How and Why to Create a Business Plan.
I really and truly enjoy encouraging aspiring professional photographers to fulfill their dreams and aspirations and become an entrepreneur in the photographic craft of their choice. I never like to start off an article of this kind with negative thoughts or scary warnings, however, in this particular industry as the market stands now, it would be misleading and unfair to the newcomers to approach the matter of opening a business in today’s competitive and fluctuating business and financial environment, by looking at the situation through rose colored glasses without pointing out certain rather harsh realities.
Nowadays, there are so many books, on line courses, AV productions, and seminars with the “photography for fun and profit” kinda connotations but the reality is that the folks who publish theses materials and put on theses courses are out there to SELL their books, online courses, and programs. There is always something to be learned from theses things but more often that not the basic business savvy and know how- the nuts and bolts of managing a business- the stuff that leads to success (the fun and profit) is somehow omitted from the agenda and the philosophy of many of theses learning systems.
So…here is the “bad news” with my wholehearted wishes that knowing the pitfalls of business and financial management will only lead to “good news” for those aspiring to a career in professional photography: Starting a business without a well though out, thoroughly researched and logical business plan is tantamount to sabotaging your own enterprise before it starts. It’s like erecting a building without a foundation, creating a game with no rules or taking in the Grim Reaper as a business partner and using Murphy’s Law as a raison d'être or mission statement for your establishment.
In this article I would like to emphasize the financial planning aspect of creating a business plan and starting off a business on the right foot. Of course there are many other important aspects of building a photography business that must be addressed such as your talent, technical ability and professionalism, however, I am writing this assuming that y’all know what your are doing and have attained a level of performance, artistry and quality of work that could stand up in the competitive marketplace. Simply stated, without an outstanding level of quality and service, no business can sustain success in the long term. No degree of promotional savvy or even managerial skills can lead to sustainable success if the product is simply not there to back it all up.
In the areas of equipment inventories, purchases and investments in your business, without a solid business plan in place it is nearly impossible to generate budgets and make logical and appropriate decisions pertaining to theses expenditures. The same applies to promotional planning and advertising approaches in that you need to know the financial feasibility of any of theses elements of doing business. Most importantly, in my experience, it is absolutely impossible and unachievable to generate an effective price list for your services and merchandise without the vital information that will be revealed in your business plan.
So let’s briefly touch on the theory of pricing your product. Although it is somewhat important to know what you competitors are charging in you own marketplace, it is, however, ill advised or even dangerous to set your prices according to what the “other photographers” charge. Your business plan will reflect your lifestyle needs, your financial status, your quality of work, your fixed business expenses and your costs of sales- NOT ANYONE ELSE’S! Think of it this way: The photographer down the street may be happy to live in a closet behind his studio, share food with his cat and may not have any serious family obligations. The photographer up the street may want to live in a mansion, drive a Rolls Royce and have to put 3 kids through university. This sounds like an exaggeration but it illustrates how different your needs can be extremely different from others and all of your business plans need to be customized to your own requirements, aspirations and future planning. You also have to take into consideration the extent that the other photographs are established in your community, his or here level of quality or lack thereof in presenting your prices and services. Some of this has to do with doing your homework in the area of market research but for now let’s concentrate on MONEY!
So…Basing your prices strictly on what others are charging is a big no-no! There are other formulas that are equally as bad but still exist in the industry- kind of urban myths. One such idea is to multiply one’s lab costs by a given number or factor such as 5X (or whatever) in order to come up with a per print cost for photographing weddings or making portraits. The result of theses calculations are supposed to cover all of our expenses and include a decent profit margin. There is nothing that can be further from the truth in that it is of the utmost importance to differentiate between the (overhead) fixed costs of doing business and the costs of sales which are what you pay for outsourced services and merchandise that you purchase on behalf of your customers in order to satisfy their orders. All of this data will be revealed in your business plan and there is no such thing as a universal pat formula- this plan has to be individualized!
Yet another extremely vital reason for having a well organized, believable, viable and presentable business plan has to do with capitalization and financing certain aspects of your business. Another of the most prevalent business killers are undercapitalization and lack of certain credit privileges. Ideally speaking, it is better to have some money put aside in reserve that will support your business and household expenses while you are building and growing your enterprise. It is best not to get into starting off with too much borrowed funds and their accompanying interest rates but you will need some modest credit privileges or a bit of bridge financing along the way. You will need to establish credit with your suppliers and at least have a valid credit card to facilitate dealings with out-of-town labs and suppliers. Your personal credit will account for a certain amount of credit credibility but no bank or legitimate lending institution will even entertain the idea of extending credit to a business without, at least, a decent business plan and even your present banker will expect ongoing updates of your plan and profit statements in other to maintain lines of credit or to help finance major expansions as your business progresses.
So this may seem too obvious or rudimentary but it is worth reiterating what I wrote in the first paragraph of this article. You business has to be designed to support you and your family- it is going to be your day job and your night job and your weekend job seeing the hours that must be dedicated to nurturing a new enterprise and therefore a lack of profitably and efficiency are not options. Even in a two income family, the lack of that second paycheck has got to be considered and planned for. Even once your business takes off and cash flow improves, it is vital that y’all are able to monitor your finances on a 24/7 basis and that your system enables you to access the information you need for making day to day business decisions- your business plan is the foundation of your accounting system.
So here are the nuts and bolts of constructing your business plan form scratch. There is no template or software that is complete as a good old fashioned step by step introspection and investigation into your own life and your business requirements. All you need is a pencil and paper and a simple calculator. Later for fancy spread sheets and complex computer programs.
Since you business is going to be your sole source of income and making the decision to take “the step” is now or in the near future going to impact on your personal and family lifestyle, you need to start out by figuring out and/or reassessing your actual financial requirements. At one point, whether it is immediate or in the foreseeable future your business has to provide you with a salary on a regular basis. The first “employee” you have to pay is yourself, hence; the term “self employed” so from the very beginning you have to create the concept and the bookkeeping- a frame work to start paying yourself even it is just a token stipend at the beginning.
Step one is to prepare a list of ALL of your household and fixed personal expenses and disappearances. The operative word here is EVERYTHING! Firstly, the essentials such as rent or mortgage payments, food, health needs, clothing, maintenance, medical and dental services, insurances, savings plans, land taxes, condo fees, transportation costs, automotive expenses, utilities, current credit payments, usual recreational and entertainment costs, educational tuitions, sports activities, usual charitable donations, various and sundry expenses and everything else that you can think of. This procedure will assist you in ascertaining an overview of your own financial condition and real requirements. You will be in a better position to make decisions as to trimming down budgets and expenses if need be in order to accommodate your new business venture. You will be better enabled to decide how much volume of work you need to eventually pay yourself and if you work form your home you will need to know exactly how your business expenses impact on your household expenses. A certain percentage household usage and utilities is allowed to be written off as business expenses when tax time comes around. Total up all of your home and personal expenses- that ends step #1.
Next you must prepare a list of ALL of your projected business expenses- EVERYTHING! This is a bit more challenging than listing you personal expenses because you are going to have to project theses costs, do the research, get the best prices and plans and be able to create your list based on accurate numbers. It is absolutely mandatory, essential and significant that you determine your actual overhead costs because you have to factor this in to your price structure, profitability and viability projections. This is the cost of doing business- not the cost of sales. The cost of sales will vary depending upon the total sales that you do and the merchandise and services you need to buy to accommodate ongoing orders. Your overhead remains constant regardless of your business volume. The total of theses expenses are very telling and will weigh in heavily when vital decisions need to be made. You will need to estimate and project the volume of business that is needed to make your enterprise viable against the cost of setting up and maintaining your business. You will need theses figures to set goals and fully understand what volume profitable sales is needed on a daily, weekly, monthly and annual basis to keep things fluid. Once actual operations begin you still need to monitor theses figures very closely and be able to change strategies quickly if any problems or downturns are detected. Many new entrepreneurs have no idea of how business expenses can remain unknown, unexpected, unidentified and not planned for until they escalate to uncontrollable levels. So it’s time to sharpen your pencil and make the list: Rents or mortgage payments or figuring in what percentage of household expenses can be written off as business expenses, office expenses, communications costs such as Internet, telephone and fax expenses, insurances, equipment maintenance, average photographic equipment annual maintenance and repair costs, cleaning and maintenance, utilities, advertising and promotional costs, bookkeeping and accounting expenses, legal and licensing fees, professional association dues, depreciation of equipment and furniture and fixtures, salaries, commissions and casual labor, travel and transportation, automotive expenses, ongoing educational and convention expenses, security and alarm costs and again, whatever else you can think of. Now record the total of theses expenses.
Now comes the most difficult part of all. When you add together the total of both lists you will begin to understand how much revenue you must generate in order to keep your household and business afloat. If you have already started a part time business, this will be a bit easier because you can look at your track record and see at what rate bookings, volume and profits have hopefully increased in order to be in a better position to project whether or not you will be able to generate sufficient revenues to accommodate your plan once you are in full time. If not, you will have a better idea of what areas of you plan need to be revised, augmented or cut back.
Like the say nowadays; do the math! Once you have a handle on the numbers you will be in a far better and more realistic position to get on with your plan and begin to factor in your market research, your self assessment and your stick-to-itiveness.
Next article will be on setting up, business promotion, public relations and advertising.
(C) Ed Shapiro- Exclusive to pM