The Fundamentals of Finance

Finance is one of those topics that people cringe about in business.  This article will aim to simplify this and show you the essentials you need to know to run a financially viable photography business.

First of all, you don’t need an accounting degree to understand finance in business. It’s actually quite simple, and when you are first getting started, there are only a few principles you need to understand very well in order to have a financially viable business.

Many photographers are dabbling with making money in photography and don’t have the same urgency as those who are doing photography as their primary business. My intent with this article is to address the importance of understanding why finance is so important for running a PROFITABLE studio.

So why is finance so important?  Well you can’t continue to do your business if your finances are not in order. Sooner or later you are going to run out of money or you are not making enough money to cover your costs and you are just going to have to close your doors and only do photography as a hobby.  So we want to prevent all of that. We want to make sure we are ahead of the game when it comes to finances. So the first thing you need to understand is that finances is a pretty simple concept and it is a pretty simple equation.

If you have ever done a budget for a vacation then you understand finance in business. It’s pretty much the same thing. As you begin to plan your vacation, the first thing you look at is how much money you feel you can actually spend. You then look at how much the different things on the vacation will cost, and you need to make sure those costs are not more than how much you can spend. Pretty simple, right? There are a few other moving parts in finance and business, but those are the basics when you are first getting started.

There are two major costs when you are starting a business.  They are your up-front costs and your on-going costs or your overhead. The first thing is your up- front costs. You have to take a look at how much money you initially need to spend in the beginning when you are starting your business. These costs are not duplicated or they don’t happen every month. So for example, in a physical business this would be like the cash register that you would have to buy or the framing and shelves you would need to display the photography in your studio. You are not going to do this every month. Once you have purchased them and have everything up, that’s it. That’s your up-front cost. So when you are budgeting for your business, you need to make sure you have a budget for the up-front costs. This would also include paying someone to design your website and logo, registering your domain name and establishing your initial hosting site.

Now your overhead or your on-going costs are costs that will happen every single month. For example, this would be your marketing costs, utilities, telephone, lease payments, etc.  At the start when you are budgeting, make sure you have a budget for up-front costs and on-going costs, month in, month out. Remember your on-going costs may also include salaries for employees, the outsourcing of some of your work, lab costs, office supplies etc., so you need to make sure you can cover these monthly on-going costs. 

Remember this is a business and not a hobby, so obviously you are going to be making money so that is called revenue.  When you make money, you need to take your revenue and make sure it is at least exceeding your on-going costs. So obviously you want to make up for your initial up-front costs, but at first, try to make sure you are making as much as your on-going costs so you are breaking even. 

Say for example your on-going costs are $1500 a month and your average portrait sale is $500. You need to make sure you meet that average from three of your portrait sessions in order to break EVEN.  Now obviously if your average portrait sale is less than that, let’s say $300, you need to meet this $1500 a month expense by selling from five sessions so you can break even.

In your first couple of months, breaking even is a good place to start. But after the first few months in a small business, you want to start making some revenue because you want to make sure it is worth your while and you can re-invest in the business. You want to grow; you want to be able to spend more marketing dollars so you can attract more clients; and you want to ensure you really do have a viable business.

As you can see, breaking even can be somewhat of a challenge and making money can be even more of a challenge at first.  I recommend that you try to make profits on a regular basis before you even think about getting a loan. Your business has to be viable so find this out first before getting into debt through loans and credit cards! Many of my clients are deep in debt and wish they could have done things differently.  So make sure you have a budget for your initial costs and your on-going costs. Make some income and expense estimates for the year. Be a bit liberal to be a little bit safe when it comes to the numbers and take a look at some projected revenue to see how many sales or how many sessions you need to do in order to break even.

If you would like some assistance in determining what your break EVEN point is, I have a program that will give you a clear picture on how much revenue you need to produce this year. Just send me an email dougmattice@o2ecoaching.com and I will work with you to give you the clarity and confidence you need to become profitable in 2015!

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