I spent some time with Jerry Weiner at Skip’s Summer School and he’s got an amazing business head and a lot of good information to share, but you guys are photographers and most photographers are artists.  That means you’re better at creating than you are at implementing and managing.  So, here’s the deal – I’m not trying to make you into accountants, just help you develop a little respect for the process you need to survive and grow.  Go get a cup of coffee or a glass of wine, depending on what time of day you read this post.  Sit down and give it five minutes and it’ll make you a better business person!  

This series of articles, written by Jerry Weiner – CEO and owner of PWD Labs – provides tips and insight into the business end of professional photography. Feedback, questions, and ideas for future articles are all welcome.

Previously, we started off the business planning process by thinking in generalities of where your photography business is and where it’s going. Today, we’ll quantify those plans a bit more and discover how to begin tracking results. After all, what good is having a plan if you don’t know whether it’s working or not?

As we delve deeper into accounting, numbers and spreadsheets don’t worry too much. The math used in small businesses is, for the most part, simple addition, subtraction, multiplication and division. “How much did I bring in, how much did I spend and what is my profit?” doesn’t require a bit of calculus to answer. We do, however, highly recommend becoming familiar with Excel or a similar spreadsheet application, as these will become invaluable tools of your trade.

So, what numbers do we really need to keep an eye on? Beginning with this one, the next few articles will each focus on a financial topic important to anyone running a photography business. We’ll offer tips for getting a handle on your numbers, starting with your cash flow.

Cash flow is a great place to begin. With this single business tool, you can plan and predict your monthly situation to see where you’re going, and you can also track your actual numbers to see how you’re doing. The first part of this – the prediction stage – is called cash flow forecasting. By estimating your monthly income and expenses, you’ll know not only how much money is coming in and going out, but also how much money you will have at any given time. This dimension of timing is crucial and is a main component of cash flow analysis. In fact, the purpose of cash flow forecasting is less about figuring your profits and more about seeing how much money you have at different times. For example, you may generate $20,000 in profits this year, but if you don’t have any of that cash when you need it, you may not be able to do what you planned (such as buy that new camera when you want).

The need to keep up with cash flow may seem pretty obvious, but how do you do so? An easy way to plan and track cash flow is to use a spreadsheet which lists all the possible sources and uses of cash and forecasts them by month into the future. Here is an example of a six month cash flow forecast:

Let’s break this down:

  • On the left, we have our Summary, Sources, and Uses. To personalize this to your business, you would simply plug in your own sources and uses. As you do so, think about how to break them out, as the timing of when the money comes or goes is important.
  • Going across the spreadsheet are our monthly numbers. Each month’s Summary section is automated by Excel formulas (again, simple addition and subtraction), so all you need to fill in are the individual sources and uses numbers. The one exception here is the Beginning Cash Balance for the first month. You’ll need to enter how much cash you’re starting with, and then whatever is left over at the end of the month automatically becomes the beginning balance for the following month.
  • Projecting cash flow for six months is a minimum, but twelve months makes more sense, especially for event photographers who generally book twelve or more months in advance. Keep in mind that any projection is going to be wrong the moment you put it on paper (or in a spreadsheet). The further into the future you forecast, the less likely it is that you will be accurate, but that’s okay. The point here is to think through what should happen as best as possible, not to predict exact future numbers.
  • Entering your sources and uses numbers into a cash flow table really is a matter of timing. Don’t think about your events and other sales in terms of how much you get for them. Think instead about when you get paid. Doing a $2,500 wedding today does not mean you made that amount this month. You probably received a deposit of about 50% upon booking (which means you could have already spent that money twelve months ago), and perhaps you received the remainder thirty days before the event. Much of the work you do – events, albums, portraits, and more – each have their own cash flow which rarely relates to the timing of when the job is performed. The same is true for your expenses (think about when you pay the deposit for an album and when you actually see that album).
  • Uses of cash fall into a number of categories vis-à-vis cash flow:
    1. Expenses which vary based on the number of jobs you do. These may include post-production services, printing costs, on-line hosting fees, etc. You generally won’t pay these costs until two weeks or more after the event.
    2. Expenses which occur every month at about the same level. These include salaries and benefits, rent, occupancy and other office expenses. Figure out what those numbers are, figure out when they are going to increase, and forecast them.
    3. Expenses which are paid a few times a year. These include property and casualty, workers’ comp and liability insurance, and taxes. Some of these expenses can be paid on a monthly basis but may require a fee to do so.
    4. Expense and outflows which are discretionary in nature. These include marketing related costs – advertising, sample prints, directory listings, etc. – and equipment purchases.

Linked below is the sample cash flow Excel file. Taking the time to understand the example spreadsheet or building one yourself is a worthwhile exercise in that it forces you to think through the detailed components and how they fit together. We recommend creating two versions of your own cash flow spreadsheet: a forecasting version, where you predict your cash inflows and outflows each month; and a tracking version, where you plug in your actual numbers on a monthly basis. You can keep these as two sheets in the same workbook.

Once you’ve taken the time to construct your own spreadsheet, it is important to keep it updated. An hour or so of your time each month will pay off big when you are able to get a better handle on your cash flow. With on-going cash flow planning, you can more accurately predict when you can buy that new camera or how much you can give yourself as a bonus this year. Knowledge, after all, is power.

About the sample Excel file: The sample workbook linked below has two tabs labeled “Example” and “Blank”. “Example” is a twelve month version of what you see above. “Blank” is the same worksheet without any numbers but with formulas intact. Feel free to modify or fill in either using your own information. Of course, if you add or delete lines or columns or make any other changes, it becomes your responsibility to make sure the formulas still work. Enjoy!

Example_Cash_Flow.xls