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Ed Shapiro
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How and Why to Construct YOUR Business Plan- It's Vital!

Postby Ed Shapiro » Fri Feb 20, 2015 12:58 am

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.

Ed

(C) Ed Shapiro- Exclusive to pM

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Jenny Gavin-Wear

Re: How and Why to Construct YOUR Business Plan- It's Vital!

Postby Jenny Gavin-Wear » Fri May 01, 2015 12:59 pm

Good article Ed.

Cash flow forecast.
Breakeven point.
Marketing plan.

More small business go broke in their first years of trading not because they aren't awesome, but because they ran out of cash.

Most business startups fail in year two because that's when they run out of business on the existing contacts/friends/family list and they now need their marketing to have worked.

How much money do you need to make? What are your fixed costs? Variable costs? Do you know how to calculate your breakeven point?

Have you done your SWAT analysis? Do you know what one is?

Have you done a risk assessment? What happens if X/Y/Z changes, will you still survive and if so, how?

Can you sell? It doesn't matter if you are the most amazing photographer ever seen. If you can't sell you don't have a business.

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Ed Shapiro
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Re: How and Why to Construct YOUR Business Plan- It's Vital!

Postby Ed Shapiro » Sat May 02, 2015 10:51 am

Jenny! You are spot on. It seems that some artistically inclined people in photography and others creatively based businesses as well, tend to exempt themselves from the rigors and the importance of business management and promotion. I, on many occasions, have told young startup photographers that as sophisticated as they think their businesses are; when it comes to the basic principles of doing business, their profession is no different than the proprietor in a store down the street selling (sausages) bangers and beans! Of course they look at me as if I were insane! Every businessperson has to have their cost and overhead expenses strictly under control, place themselves in the right marketplace, maintain a quality of product and service and keep their customers happy and recommending others to their business. Many don’t even know how to price their own products and services. Some of theses photographers would be better served if they worked for someone else, drew a salary and just concentrated on their art and let their boss worry about the bills and the clients. Many of theses failing photographers don’t even know enough about business management to pay themselves a decent wage for the hard work they do in their own business.

On a number of occasions, I recall attending 2- 5 day workshops back to back- intense courses in professional photography. On the weekends there were free business courses given by accountants, experts in salesmanship, lawyers and advertising folks. Believe it or not, very few of the students attended theses great informational sessions. Imagine that; people entering the business world who can’t write a binding contract, have no sales strategies, don’t know how to keep their books and records up to date and they themselves will be the only people who know that the can do some awesome photography! If they last a year in business it would be a miraculous and even if they could survive to the end of their first fiscal year, the tax-man would eat them alive for their lack of bookkeeping and accounting accuracy and savvy! I am not sure about the business environment in the UK but in North America, the mortality s in new photographic businesses are staggering.

Not having a good grasp of the business aspects of our craft is the fast track to the bankruptcy court!

Although none of this is funny, I do tell a joke to lighten up some of my seminars and classes: Seems that the baker is called in by his accountant who informs him that his business is quickly going down the drain because of great losses and no profits. The baker could not understand what’s going wrong and argues that his works his fingers to the bone 24/7, bakes the finest breads in town and all his customers are more that pleased! The accountant asks the baker “how much does it cost you to produce a loaf of bread”? The baker responds- $4.00! “Well then” inquires the accountant “what do you sell them for”? The baker smiles and says “$3.00”! The accountant gasps; “so there is the problem- this is why you are loosing money- all you have to do is raise your prices to $6.50 per loaf and you will cover your costs and earn a modest profit! The baker is taken aback; “I don’t understand- look at the great volume of business I am doing at $3.00!

OK- That’s a silly story, but there is hidden wisdom! So many new photographers are working hard, investing heavily in equipment and certainly putting in the effort but can hardly make a living due to poor financial and promotional planning! Assuming the talent and skills are there, for some struggling photographers it may be time for a few business courses and taking some time out to analyze their costs, expenses and prices. There is no glamour in being a “starving artist”. In today’s day and age what with the high expenses of maintaining a business and the basic costs of living, a starving artist is a failed artist and that is not a good place to be!

Ed.

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Jenny Gavin-Wear

Re: How and Why to Construct YOUR Business Plan- It's Vital!

Postby Jenny Gavin-Wear » Sun May 03, 2015 2:02 am

Hi Ed,

I am really sorry, I mean no offense, but I have been in business for many, many years and this discussions on forums drive me to despair. The only way I know how to tell it is right between the eyes, so here goes.

What the hell is someone doing starting a business without at least buying a book on the subject, reading up on line, getting an accountant, etc, etc etc. I am sick and tired of the inane level of questions we see from photographers starting up in business. Quite frankly, it pisses me off.

Why should we do all of their work for them, giving them all the answers, when we put in the time, the graft, to find out for ourselves???

I could understand questions from people who had read things and needed them explained, but I cannot tolerate those who put in no effort of their own. Quite frankly, they make our trade look stupid.

They start off with great ideas. Their friends and family give them some business, wanting to show their support. Then this runs out and they have to get real business. They don't know how to cost their work, which is not rocket science, they don't know how to work out how much is costs them to do a job, they don't know how to market, sell, building a website. And for every single thing they come running to a forum and we put in our time to run their business for them.

In the meantime, they get desperate for cash and start offering stupidly low prices, often for very poor quality photography, and it lowers customers expectations of quality. Of course, they go out of business before too long, but in the mean time they have caused all manner of damage, and after they (thankfully) disappear, along comes the next have-a-go merchant. It's a perpetuating cycle of poor photography, poor business practice and it does none of us any good.

Rant over, that's got that off my chest.

Best,
Jenny

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Ed Shapiro
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Re: How and Why to Construct YOUR Business Plan- It's Vital!

Postby Ed Shapiro » Sun May 03, 2015 9:12 pm

Hi Jenny! Thanks for your frank and honest reply! I appreciate and respect straight talk and am never offended by other's opinions even if they don’t exactly agree with my own. I feel strongly that theses exchanges of ideas are what forums are for and they don’t need to be “mutual admiration societies” where everyone pats each other on the back! We can all be good friends and contributing members regardless of differing approaches!

I can understand your point of view as you strike me as savvy business women and in many ways I agree with you. The reason that I try to dispense some of my business theories and advice is because all of the bad business models that you have aptly alluded to, tend to come back and bite us all in the backside even if we all run OUR business properly, fairly and professionally. Theses are so many inapt operators out there that the give all of us a bad rap and some of the worst business models, unfortunately enough, serve as the norm by the general public, the consumers, and this creates certain difficulties for the entire industry. Simply stated, the consumers of our services are getting a misconception of what real professional photography is all about in terms of quality, talent, service, fair pricing and good legitimate promotion of our services.

The professional associations that I am affiliated with provide lots of education for new and aspiring professional photographers with the hope of bring them into the fold of professionalism before the start jumping the gun, making serious artistic, technical and BUSINESS mistakes and proceeding to louse up (more straight talk) the entire business environment on the professional scene. In many geographic locations, the consumers tend to paint every person in the same profession or business with the same brush- especially where certain professions and are unregulated. We are not health professionals, lawyers, architects and we do not deal in public safety issues. Anyone with a camera can apply for a general business permit or tax collection license and just go into business. Oftentimes one “rotten apple” can really spoil it for the rest of the crop. We are not guild associated or unionized and there are no minimum rate scales. Under pricing, bad work, unethical customer treatment can run rampant and affect an entire professional community. Of course, the real bad guys eventually fail and go out of business but not before the take down a few decent operators with them! I have seen some of this go down over the years- it ain’t fun to watch!

So… I am pleased that you spoke your mind and please continue to do so. You presented your point of view in a very succinct and respectful manner. Good on you! Whadayathink (is that a word)? Ed

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Jenny Gavin-Wear

Re: How and Why to Construct YOUR Business Plan- It's Vital!

Postby Jenny Gavin-Wear » Mon May 04, 2015 12:03 pm

Less than a minute with Google:-

https://www.google.co.uk/#q=how+to+star ... y+business

Business support services - Helping your business grow
http://www.mybusiness1st.co.uk/Home

Cash flow forecast template
http://www.mybusiness1st.co.uk/Assets/A ... t-Template

Sales & marketing support
http://www.mybusiness1st.co.uk/Your-Sales-Marketing

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Ed Shapiro
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Re: How and Why to Construct YOUR Business Plan- It's Vital!

Postby Ed Shapiro » Sun May 10, 2015 9:43 pm

Hi Jenny! Thanks for those links- they are very informative and accurate in terms of business management and as you indicated, they are very accessible online.

Even with all that information in hand or with a decent education in business management, many upstart photographers still want to learn from other more experienced professional photographers and take in seminars given by professional photographer’s associations or go online to seek out forums. Being mentored or trained by an experienced photographer on a one-to-one basis is the gold standard but nowadays that is a rare opportunity. There are many business principles that apply to any and all businesses but each profession, trade or business have specific or unique aspects that need to be addressed. In many cases we are in a luxury type of business rather than a necessity type of business and that in itself requires different approaches to business promotion and advertising, cash flow, volume projections and diversification of services and merchandise. There are different levels of investment in that some businesses may only require a modest office and a few accoutrements where as a startup photographer may be looking at a massive investment in photographic equipment. A dental office, for example, may require hundreds of thousands of dollars in equipment but banks and finance companies will more easily extend credit to health or legal professionals whereas artistically based business are not accompanied by such confidence.

I remember sitting down with a bank manager making an application for a line of credit. I had a good number of year-end statements of profit and loss that showed good profits and very good business growth. The manager, however, questioned what he believed was excessive expenditures in advertising and promotion. I asked him to look out of his office widow and see all the stores and business on the street. There was a supermarket- people have to eat! If business is slow they can send out flyers offering special deals, put up posters in the window with some 2 for 1 deals and a few loss leaders and thereby increase traffic! I can’t really do that in my kinda of business- I am not a high volume operator. The corner drug store has the same kinda thing. They are offering necessary health products and the can also do specials and sales on their sundry items. The big box hardware store has an elephantine advertising budget but that is handled by their corporate head office that keeps the percentages well controlled. There was a funeral home- in those days they were not allowed to advertise aggressively- a business card size ad in the obituary columns or the telephone directory was all they could do- their advertising budget was practically nil! All business are not the same and can not necessarily fit into standardized percentages in their various required expenses.

So I had to explain to Mr. Bank Manager that even if a couple comes to my studio and drops $5,000 on wedding photography; when am I gonna see them again with that kind of an order? All I can hope for are the baby pictures years down the line and good recommendations for further or repeat business. I might book a corporate annual report job for 10 or 15 grand- but not every day! A well-known performer may come in for a headshot and spend quite a bit of money but most of my headshot clients are new upstarts on limited budgets. Bottom line- I have to continuously advertise and promote my business because I am always on the lookout for new business in order to maintain volume enough to address my overhead expenses and a decent profit margin. There are may other issues that are unique to the photography business. Doing media advertising, participating in trade and consumer shows, printing brochures and the time in networking all costs time and money!

Some photographers are reluctant to offer advice to newcomers to the business. The feel that they are creating their own competition and that might well be the case. I, however, take a different approach that has panned out well over the years. There is always gonna be competition and I would rather have good competition that bad competition. By bringing new photographers into the fold of professionalism at an early stage you are less likely to have to contend with a tribe of price cutters and incompetent shooters that make things bad for the entire industry. Another question:
Without some new blood in the industry, how are we to expand our own businesses and gather the personnel to employ? In mentoring and training young photographers, I have brought in very long term employees that have enabled me to increase my volume of business exponentially. Sometimes we have to build our own talent pool! Not every photographer wants to become involved in business management and would rather work for others and just do their artistic work.

Ed


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