You’re the envy of your friends – you get to work with cute pets and get paid for it! Whether you’re focused on teaching animals new tricks, getting them spruced up, or caring for them while their owners are away, your pet care business is thriving.
I want to talk to you about some common items that can cause confusion for pet business owners when it comes to accounting and keeping their books. While you probably didn’t get to where you are by ignoring money matters, it may not be your forte, and you probably would rather focus on income-generating activities. I don’t blame you! It can be less than straightforward, and definitely time-consuming when you’re unsure of how to do things.
The main thing I tell everyone, no matter what type of business they own, is to be specific when setting up your Chart of Accounts (CoA). What this means is to customize the categories you have for your income and expenses, mainly, so that they provide real insight into how your business is doing. For example, when you run your Profit and Loss Statement (P&L), you want to see your revenue divided out by which stream of income it’s coming from, and you want to see your expenses set up as categories that make sense to you. A general bucket for all of your income to land in doesn’t tell you much about your business! And the general categories for expenses may not mean anything for your business beyond getting you ready for tax time.
This makes it hard to make good decisions to guide your company on the path to profit!
A few other accounting items that may be on your radar include mileage, handling a facility you’ve purchased, making entries for loans, and running payroll or making payments to contractors. We will cover each of these for the three main categories of pet businesses: trainers, pet groomers, and boarding facilities/doggy daycares.
Accounting Guidelines for Dog Trainers
Varying Types of Income
There’s a variety of types of income you could potentially earn as a dog trainer; it just depends on your expertise and what you choose to offer. Here are some common services that would be different streams of income for dog trainers:
- obedience lessons (group or individual)
- puppy training
- agility
- hunting
- Schutzhund/IGP
- home and personal protection
- more intensive training such as board and train
- product sales or affiliate income
If you offer more than one type of training, what you’d want to do is set up your books to reflect each of them as a different income type. This allows you to differentiate them on your P&L and watch patterns over time.
Common Expenses for Dog Trainers
Thankfully, there are not a ton of expenses for trainers unless you operate a boarding facility. Administrative items are going to comprise most of your outgoing transactions. These are things like insurance, advertising, office supplies, and any licenses or professional dues you have to pay. You may also utilize training materials like collars and leashes, and of course, treats.
If you do have a facility that you use, the rent for that, or business use of your home if that’s where you see clients, would be deductible. Anything you need to prepare the space for use could likely be expensed depending on the cost. However, if you have a full boarding facility, or if everything to get the training space ready for clients costs over $2500 (fencing and posts, concrete slab, gate system, shelter or kennels, etc.), this would be considered an asset. The way this is expensed is through depreciation: Each year, for tax purposes, a portion of the value of the asset is depreciated, which helps offset your income. This continues through the useful life of the facility until the entire value is depleted. Then, you still have the asset on your books which adds value to your company, but it no longer represents an expense.
Don’t Forget About Mileage
If you travel to your clients like many trainers do, make sure you keep a mileage log. At the end of the year, your tax preparer can use this to calculate a mileage expense. This is based on a pre-determined rate (again, dictated by the IRS; at the time of this writing it’s 67 cents per mile). Alternatively, you could track all your vehicle expenses such as fuel costs and repairs and maintenance, which is significantly trickier and perhaps not really worth the extra recordkeeping.
Accounting Guidelines for Pet Groomers
Being a skilled pet groomer can bring in a nice income, especially if you serve an upscale clientele or a show circuit. You can also charge a premium if you operate a mobile grooming operation for the convenience of bringing the salon straight to the pet and his owner.
Service Income
First, let’s talk about the different income streams you might have. These are specifically for dogs:
- shampoo and blow dry
- conditioner treatment
- haircuts
- mat removal
- brush/de-shedding
- nail trimming
- ear cleaning
- sanitary trim
- anal gland expression
- hot spot treatments
- paw treatments
- show prep package
- spa services like facials, massage, and nail polishing
- product sales
You may also do cats, and most of these services overlap with the above, and then there are specific services geared toward cats such as nail caps.
You would probably not want to differentiate all of these on your Chart of Accounts, but instead add them into QuickBooks Online as services, and utilize groupings of similar services on your actual Chart of Accounts (e.g., bath, cuts, hygiene, spa services). This allows you to make comparisons between months or years to see how a certain grouping is doing over time, and it also tells you how popular each individual service is and perhaps if a service is not worth offering at all due to low sales. Maybe the spa treatments you offer are not the hit you thought they’d be. Without running a P&L on a regular basis as well as product reports, you may not notice which services are not performing as well. On the flip side, you might want to raise prices a little on your most popular services since they are so in-demand, but you can only have this knowledge by running and reviewing these reports.
Expenses for Pet Grooming Service Providers
And again, we want to differentiate everything in a way that is meaningful to you. What expenses do you want to keep a close eye on? Perhaps you want the grooming products you use to be no more than 20% of your sales. This is called your Cost of Sales (COS) and it’s a major component of the expenses you want to track. This will be directly impacted by which services you offer. Generally, your COS probably includes things like shampoos, disposable tools, and bows and bandanas. More specialized services will have different items involved. A good rule of thumb for remembering what falls under COS is that if you’re not performing a service, you’re not incurring this cost.
Aside from COS, you have other operational and overhead expenses. These include things like insurance, utilities, rent, laundry fees, payroll and payroll taxes, office supplies, advertising, and small tools and equipment.
Common Assets for Dog Groomers
Let’s talk about assets and what that category might include. Assets are part of the Balance Sheet and do not show up on the P&L.
Generally speaking, equipment that costs over $2500 and is intended to be in use for two or more years will be considered an asset that must be capitalized. This means that instead of taking the cost of these items as an expense when you make the purchase, they will be depreciated over a period of years. The depreciation amount represents an expense for those years, and after the asset has been fully depreciated, you no longer have the depreciation expense but you do retain that asset as added value for your business (until you dispose of it).
Some of your higher-end grooming tubs, tables, and stations probably fit into this category. The build-out of your facility would also count – all of the furniture and fixtures, along with equipment, fall into a category called FF&E. If you own your facility, that commercial building will be depreciated over 39 years per the IRS. If you have a mortgage on that building, you can write off (expense) the cost of the mortgage interest each month while the principal part of the payment goes toward paying the note down (so, the principal is not considered a deductible expense).
Special Considerations for Mobile Groomers
Mobile groomers will need to have additional insurance to cover their vehicle. The vehicle is not only for getting to clients but also contains the grooming facility. Please check with your insurance carrier to ensure you have coverage for everything!
As mentioned above for trainers, you’ll want to keep a mileage log so you are able to compute a mileage expense at tax time. For mobile groomers, however, there may be additional costs associated with repairs and maintenance that would make it worthwhile to keep track of these expenses, along with fuel costs, and use those for expensing instead of the standard mileage deduction. You might want to keep receipts for those items (and of course, enter them into your bookkeeping software) and let your tax preparer give you your options at tax time.
If you’re a mobile groomer who uses a generator while servicing clients, you should keep receipts for the generator fuel separate from those for the truck. The generator fuel is a Cost of Sales (COS) while the fuel for the truck is not, and these will need to be deducted appropriately by your tax preparer. There should be separate line items on your P&L for these.
As far as assets are concerned, your grooming truck is an asset, and probably everything in it that’s bolted down!
Accounting for Doggy Daycares and Pet Boarding Facilities
The full-service doggy daycares and pet boarding kennels tend to offer so many different things to their cuddly clients! These businesses will virtually always have a building to account for, whether leased or owned, along with a build-out that can be quite extensive (and expensive). There are a variety of income streams and expenses to go along with it as a cost of doing business. Let’s take a closer look.
Differentiating Your Diverse Income Streams
The many types of income you have for your kennel should be separated out on your P&L so you can drill down to see exactly where your money is coming from. This will give you the best data possible so you can make good business decisions. These are some common types of income for this type of pet care business:
- Daycare income (hourly, daily)
- Boarding income (daily, weekly)
- Upgrades (special food, extra play time, dispensing medication)
- Grooming income
- Vet-related income
- Training income
- Special events (holiday events, pet photography)
- Product sales
These are still pretty big buckets to put things into, so you could go even further in breaking these down if it will help you visualize the big picture of your business. You have to find a balance between drilling down enough to see everything while not making your P&L too long!
Doggy Daycare Operating Expenses
A kennel or boarding facility has a lot of operational expenses to control, so ensuring that these are itemized out in the Chart of Accounts is imperative. Here are a few that may apply to you:
- Cleaning supplies
- Food cost
- Laundry expense
- Payments to contractors (on-call vet, groomer, trainer)
- Supplies for boarders (toys, bowls, leashes and collars)
- Wages
Having these separated into different line items on your P&L will help you to see trends over time, which gives you insight into what costs may need to be controlled better. Again, this goes back to having good data so you can have as much info as possible when making decisions about where to take your business.
It also helps to compare your expenses as a percentage of revenue. If that percentage is creeping up due to rising costs, that just might be something to pass on to your customers. These kinds of things can easily be missed if you aren’t bothering with P&Ls or if you don’t take the time to ensure that your expenses are broken into the appropriate categories – or even worse, you’re not doing any bookkeeping at all.
Overhead for a Kennel Facility
There are a bunch of categories of overhead for a boarding facility, too. These are things like rent, insurance, advertising, office supplies, utilities, support staff wages, repairs and maintenance, software costs, and professional fees.
Assets and Liabilities for Pet Care Businesses
The most obvious asset for a kennel, boarding facility, or doggy daycare is the building itself, if you own it. The mortgage for the building is a liability on your Balance Sheet, and the payment you make each month reduces this liability as well as gives you an expense in the form of mortgage interest. The way it works is the principal portion of the payment goes toward reducing the amount of the note, and the interest portion is booked as an expense. You also get a depreciation expense at tax time.
Other assets would include the build-out for the facility and any equipment related to services provided such as those mentioned in the grooming section above, exam tables if you also offer vet services, a storefront if you operate a retail shop, that kind of thing. The latter are known as FF&E, or furniture, fixtures, and equipment. These, again, will be depreciated, giving you an expense to offset income while giving your business a value beyond just your net income.
If you are renting, modifications to the building are referred to as leasehold improvements and this is considered an asset.
Liabilities are also on your Balance Sheet and these consist of money you owe to others. A mortgage is a great example, but also consider accounts payable (when you purchase something from a vendor on account), credit cards you have for the business, and loans you may have taken out for equipment and whatnot. Other common liabilities relate to temporary accounts for tax payments owed (e.g., sales tax, payroll taxes, that kind of thing).
These offset the value of the assets. Whatever is left over is owner’s equity…the amount of the business you own free and clear, or to split with your partners.
Staffing for Doggy Daycares and Boarding Facilities
The staffing at your kennel is probably varied. You likely have hourly staff who perform operational tasks like caring for the animals and cleaning up after them, as well as hourly admin staff such as receptionists and retail employees. Then you have salaried managers over each area. You may also have workers who are not employees but independent contractors who come in to do a specific job on-site. This might include a groomer, a trainer, and even veterinary experts who can care for animals that have emergencies.
Understanding the difference between an employee and an independent contractor is critical! You can be fined heavily by the IRS for misclassifying your workers. You may play a role in scheduling these workers within your facility, but do you control how they are doing their work? Do you provide their tools and equipment, and do you train them? The bottom line is that independent contractors are in business for themselves, not for you, so they don’t ultimately answer to you. If they do answer to you, you most likely have an employee and should be contributing to their FICA. Payroll doesn’t have to be overly painful for you as a small business owner, though!
Outsourced Accounting Services for Your Florida Pet Business
As you can see, the complexity of the accounting for pet care businesses really runs the gamut. From a solopreneur dog trainer or pet groomer all the way to a full-service boarding facility, there are accounting issues to figure out and address. If you would prefer to stick with what you know best and focus on your clients instead of spending time agonizing over your books, an outsourced virtual accountant for your pet business might be the perfect answer. It can free you up to spend time on operations, or heck, give you the chance to take an extra day off.
You can start by using my new accounting services price estimating tool to get a ballpark for how much these services will run you, and then when you’re ready to get started, schedule a short call with me so I can answer any questions and we can firm things up. I can get started in under a week!
