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An easy solution for recording your daily transactions for your photography business is to simply start with a notebook. On the notebook, you should dedicate one page to each of your revenue accounts and one page to each of your expense accounts. It's as simple as that. Depending on the number of transactions that you perform each day/week/month, you might consider having a separate notebook for each month. This will help you put together financial reports with ease.
Once you have enough transactions to justify the expense, you should consider purchasing QuickBooks or hiring a full time bookkeeper. This should be your ultimate goal; outsourcing your jobs so that you can focus on taking photos.
As a review, the Profit & Loss Statement is a summary of all your revenues (the money you bring in) and a summary of your expenses (the money you spend). The difference is your net income or loss.
It's obvious that we all want to see a positive net income at the end of each month but don't be fooled into thinking that if you don't show a profit in the first few months or even the first year that you are going to fail. Very few businesses are profitable that quickly. Keep plugging along and continue to analyze your Profit & Loss Statement looking for trends in your revenue and spending. If you can begin to recognize where you are spending most of your money, you might be able to cut back. On the flip side, if you can pinpoint the revenue sources that make the most money for your business, you can focus more efforts on those areas. This practices helps you better use your time.
As you keep good records and prepare your Profit & Loss Statement each period, you will start identifying trends that will help you to make better decisions in your business. Shooting from the hip is not a sound business practice and the results can be devastating.
Here's the lesson of the day: Take time each day to record your transactions, be consistent because it's harder to catch up than to keep up. And finally, use the reports you create to make calculated decisions. Record keeping is not just for tax preparation but should be used every day to grow your business.
I’d like to start this photography accounting series with some basic definitions. An understanding of these common terms will help you become a well rounded business owner. Remember that a photography business is only 20% taking pictures and 80% managing the business side of things. So here’s your first accounting lesson.
Revenue: This is also known as your sales. Each photographer will have a different number of revenue sources but for the average photography business, revenue should be recorded in 3-4 different categories. You can always have more accounts. In fact, the more detailed you are with your accounting, the better you’ll be in your decision making. The first account (category) would be your SITTING FEES REVENUE (not everyone charges this). The second account would be a revenue category for your specialty or niche. For example, if you specialize in pet photography and high school sports, I would recommend that you set up one account as PET PHOTO REVENUE and another as SPORTS PHOTO REVENUE. The third or fourth account that should be set up would be your PRINTING or DEVELOPMENT REVENUE. Each time you collect money, you need to track it to one of these revenue accounts. This will help you understand which divisions in your business are bringing in the most money.
Expense: Anytime you spend money on your business, it should be accounted for as a business expense. Some of the most common expense accounts for a photography business would be equipment (cameras, tripods, etc), printing or development costs, travel, rent or lease for your studio, utilities and phone costs for your studio, advertising, internet related expenses like hosting, website development, etc. as well as other expenses directly related to your business. It’s no secret that the more expenses you have in your business, the less you will have to pay in taxes. Because of this obvious fact in business and life, the IRS has come up with volumes to explain the business expense guidelines that we all need to follow. I’m not going to go through them all here for you for 2 reasons, the first is that I don’t want to bore you to death and the second is because I don’t know them all. I will give you a general rule of thumb though. When you spend money, ask yourself this question, “Will this expense help me grow my business?â€Â If you answer yes to that question then you probably should account for it as a business expenses and then consult with your CPA during tax season to get a second opinion. Â
Net income or loss: This is also known as your profits. To calculate your net income or loss, you first have to add up all your REVENUES and then add up all your EXPENSES. The difference between these two numbers is your net income or loss. If your revenues are greater than your expenses, then you made a profit. If your expenses are greater than your revenues, then you obviously didn’t make a profit but rather had a loss for that period of time.
I know this might be too basic for some business owners but stay with us because the next 2 accounting posts will go more in depth on the topic of financial statements and how you can prepare and use them as powerful decision making tools.
Financial statements are an important part of your accounting process. Think of it this way, when you put a puzzle together, you always take a few minutes at the end to look at the picture you made otherwise, why would you put it together. It would be a shame to put the puzzle together and then not look at it. Financial statements are like the finished puzzle. It's a great work of art that you can now look at and admire. Okay, I'm going a little overboard with this analogy and if I think about it, financial statements really aren't like a puzzle at all. But it is a shame to keep your records all month in good order and not be able to see everything compiled in a nice report in the end. This is what financial statements are. They are reports that compile your money earned and money spent for a certain period of time. In this post, I'm going to teach you about how to prepare one of the most common financial statements... THE INCOME STATEMENT. This is often called the Profit & Loss (P&L) statement.
There are 2 categories on the P&L, both of which I talked about in part 1 of this accounting series: Revenues (sales) and Expenses.
To prepare this report you first start by listing all of your revenue categories and the amount of money you earned in each category. This report is prepared for a certain period of time. For example, you could prepare a P&L for a specific month, quarter and/or year. You can prepare them as frequently as you need. I will use the same examples here as I did in part 1.
REVENUES
Sitting Fees $1,450
Pet Photos $3,980
Sports Photos $2,250
Development $ 750
TOTAL REVENUE $8,430
Next, you list all of your expenses by category. These categories will obviously be different depending on your what type of photography you choose to do. Follow the same pattern as you did in the revenue section.
EXPENSES
Equipment $ 250
Development $ 195
Rent $1 ,350
Utilities $ 140
Phone $ 45
Advertising $ 398
Hosting $ 20
TOTAL EXPENSES $ 2,398
Now that you have all of your revenues and expenses listed and categorized you are ready for the last step in preparing your Income Statement: calculating the NET INCOME or NET LOSS.
It's very simple. You put a line at the bottom of the report and subtract your expenses from your revenues.
TOTAL REVENUE $8,430
minus
(TOTAL EXPENSES $2,398)
NET INCOME $6,032
And just like that you have prepared your Profit & Loss Statement. In this example the Net Income was a positive number which means you made a profit. If the expenses had been greater than your revenues, then you would have shown a negative number as your NET which would mean you had a loss for that period of time.
The 3rd and final post in this accounting series will talk about simple ways for you to record your transactions and make decisions based on what your financial statements are telling you.
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