What is the number one reason most businesses fail? It isn’t lack of ideas, lack of enthusiasm, or lack of potential. People go into business for all the right reasons.
Instead, the one reason they fail is they run out of the one resource you simply can’t build a business without – cash. Cash is king when it comes to owning and operating a photography business. There are certain things you can do yourself to avoid using cash – market using Facebook and Twitter, do your own editing instead of hiring, or typing in your own data entry and tax information. Yet if you don’t pay a bill, it will have lasting implications. If you can’t buy product to finish a client’s order, it will impact the success of your business.
The solution comes in the form of cash flow management. And if you put these few steps into place, it could easily help you move from a struggling business to a six figure photographer.
Measure your cash flow
Instead of sitting around waiting for the checks to come in or new clients to materialize before your eyes, take a look at your situation instead. Create a cash flow plan to see where you will stand next week, next month, at the end of the quarter, and over the course of the next year. Cash flow plans are not solid numbers you can use as a guarantee; instead they are an educated guess that will help you keep track of where you are and where you will be in the future.
The easiest way to develop a cash flow plan is to sit down and look at a number of factors already in place. What customers do you have on the books that haven’t paid? When are they scheduled to pay? Do they pay on time? What payments do you owe to vendors? What expenses do you know you’ll be facing in the coming months? By looking at your receivables and your payables, and tracking them according to when they are due, you should be able to develop a rough timeline that will show you when your cash is coming in, and when it is going out.
Don’t forget to add all expenses, especially if you are working at your photography business full time. Your rent/mortgage, car expenses, food expenses, etc all have to be paid one way or the other.
Once you prepare a cash flow plan and actually see where the money is going out every month, its easier to see how your sales can help you plug the holes and have money available to make your payments at the appropriate time. It can also help you avoid the splurges on equipment and other photography tools during the rough patches.
Improve your receivables
If you received full payment for every client you took in, you may never have a cash flow problem. Yet that is easier said then done. A friend who shoots weddings recently said it like this:
“I take in half of the payment when they book, and the other half a week before the event. The problem is I spend the money as it comes in the door. When they come back weeks or even months later to place their order, I have to purchase albums, prints, frames, etc, and often times I have little in the bank to cover it all. It becomes difficult if I have several clients at once, especially if it is during a dry period where I’m not bringing in a lot of new clients to cover the difference.”
Yep, that’s a common problem with photographers. Yet it doesn’t have to be. If you know and understand your cash flow during the year, you can plan for the highs and lows. You can create programs that will help you bring in cash when you need it the most. For instance, if a wedding client buys a $2,000 package and her wedding is 10 months away, you can restructure the payment process. A $1,000 down payment will hold the date. And instead of accepting $1,000 a week before the ceremony, what if you structured it into 10 $100 payments? Your client may love the easier payment structure, and you’ve just found a way to bring in $100 every month for the next 10 months. Do this again and again and you may have found an end to your ups and downs.
Manage your payables
Now that you have flattened out your income sources to make sure you have income coming in every month, its time to look at your expenses. Expenses can be classified in two ways. Some expenses are a normal part of doing business: rent, products, car, insurance, office supplies, etc. Some are extras: the new camera you have had your eye on, the convention in Las Vegas, the lunch out with friends, etc.
- The easiest way to make sure the necessary expenses are paid is to automate the process as much as you can.
- Take advantage of full payment terms. If a payment is due in 30 days, pay it on the 30 the day.
- Use electronic transfers on the last day they are due.
- Communicate regularly with your suppliers. If you have any trouble, develop a relationship and keep them advised of situations.
- Ask for discounts. Some vendors will be willing to offer discounts for early payment, or bonuses for buying in bulk. Weigh each situation to see how it impacts you.
- Don’t always look for the cheapest prices; look for discounts and flexibility as well. Some vendors will offer you a wider array of opportunity in how and what they can offer you, making them a better deal overall.
Survive the shortfalls
In every business, there will be times when things fall short. You might not plan on buying a new camera body, but by dropping it into a lake, your hand is forced. For these situations, its important that you have a plan in place to cover the unexpected events in life.
Credit cards work well for these situations. Instead of using a credit card to run your normal operations, set it aside as your emergency account. When you need to use it, either pay it off at the end of the month, or put the payment plan into your cash flow projections.
In some cases you can get a line of credit from your bank; keep in mind during our current economic times these are drying up. Start by building a healthy relationship with a local bank. Meet with an account rep and talk about your options. Set up a bank account and manage it well. If you can get a line of credit, use it wisely. The more a bank knows your history, the more they will be willing to do for you. Again, it comes down to relationships. Don’t drive through the drive-thru and remain anonymous. Instead head in and talk with people. They will be more flexible with account holders who are friends as well.
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