Managing finances is a critical part of running a successful photography business. It's about more than just balancing the books; it's about setting the stage for growth and stability. This article will guide you through essential steps to track your income and expenses, create a budget, plan for emergencies, and prepare for tax season. With these strategies, you'll gain financial clarity and confidence to focus on what you do best: capturing stunning photographs.
Tracking Income & Expenses
Step 1: Choose Your Tools Carefully
QuickBooks or Excel spreadsheets are your best friends when it comes to financial tracking. They allow you to see everything in one place: your income, expenses, mileage (which can save you tons on deductions!), and even project your income over the year. Think of these tools as your financial dashboard. QuickBooks is great for automatically pulling transactions from your accounts, while an Excel spreadsheet can give you a nice bird's-eye view of your finances annually.
Step 2: Know Your Operating Costs
Figuring out how much it costs to run your business on a monthly basis is crucial. Tot up all your overhead expenses such as tools, platforms, software, etc., and divide by twelve to get your monthly operating cost. Always aim to keep 3-6 months' worth of these expenses in your bank account for tough times. This way, when unexpected situations like a global pandemic hit, your business can still continue to tread water.
Step 3: Set Income Goals
Determining your personal expenses is just as crucial as knowing your business expenses. This clarity will show you exactly how much you need to earn each month. Working backward from your desired salary, consider how much you need your business to make to support both you and its operational costs. Remember to factor in some savings for taxes (roughly around 30% of your income) and to run the business operations (about 20% of overall income). This will give you both annual and quarterly income goals to keep you aligned with your financial health.
Step 4: Tax Planning
Yes, taxes. Moving a predetermined percentage of each payment into a designated "tax account" can prevent the year-end scramble to come up with money you owe. Regularly setting aside about 25% of each payment ensures you're always prepared come tax season. And if you find all this overwhelming, there's no harm in consulting with a tax professional who can provide personalized advice fitting your situation.
Creating a Budget and Emergency Fund
Having an emergency fund is like wearing a life jacket when you're sailing through the unpredictable seas of starting and running a photography business. Unexpected events, like a sudden drop in clients or equipment repair, can throw you off course. That's why it's smart to have some extra cash saved up. An emergency fund stops these surprises from sinking your business.
Experts often suggest saving enough to cover 3-6 months of vital costs.1 This way, if something unexpected happens, you've got the time and resources to figure things out.
Calculating your emergency fund starts with understanding your monthly business expenses. Dive into your records or use financial tracking tools like QuickBooks to get an accurate picture. Once you know your monthly total, multiply that number by how many months you want to be prepared for — remember, aiming for 3-6 months is wise.
Once you've got that total, start setting aside a bit of your income each month into a separate savings account. This is just for emergencies. Seeing that amount build up might give you peace of mind knowing your photography startup has a safety net. It might start out slow, but over time, you'll see it grow.
An emergency fund isn't the most exciting part of your job, but it's one of the most crucial safeguards for ensuring your business can weather any storm. With this fund in place, you can focus more on capturing beautiful moments and less on what could go wrong.
Understanding and Planning for Taxes
Embrace the Digital Organization:
Forget the shoebox full of receipts; it's time to lean into digital accounting software like QuickBooks or even simpler tools like Excel spreadsheets. Not only will it save you time, but it also keeps your records neat and helps track every dime that goes in and out of your business, painting a clear picture of your taxable income.
Break Down Your Income:
A photography business isn't just about snapping pictures; it involves diverse income streams from shooting fees, print sales, workshops, and possibly passive income from stock photos. Categorize these earnings to understand better which parts of your business are the most taxable and possibly adjust strategies based on tax implications.
Get Friendly with Deductions:
Photographers have unique deductions – think equipment depreciation, travel expenses to locations, home office costs, and even subscriptions related to editing software. Make it a mission to understand what you can legally deduct to lower your taxable income. Keep an eye out for sector-specific deductions you can leverage.
Quarterly Taxes, Anyone?:
Don't wait until April rolls around to deal with a year's worth of taxes. Paying quarterly estimated taxes helps break down the overwhelming task of a big lump sum payment and keeps you in the good graces of the IRS, avoiding possible penalties for underpayment.2
Maximize Retirement Contributions:
Yes, even as a startup, thinking about retirement is wise. Whether it's a SEP IRA or a solo 401(k), contributions can reduce your taxable income now while ensuring you're sewing seeds for a financially healthy future.
Keep Personal and Business Separate:
Mixing personal expenses with business is a recipe for complications. Having separate accounts not only makes tracking business transactions easier but also when tax season arrives, you're not sifting through mixed expenses trying to remember if that dinner was for client wooing or your cousin's birthday.
Converse with Professionals:
Just like you wouldn't expect someone to DIY their wedding photos (hopefully!), don't tackle taxes solo if you're not well-versed. A CPA or tax advisor familiar with creative businesses can offer tailored advice, potentially saving you more money and certainly saving your sanity.
Photo by andyoneru on Unsplash
By embracing these financial management practices, photographers can build a strong foundation for their business. Accurate tracking of income and expenses, thoughtful budgeting, strategic tax planning, and maintaining an emergency fund are not just tasks; they’re investments in your business’s future. Implementing these steps will not only alleviate stress but also empower you to make informed decisions that drive growth. Remember, managing your finances effectively is as crucial as mastering the art of photography itself.
- Gallo A. How Much Cash Should You Have On Hand? Forbes. Published February 14, 2022.
- Internal Revenue Service. Estimated Taxes. IRS.gov. Published 2021.
