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