Home / Jason Aten / Why Creative Businesses Fail #1

Why Creative Businesses Fail #1

Creative businesses fail for the same reason as every other business fails. Too many expenses, not enough revenue.  Creative types (photographers, artists, etc) tend to think about forming a business around something they are passionate about.  That’s fine.  You should absolutely be passionate about something if you’re going to give your life to it.  You should love what you’re doing.  You should be GOOD at it.  This is no different than people who are passionate about helping other people, going into social work.

Ok, reality check time.  Being passionate about something isn’t enough. If it’s going to be a business – it HAS to be profitable.  It HAS to make money.  Not only is this common sense, but the IRS won’t even let you call it a business if you don’t have what they call a “profit motive.”  There are several indicators they use to determine whether an endeavor is a business or a hobby, but the bottom line is – you have to be acting intentionally so that the result will be that you make a profit.

On the other hand, it takes 3+ years before a new small business makes money.  Read that again – you should be prepared to operate in the RED for 3 years before actually drawing a paycheck.  Knowing that, wouldn’t you want to do everything you could to increase your chances?  Then stop treating it like a hobby, pull it together, and start acting like a business.

The reality is, that many creative/photography businesses don’t understand or even manage their expenses in a meaningful way.  This causes them to make decisions about their business without all the information.  For many photographers, bookkeeping is simply an exercise in making sure you can do your taxes each April.  You keep a loose understanding of how much you brought in, and somewhere there’s a box of receipts (or post it notes, or whatever).

While it might be true that you have enough information to file your taxes (assuming you’re actually filing them, declaring all your income, paying your sales taxes, etc), you still won’t have any understanding of the health of your business.  A few months ago, PPA released their Benchmark Survey. It’s got some great information, and I HIGHLY suggest you read through it.  I’m going to summarize a few things for you – and hopefully help you think about how you can have a healthy business.

1. Start by understanding what it costs you to be in business. This means, how much does it cost you to do business, whether or not you ever sell anything.  These are fixed expenses.  This includes your lease, your capital expenses like camera gear and computers, insurance, business licenses, employee costs, advertising, accounting, and legal.  It includes your utilities, your telephone, your website, and everything you spend money on just to keep the businesses alive.

For most photographers, this number is staggering when you start to really look at it.  Most photographers forget that the wear and tear on their vehicle is an expense of their business.  Most photographers don’t consider that there additional utility costs (even if you’re a home based business), associated with the additional work you do.

According to PPA, these expenses should be no more than 30-40% of your revenue, depending on whether you’re a home-based, or retail-based studio.

2. Most photography businesses fail to accurately account for Cost of Goods.  These are all the things that go directly into the production and procurement of your products.  Materials, Prints, Labor, equipment use, consumables, and more, all add up to the expense of selling your product.

If you really want to understand the health of your business, doesn’t it make sense that you’d want to know how much it costs you every time you sell an 8×10?  How would you even know where to begin to price that 8×10 if you have no idea what it costs you?

PPA suggests that these expenses be no more than 35% of your revenue or 25% if you’re a retail-based studio (to make up for the additional overhead associated with a storefront).

3. Treat yourself as an expense of your business. My recommendation is that you start early by managing your cash flow – and pay yourself a set salary.  In the beginning – this probably won’t be much, but if you have a good understanding of your expenses, you’ll know what you’re able to pay yourself.  Often the temptation is to simply pay yourself out of the “proceeds” of a wedding.  You deposit the check in your account, and figure you’ll just pay for the album – or whatever other product they order – as it comes.

Realistically, this NEVER works.  You end up paying for albums with your next clients retainer.  You end up paying your studio expenses from your personal account.  The minute this starts – you can start counting the days until your business fails.

Instead, be realistic about what your pricing will allow you to make.  Be realistic and start the habit now of paying yourself a set amount – based on your revenue and other expenses.  This will allow you to manage both your business AND personal budget/cash flow – especially during off-season.

4. Only buy it if you NEED it AND you can afford it. New gear doesn’t make you better.  New gear doesn’t get you new clients.  A new website won’t automatically increase your bookings.

I’d really like a Nikon D3s. I don’t need it and I can’t afford it.  I won’t be buying one anytime soon.  Sure, it’s true that if you can afford it, sometimes you can buy things you don’t “need.”  That’s the entire point of making money right?  But if you’re borrowing money to buy gear that takes you 4 years to get a positive ROI out of, and 5 years to pay off, do you think you’re business stands any chance?

Written by Jason Aten

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!