will clear the largest outgoing transaction first and then charge overdraft fees on each transaction after that, even if you only exceeded your available balance once.
The bank loves it when you overdraw your account, and often unbeknownst to you, enrolls you in “overdraft protection”. Rather than having your debit card declined at the tack shop, gas station, Wendy’s, etc., the bank covers your overdraft. Isn’t that nice of them? However, every time this happens, the bank charges a $35 overdraft fee.
So let’s put this in perspective: your account is overdrawn and you go to the tack store your bank “loans” you the money for a $35 fee. In reality, those $15 wraps now cost $50 and you just paid interest of 333% on those wraps! Next stop is a sandwich for $5.75. Debit card goes through; the bank “loans” you the $5.75 for a fee of $35, and you pay 708% in interest! No sandwich is worth that!
This can happen numerous times before you get your bank statement and notice it. Each time the bank extends you this “borrowing” courtesy, you end up paying an additional $35 fee. By the end of the month, you could easily have done this ten times with overdraft charges of $350. JoJo had between 12 and 20 overdrafts per month. In three years, she paid $18,900 in overdraft fees!
Don’t be afraid to ask for help
Every business owner needs to come to terms with the fact that absolutely no business runs well all by itself. Each and every business brings in professionals for various aspects of its operation. Right about now you’re saying to yourself, “I’m already having money problems, why would I spend more money for someone to help me with money?” The real question is, what will it end up costing you if you don’t?
I knew we had to rein in JoJo’s negative cash flow. She put a bank app on her phone and now checks her balance before every single purchase. She keeps a running list of checks that haven’t cleared so she knows what to deduct from her available balance. In the first month of adopting this new discipline, JoJo had five overdrafts; by the third month she had two; and now she has had only one in the past six months.
JoJo’s journey to owning a financially successful business has just begun, but she is moving in the right direction. A business with cash flow issues is gravely ill. If you have a horse that is ill, you wouldn’t hesitate to call the veterinarian. Nor should you hesitate to call in a professional to help keep your business strong and healthy.
Stacey Yalenti, CPA, and Abby Road Group provide accounting, bookkeeping and tax services to equine businesses across the US, using cloud-based technology. For more information, visit abbyroadgroup.com.
*Names have been changed