Home / Uncategorized / Get a Grip! Financial Organization Simplified

Get a Grip! Financial Organization Simplified

I’ve got good news and bad news. I’ll start with the bad news.

95 percent of small businesses fail within their first five years. Not only does this apply to photography businesses, it’s true for all small businesses.

What does this mean for photographers? 9,120 of the 9,600 new photographers who attended WPPI in 2011 will not be in business in 2016.

Why do so many small businesses fail so fast? They fail to manage their expenses.

If you don’t manage your expenses, your business doesn’t make a profit. You have to make a profit in order for your business to be sustainable.

So what’s the good news? YOU don’t have to be a business that fails within the first five years. You have the power to set your business up for success. Start out right by getting a grip on your finances!

1. GET A GRIP: Understand that your finances really matter!

Managing your finances is critical to your success. If you’re running a photography “business,” it has to make money. Of course, your art is valuable and money isn’t the only reason to sustain your business. However, if you want to be in business 10 years from now, it must make money.

If you still think managing your finances doesn’t matter, this might change your mind: The IRS says that if you call something a business, it must make money.

2. GET A GRIP: Hire an Accountant

Hiring an accountant is not only easy, it’s also the best decision you can make if you want to run a sustainable, profitable business. A CPA (Certified Public Accountant) guides you through tax season, sets up your chart of accounts in bookkeeping software, teaches you how to read financial statements, and helps you understand how those numbers relate to your business.

Hiring an accountant is an investment, but it’s worth it. If you aren’t convinced, take time to meet with an accountant. They may offer a free consultation to give you an idea of which services they suggest for your business and what it costs to perform those services.

Many CPAs offer varying levels of service at different price points. An “a la carte” option enables you to pay a specific amount each time you call them, or when they do work for you. A “full-service relationship” means they advise you, do your bookkeeping and payroll. To decide which service level is best for your business, take the time to meet with a CPA who specializes in small businesses.

3. GET A GRIP: Track Everything

If you want to get a grip on your finances, you must track your income and expenses. The process of deciding what to do with receipts, contracts, invoices, and bills can be intimidating. For many photographers, the answer is to toss everything into a box and figure it out later (which usually means pulling that box out just in time to do taxes). While taxes are an important part of the financial equation, reviewing these papers once a year at tax time won’t help you understand anything about the health of your business.

Monitoring your finances requires “managerial accounting” or “double-entry bookkeeping.” This means that instead of just tracking what comes in and what goes out, you also track WHY you spent money, and where it went.

It’s easy when you follow these steps:

Identify your product and service categories. List the different types of services you provide, such as wedding photography, senior portraits, and family portraits. Next to each service type, list the products you sell that are associated with that service. This will help you identify areas of your business that are profitable.

Identify and list all materials and labor that go into making or selling products. This is called Cost of Sales (COS) or Cost of Goods Sold (COGS). When you have this information, you can make educated decisions about your pricing by evaluating your profit margins (Price—COS) for each product and service.

Materials and Labor Costs to Track:

  • Wholesale cost from your lab
  • Labor related to editing, processing, and retouching images
  • Labor related to selling and producing products
  • Packaging and Shipping Costs
  • Credit Card processing costs

Identify and list fixed expenses you regularly incur while running your business. Fixed costs are costs that aren’t dependent on the amount of goods or services you produce.

Fixed Cost Categories:

  • Employee Expenses (salary, non-sales related labor costs, benefits)
  • Administrative Expenses (telephone, supplies, internet service, insurance)
  • Capital Expenses (depreciating equipment expenses, major purchases)
  • Overhead Expenses (rent/lease, utilities)
  • Marketing Expenses (advertising)

Every expense you incur and every dollar you earn should be tracked and assigned to one of the categories above. This is a critical part of the process because it helps you measure your profitability.

4. GET A GRIP: Set Goals

Using the information you gain from tracking and identifying income and expenses, you should set goals.

Goals are milestones that enable action. They help you make strategic decisions that move your business forward.

For my business to be profitable, it must bring in a certain amount of income. When I know what that amount is, I’m able to pinpoint the number of weddings and lifestyle sessions I must book each month. Example: In July, I must book three weddings and shoot 30 senior sessions.

When I establish my goals, I make more informed decisions about how I spend my time and how I market my business. It helps me know where to intelligently invest my energy and resources so that I make my goals a reality!

5. GET A GRIP: Manage by the Numbers

Because you track how every dollar is spent and know which parts of your business are most profitable, you are able to manage your business for maximum growth. When it’s time to look at how you can be more profitable, turn to the numbers to make informed decisions. You can see exactly where you can work harder to control costs and which products and services are increasing your bottom line (or profit).

Getting a grip on your finances keeps your business in the five percent of sustainable businesses, and gives you the leverage you need to grow, expand, and succeed!

This article was originally published in The Photo Life Dispatch, Get Your Life Back: A Simple Guide for Organizing Your Business. Check it out for more practical tips to streamline your business.

About the Author

Jason Aten is a Michigan based wedding photographer. After a career in marketing and sales management for a Fortune 100 company, Jason became relentlessly drawn to the ability to impact people’s lives through photography. So in 2001 he quit his job to start his own photography business. Jason applies his previous marketing and sales experience to his photography business and now takes the time to educate others with his “Starting Out Right”one-day intensives and resource guides. You can find more posts like this on the Starting Out Right blog.

The NEW ShootQ is Complimentary while in Beta mode for the next few months.  Enjoy!
The NEW ShootQ is Complimentary while in Beta mode for the next few months.  Enjoy!