After seeing how younger “photographers” conduct business these days and reading some of the hair raising posts on the many forums and social sites I felt obligated that I should say something about. Out of all the posts that I placed on many forums over the years this one will be the most ignored. If I might suggest that you bookmark it so next time that bills comes due and there’s no money in the checking account you refer back to it.
Let me give you some sobering statistics, over 80% of new small businesses start-ups fail within two years? To make these statistic even worse, these numbers are from when the economy was good. The number one cause of failure is poor planing or no planning at all, the business is up and running, the operating expenses are in place but nobody knows where or when will the money come from to meet the operating costs. People going into a business without having any idea of where they’re going or how to get there.
Let me give you an example, probably the worst way to get into a business venture. How many time do we see the question on this and other similar forums?
“How do you guys get clients?”.
Imagine, getting into a business, investing in equipment with no clues of where the money will come from.
“What camera should I buy?”
Do you imagine a mechanic asking around what tool should he buy to fix transmissions?
This is typical of this business and the new generation of photographers. A business plan and a career made of two words, “wing it”.
So what exactly is this dreaded business plan that every business expert is so fixated about it? To put it in a simple words that everyone can understand, a business plan is a road map for your business, you tell it where you want it to go by giving it realistic information and goals, and if done correctly it will tell you if you are heading in the right direction. If the information and data that you entered in your business plans is incorrect and unrealistic it will get you lost, or out of business.
The major difference between failure and success is of how accurate and realistic is the information you enter in your business plan.
A business plan can be as complicated or as simple as you make it, and there are several ways to create business plans. Financial people will have different business plans for banks when going for loans, for investors when raising capital and one for their own company to monitor day to day operation. They all will (or should) show the same bottom line, how they get there might be interpreted differently.
Considering that most in this profession operate as a one man (woman) business, the first step in building an effective business plan is to get a life plan together. Before you know where you business needs to be you have to know where your want your own life to go, not just next week, but one year, five years and ten years from now. What are your personal plans for your own future.
When my generation was planning the future there were periods in chronological order of how the future will be shaped. It wasn’t a “must follow rule” but it was what most successful people happy with their lives were doing. First was the education, then have fun for awhile until you meet the right one, then get married, have children, buy a house in the suburb, save for kids education and build a nest egg for retirement. These were the fundamentals that needed revenue and how much revenue was needed was the number one entry in the business plan, better known as “Salary”.
In the business plan “salaries(s)” is the first and most important of the “fixed expenses entries”, without people the business do not exist. After the human factor the plan should include all other fixed expenses absolutely necessary to operate the business, meaning that if there’s no money to meet those expenses might as well shut it down.
After the fixed expenses comes the variable or operating expenses. Those could be gas for your car, travel, supplies, etc. If there’s no business of course there’s no need for variable expenses.
Now you have a number that you have to meet every month in order to survive. If your sales are above those number than you’re operating in the black (making money). If sales and revenue match then you’re breaking even. And of course if expenses exceed revenue you’re operating in the red, bleeding money.
There are tons of books on how to create an effective business plan for small businesses, I would recommend that everyone get some and start reading.
The best way to start a business plan is for the next month or two is to keep track of every penny you spend both for business and personal use., no cheating, you’ll be cheating yourself.
Once the list is completed separate mandatory expenses, obligations that you must meet every month from discretionary (six pack is discretionary), also separate expenses related to jobs. Once you have these numbers down you’ll know how much business you’ll need to get in order to survive.
With each job also separate the costs. Just because you get $1000 per day doesn’t mean that you make $1000 per day.
Depending on the type of business, the plan could be broken down by day, week, month or quarter. For our purpose monthly would be more appropriate.
Of course the key factor in a business plan is revenue, making money is the only reason to be in business, otherwise it’s a hobby not a business.
The first and most important step in every business is to analyze and study your market area, where will the money come from? This is where most photographer fail right out of the gate. They max out their credit card in buying equipment, build a web site, print business cards and after a few months they go to a forum and ask the question: “How do you guys get clients”.
Kind of late for that.
The biggest problem that I’ve seen in this business is that people make unrealistic plans or plans that hinge around fantasies rather than realities. I blame this on the many business “experts” that have been plaguing this profession like cancer. We’ve heard all those “experts” coming on this and other boards boasting about the future potentials of videos. The incredible demands of videos for the web as example, the tons of money that people will be making. Projections that never materialized and the only result has been to drag people into debt. Where are those experts now? They made their money and moved on to other audiences. Ignorance is abundant and very profitable. Those who believed and directed all their resources in that future potential are now nowhere to be found, they’re gone and they’re broke. The key word here is “WILL”. The future will always happen. Plan for it it and when it happens you’ll be ready for it, but never bank on fantasies unless it’s something unique and proprietary that only you can offer and there’s people out there who needs it. In few words, be realistic in your plans. The future will not be here in five or ten years, you will not wake up one morning five year from now and discover that the future has finally arrived. The future will start this afternoon, tomorrow morning and so on. Future is a gradual change with plenty of warnings. Stay current with changes, analyze and understand the changing market. Be mobile to move in any direction the market dictates. This is how successful people got that way.
Getting back to the failure factor, can anyone guess what the main cause of failure is?
Let me give you a hint, what’s the most popular complain about customers on this and other forums? If the answer is slow paying customers you’re right. So why is this such a problem? CASH FLOW/UNDERCAPITALIZATION is the number one reason for small business failures. Money goes out to pay for fixed operating expenses but there’s a gap from when the revenue is coming in. It comes to a point that there no more money to pay bills even thou there might be a healthy receivable.
Experts unanimously agrees that any small business should have at least six months of operating expenses as cash reserve. The more the better.
How many here have six months of operating expenses (living expenses included) saved as cash reserve?
So what most of us do when the check finally comes in? As a profession we are gadget freaks, we love our toys, we look for reason of why we should buy something under the excuse that will generate more revenue. I’m guilty of that too, actually I’m the king of the gadget freak community, if it has an on/off switch I probably own it. The difference however is that in order to feed my gadget freak habits I never used my operating capital money. A percentage of my sales were always set aside for equipment purchases. I learn this the early days of my career and stuck by it for over 40 years.
As I said earlier, this will be the most ignored post I have ever written, consequently this profession will also remain as one with the lowest generating revenue and highest number of failures of any other trade.