CHAPTER 4: Business Basics

Going into business for yourself can be scary, and there are a lot of aspects to take into account. This chapter will help you get organized and start on the right foot by mastering the business basics. Business skills don’t come easily to some creative types, but they are key if you want to succeed. Talent alone is not enough to build a sustainable business—you must develop your business and marketing skills as well. This chapter covers the business basics. Later in the book, we’ll get into sales and marketing—the heart of your business.

The experience of being a photographer is different from being a photography business owner. Many photographers are shocked and frustrated to discover this—it’s a common misconception that hobbyists make about what it’s like to have a photography business. However, if you can embrace this reality, your chances of success will be greatly improved.

Business Skills

There are some basic skills you need to embrace to succeed with your photography business. As a photographer, it’s all about shooting. As a business owner, that changes significantly. The following list highlights the key skills you need.

• Sales skills. If you can’t sell yourself or your services, you will have a problem getting your business off the ground. Earning a living will always be a struggle.

• Ability to control your emotions. Photographers are emotionally attached to their images—I know I am. This is what enables us to strive for better images, and it is also what can hold us back in developing a profitable business.

• Financial management. In basic terms, you need to distinguish between money coming in and money going out. More money coming in is your goal, in plainest terms. It’s not enough to balance your checkbook. You need to keep track of outstanding invoices, cash flow, and overhead expenses.

• People skills. Being a great photographer is part of the equation, but to get clients to hire you, you need to have people skills. Chatting with people on the phone, networking, putting subjects at ease, and selling yourself all require good people skills.

• Ability to work under pressure. Clients usually want their images quickly. The pressure is on you to get the images back to your clients as soon as possible. Some types of photography jobs (like event photography or photojournalism) require images to be sent nearly immediately. (Not a job for those who like to take their time…)

• Willingness to embrace marketing. Marketing is critical to the success of your business. Embrace marketing, study it, and use it.

• Being goal oriented. It’s easy to get sidetracked with editing software and spend most of your time on postproduction. But that doesn’t bring in new clients, and it usually doesn’t lead to profit. Figure out which activities do lead to profit and focus on them.

Business Plan

Many people think creating a business plan is as much fun as public speaking or having a cavity filled. However, a good business plan is essential because it enables you to understand your potential business and decide if your plan is viable before you invest too much time and money into the venture. You might have a real passion for underwater photography—but after researching the industry and creating a business plan you might find that it is not a viable way to earn a living.

A good business plan takes time and research. Don’t overcomplicate the process—this is for you, unless you plan to get a financial help (then your investor will want to review your business plan). Spend the time to do your research well, because the better your business plan, the better your understanding of the reality of starting up your business. To succeed you need a plan that explicitly lays out the path to profitability.

The following sections detail the elements of a business plan.

Company Overview

This section of your business plan tells all about your business. Include details about your niche, such as the wedding industry or the pet industry, as well as the market you plan to serve.

Describe exactly what your business does in detail, and include the specific part of the market that you plan to target with your business. Some of the things to cover are:

• Define your niche. What type of photography services will you offer? Will you photograph commercial interiors or weddings? Research and learn as much as you can about the specific industry.

• Define your specific market. Specify which group of customers within the industry you are targeting. Let’s go back to the wedding photographer example. Are you going to be a high-end photographer? How many photographers currently serve this market? State exactly who the clients are, where are they are located, where they shop, and how you will find them. Is the market getting bigger, getting smaller, or staying the same size?

• Know the demographics. Knowing who your clients are helps you determine where you should spend marketing money to get the best return. For example, if your target demographics are high school senior portraits, spending money on newspaper ads probably won’t do much, especially compared to advertising on Facebook or other social media. Every market is different and requires a different approach.

Objectives

In the objectives section, list your company’s goals and what is needed to meet them. The more specific you are here, the better. Look at short-term, medium-term, and long-term goals. Are you planning on growing your business by hiring employees or will you stay a one-person shop? What profits (or losses) do you expect over the first year, over 5 years, and over 7 years? How many clients do you need each year to earn a profit? How will you deal with start-up debt and what is your repayment schedule?

Products and Services

What are you going to sell? This might seem simple since you are a photographer—but are you selling the final images, the photography service, both, or something in between? Will you sell add-on products? Do these services and products match the needs of your target market?

Industry Analysis of the Niche

This is the in-depth research on the specific industry you plan to work within. Look at businesses in your area that already do what you do. Pay attention to the competition. How many other people are doing what you want to do? Is there place for you? This is straightforward if you are shooting weddings or senior portraits, but is a little harder to research if you want to shoot for stock image websites. Some questions to ask when looking at the industry include:

• Who is the competition and what do they charge?

• What is the size of the niche?

• How well is the niche being served in your area?

• Is there opportunity for growth within the niche?

You may find that the niche or the market you want to serve is not viable. Better to learn that now.

Client Analysis of the Market

Once you’ve covered the industry, or niche, in detail, you need to research the specific markets within that niche. How are those particular markets being served by the competition? Is there a market that is not being served, and if so, why?

Study the demographics of your target client. The more knowledge you have about your ideal client, the better. Where they shop, how they make spending decisions, what their turn-offs are, and what they like are all things you want to learn. Look at larger companies serving that market and study their marketing methods and communication styles to see what is effective.

Marketing Plan

This section details your overall marketing plan. What are the traditional marketing methods used within your niche? What specific marketing methods would be most effective for your target market? How will you increase your brand awareness in your target demographic? How much will you spend on marketing?

Operational Plan

This section deals with the day-to-day operations and management. Will you need software to run your business? Will you work from your home, or do you need a separate retail space? Will you hire help as you grow, or would you prefer to keep your business small, so you can manage it yourself? Will you want to outsource editing and postproduction once you get busy? Will you hire an accountant, an attorney, a bookkeeper?

When working in a partnership, particularly if one partner is full-time and the other is part-time (often a spouse working in the evening) be clear about each person’s duties and who makes the final decisions.

Financial Projections

The financial projections section is the most important, and probably the hardest to complete. This is where the idea you had for a business meets the reality of actually turning a profit.

This is where your budget comes into play. By putting together a budget, you should have a realistic idea of what your expenses will be, as well as projected income. Here are a few questions to consider:

• What are your profit goals for the year?

• How many sessions do you need to book each month in order to break even?

• How many sessions do you need to book each month in order to achieve your profit goals?

• What are your financial projections for the first, third, and fifth years?

Creating a business plan is akin to having a good map when taking a long trip. It won’t save you from unexpected detours but it can help you get back on track. Periodically, go back and look through the plan, and update the numbers as the business and the markets change.

Calculate Overhead

If you don’t know your overhead, you can’t possibly know what you need to charge. The overhead costs are those regular expenses that are not directly related to producing your goods or services. These are the costs that occur each month, and while you should try to keep them as low as possible, they cannot be ignored. Think of these as the Daily Cost of Doing Business. They are expenses that occur every day whether you are doing work or not.

To estimate your actual overhead, make a list of all the expenses in the following list for a yearly period. You’ll have to estimate (or guess) some of these numbers, but try to be as accurate as possible. Once you have all the numbers, add them up to find your total overhead for a year. Now, take the number and divide it by 12 for your monthly overhead expenses.

• Rent. If you work at home, calculate the percentage of your home used for business and that percentage of your rent or mortgage in the overhead calculation for rent. If you are a portrait photographer with a studio, your rent costs will be higher than an event photographer who does most of her photography work on location.

• Utilities. Electricity, heating, water, phone, and trash all come in under this category. If you have a separate office or studio space, then all the utilities are counted. If you use a home office, you need to work out a percentage of the utility cost.

• Web hosting. Your monthly hosting charges are part of the overhead of doing business.

• Insurance. If you have a homeowner’s policy with riders for your business gear, those costs would be included here. A regular homeowner’s policy does not cover business gear, particularly if they feel that the value of the gear is excessive for personal home use only.

• Business dues, subscriptions, and publications. Memberships in organizations and subscriptions for trade magazines get added here.

• Education. Include any training and educational costs that directly further your photography or business education, such as workshops, seminars, conferences, online training, or even books.

• Professional fees. These are fees to lawyers, accountants, and tax professionals. Many of these fees happen only once or twice a year, but need to be calculated out over the full year. For example, annual attorney fees need to be averaged out over the full year so you can get an accurate monthly expense.

• Taxes. Some countries (and states) have minimum taxes no matter what the company earns. This is especially true for corporations. Check with your tax professional about what you are liable for and make sure you add that into your overhead costs.

• Maintenance. Calculate the cost of maintenance for your office and gear. Include Canon or Nikon professional services for gear maintenance.

• Equipment. Your lenses might last forever, but chances are you are going to need new gear occasionally. This might be new camera bodies or lights, or a new computer. When calculating the costs of equipment into overhead, you need to consider how many years that equipment will last and divide the cost by the number of years. That amount is what you would include in your overhead. For example, let’s say you are buying a MacBook Pro for $2,200. You expect to use it four years before you need to upgrade. In this case, you’d divide the cost of the laptop by 4, and your annual overhead for that equipment would be $550.

• Office supplies. You need basic office supplies when running a business. That includes envelopes, stationary, paper, business cards, pens, pencils, printer ink, and cleaning supplies.

• Shipping costs. Postal fees as well as any shipping costs you incur, unless the client pays these costs.

• Bank charges. These are the fees that your bank charges you, including any interest payments on loans or credit cards.

• Packaging. Boxes, bags, tissue, stickers, notecards, and all those little extras that go into delivering the product to your client.

I recommend that you work with an accountant to help you create a budget and understand your overhead costs. It’s a complicated process, and is worth the investment in working with a professional. A good accountant will pay for herself many times over in the additional profits and tax savings you’ll gain from her expertise.

Create a Budget

A budget is used to figure out if and how much money you will make after paying all your expenses. Having a budget is essential because it enables you to make accurate pricing decisions and lets you figure out where to invest money back into your business.

Creating a budget isn’t difficult. The hardest part is being honest with yourself and making sure that your numbers are correct. With a budget, you can see where you are spending money and how much money needs to come in so that your business can grow.

The components of the budget are as follows:

• Revenue. This includes everything you earn for services and products. In order to estimate this, you need to figure out how many sessions per year you’ll do at what price.

• Expenses. Your expenses include your overhead, the cost of goods sold (COGS), marketing, and any other costs associated with running your business (such as outsourcing).

• Profits. This is the bottom line—what is left over when you subtract the expenses from the revenue. This is your take-home pay, once expenses are covered. The basic math is: revenue – expenses = profit.

If you’ve calculated your overhead expenses, now it’s time to consider additional expenses such as marketing, COGS, outsourcing, and hired help.

The next step is to estimate projected income. Obviously, you’ll need to have your pricing worked out (this is covered in Chapter 7). As you go through this process, you may find you need to adjust your pricing to maintain profitability, and that’s OK. In fact, that’s the point of all of this— to make sure your pricing will support your business.

The budget is not a document that is created once and then set aside forever. You need to update it on a regular basis. I recommend looking at the budget every quarter to make sure that your projections are on target.

Business License

You need to get a business license before conducting business—it gives you the legal right to conduct business. The business license is also usually needed when opening a bank account in the business name. The rules and regulations on where and how to apply for a business license vary from place to place. In the United States, go to sba.gov/licenses-and-permits and enter your zip code to find out what is required in your area.

Name Search

Before you name your business, you want to make sure you can legally do so. In Chapter 6 we discuss how to name your business, but this section deals with the legal aspects of choosing a business name. Most people name their photography business under their own name, but it’s important to check that another photographer isn’t already using that name for his or her business, otherwise you could run into complications down the road, and potentially be forced to change your business name later, once you have established yourself.

There are three places to check before you choose a business name:

• United States Patent and Trademark Office. Search online at uspto.gov and look for search trademarks (TESS). This allows you to search the database of registered trademarks.

• Domain name search. To check if your business name is available online, check Network Solutions at networksolutions.com/whois/index.jsp or do a search for domain name availability.

• Your state. To check if anyone else in your state is doing business under the business name you’d like to use, search for the name of your state + “business name availability” and you should be able to find your state’s business listing directory.

Types of Businesses

One of most confusing things to new photography business owners is the legal requirements to forming a business, and paying city, county, and state fees and taxes. It doesn’t need to be complicated or scary. The following sections offer a brief primer on the different options for your business.

Sole Proprietorship

This is when a single person owns the business and it is not a corporation. This is one of the simplest ways to get started with your photography business, and I recommend it for anyone starting out who doesn’t need to protect personal assets from their business, meaning you don’t own property or savings that could be taken from you in a legal dispute.

The drawback is that you are personally responsible for all business debt, so if you have assets to protect (such as a home) this may not be the best option. Most photographers start out this way because it’s the easiest path, and then move to another option down the road when the business is earning more money and you begin to have personal assets of value.

With a sole proprietorship, you can use your social security number for tax forms and you pay taxes through your personal income tax return. You may also need to obtain a Fictitious Name or Doing Business As (DBA) form. This is done via either the county clerk or your state government office; check online for your state.

Limited Liability Company

Once your business is established and making enough money to provide you with personal assets (like home ownership), you may want to consider the benefits of a limited liability company (LLC).

Unlike a sole proprietorship, your personal assets are legally separated from your business. This means that if your business gets sued, your home cannot be taken from you. It also means that the owner is not personally responsible for business debts. However, there is more time and cost involved to set your business up as an LLC (initial setup fees, annual filing fees, annual state fees). In order to maintain an LLC you have to keep good records and never co-mingle your personal finances with your business finances.

S-Corporation

This is the most complicated of the options and should be considered when your salary is at or exceeding the six-figure mark. There is a lot of paperwork and additional time and costs involved in this option, so you want to make sure you will benefit from it.

You need a board of directors, officers, and shareholders, and you would most likely work with an attorney to help you file the paperwork. One of the biggest benefits to an S-corporation is the tax savings, which can be substantial once your business is earning consistently. After a few years as a sole proprietor, we switched Geoff White Photography to an S-corp.