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(all images by Annabel Williams) Wedding Photography Courses
Welcome to the last of this 7 part series "Turn Your Photography Into An Excellent Paying Career".
WATCHING YOUR CASH FLOW AND PROFIT MARGIN
Cash Flow Forecasting
It is important to gauge how you anticipate the business to progress in the first year to 18 months. How you do this is via a Cash Flow Forecast and Profit and Loss Forecast which enables you to see the peaks and troughs in your business over this period.
The cash flow should include all your anticipated sales in that period. If you have an established business, an acceptable method is to combine sales revenues for the same period 12 months earlier with predicted growth. You can then compare with real data as time progresses. This will help to avoid any potential cash flow problems.
The cash flow forecast details all the costs directly associated with those sales (eg. albums, prints, travel expenses to weddings etc.) as well as all the fixed overheads. These are essentially the costs to bear regardless of the volume of sales eg. rent, rates, advertising, accountancy fees, heat and lighting etc.
It is a good idea to jot down a written explanation of where the figures have come from as it can be easy to forget your train of thought. The aim of this is to prove that the business can sustain itself in terms of positive cash flow for the next 12 – 18 months. It also illustrates that you have considered the timely incomings and outgoings of sales and costs.
The inflow and outflow of cash needs careful monitoring and management within any business. Without good cashflow the company can collapse as it is the primary indicator of business health. It is necessary to have cash available to pay bills on time.
Cash and profit
Profit is different to cash flow. Profit is the difference between the total amount your business earns and all of its costs, usually assessed over a year or other trading period.
Cash flow indicates exactly how many costs and sales there are in a given period (month by month basis). If you forecast all your sales, direct costs and fixed costs in advance for 12 months (however hard this may seem), it will enable you to assess any times where you may run into trouble i.e. not have enough cash to pay bills etc. If you are pre-warned about these troughs, you will have enough time to try and do something about avoiding them.
You may be able to forecast a good profit for the year, yet still face times when you are strapped for cash.
The three scenarios below show you an extreme example of how you can undertake 15 weddings for the same profit as undertaking 20 weddings, if you increase your prices by a certain amount. This is only to show you how you should always adopt clever thinking when thinking about your bottom line profit ie. doing less work for the same profit.
Scenario A:
SALES
20 weddings at £1500 each - £30,000
Reprints/parents albums etc. - £18,550
TOTAL SALES - £48,550
COSTS
Total direct costs - £9325
Total fixed costs - £8391
TOTAL COST - £17,716
PROFIT - £30,834
Scenario B:
SALES
15 weddings at £1500 each - £22,500
Reprints/parents albums etc. - £16,800
TOTAL SALES - £39,300
COSTS
Total direct costs - £7035
Total fixed costs - £8391
TOTAL COST - £15,426
PROFIT - £23,874
Scenario C:
SALES
15 weddings at £2150 each - £32,250
Reprints/parents albums etc. - £13,800
TOTAL SALES - £46,050
COSTS
Total direct costs - £7035
Total fixed costs - £8391
TOTAL COST - £15,426
PROFIT - £30,624
This shows that if you take on only 15 weddings at £1500 (Scenario B), your profit margin is £23,874. However, if you increase your prices to £2,150 (Scenario C), there is a 28% increase in profit.
Also, for dropping 5 weddings per year and reducing from 20 to 15, but increasing the price from £1500 to £2150 (ie. Scenario A and B), the decrease in profit is negligible. This shows that if you take on fewer weddings at a higher price, you can still gain the same profit but with less stress.
Cash inflows and cash outflows
The healthy way to operate a business is to have more money flowing in than out to ensure positive cash flow. This will allow expansion and will also reassure lenders and investors over the health of your business.
You should note that income and expenditure on a particular order rarely occur at the same time, quite often the receipt of the money follows on after the payment of the goods associated with that order. However in wedding photography, the Terms usually state that full payment for the package chosen shall be received 4 weeks prior to a wedding hence cashflow should be favourable.
The money comes in before the money goes out. On any reprint orders / extra orders above the package, we normally charge 50% with order and the remaining 50% with the order on ‘pick up’. The 50% taken with the extra order at least covers your costs associated with this up sale.
Examples of Cash inflows:
- Payment of deposits, balances and reprint orders
- Receipt of a bank loan
- Interest on savings and investments
- Shareholder investments
- Increased bank overdrafts or loans
Examples of Cash outflows:- Purchase of wedding albums, prints, camera batteries etc.
- Wages, rents and daily operating expenses
- Purchase of fixed assets - PCs, machinery, office furniture, etc
- Loan repayments
- Dividend payments
- Income tax, corporation tax, VAT and other taxes
- Reduced overdraft facilities
To improve everyday cashflow you need to get your customers to pay on time (therefore must have favourable Payment Terms for you), issue invoices promptly, chase any debts promptly, charge penalties for late payment and get favourable credit terms from your suppliers, negotiating perhaps stage payments for big orders. Other good ideas to improve cashflow are to include ordering less stock but more frequently and consider leasing rather than buying outright (buying outright can result in a big drain on your cash resources).
Once you have negotiated good payment terms with your suppliers and are receiving prompt payments from your clients, your cashflow can still suffer due to the following:
- Not running credit checks on your customers.
- Not meeting the clients order to specification or on time – you will not get paid in these instances.
- Ineffective marketing – the marketing balance has to be correct to keep the customers rolling in.
- Not being flexible on payment methods i.e.. the idea is to make it easy for customers to pay via taking cards over phone or via Internet payments. Many
- people do not like using cheques these days.Not keeping an eye on key accounting ratios that will raise the alarm when potential cashflow problems arise.
- Not keeping a check on supplier prices.
- Poor control of gross profits or overhead costs.
If you have control of all the above factors, your cashflow should remain healthy and in check.
Ideally, you should always have a contingency plan, such as retaining a minimum amount of cash in the business, perhaps in an interest-earning account. This “rainy day” money can be used to meet short-term cash shortages.
OTHER COMMERCIAL ASPECTS
Value Added Tax
(Please note that any quoted figures were correct when report being written).
Value Added Tax (VAT) is an indirect form of tax charged on the sale of goods and services. Each year the Government sets a taxable turnover figure which if met by your company, you are obliged to register for VAT.
If your business satisfies any of the following statements, you need to register for VAT:
If your taxable turnover in the previous year exceeded £70,000 (at the time of writing).
If your taxable turnover in the next 30 days is expected to exceed £70,000
If you have not reached the taxable turnover threshold, you can still register for VAT but you need to think carefully about doing this. Essentially many of your clients will not be VAT registered and if you are, they will not be able to claim the VAT back hence your prices may seem higher than another photographer who is not VAT registered. The benefits to you are that you can claim the VAT back on all the relevant supplies, but you could risk losing business due to your higher prices. Having said that, however, most people do actually expect to pay VAT nowadays and it can actually make you appear more professional.
We do not know of many photographers who register for VAT right from the start, mainly for the higher prices that it will incur. But there is always time later on to register either if your turnover forces you to or if you opt to for your own personal reasons.
If you do register for VAT, you then have to decide whether you should opt for the Flat Rate scheme or the Standard Scheme. The Flat Rate scheme is easier in terms of bookkeeping and management but you can only choose it if your turnover is less than £150,000 (at the time of writing). With this system, you simply multiply your turnover by the flat rate percentage relevant to the Trade Sector. For example, the photography trade is associated with a flat rate percentage of 10%. But remember, you can only claim the VAT back on single itemised invoices of £2000 or more. You still have to charge your clients the standard 20% however but only pay back to the Inland Revenue 10% of your total sales.
The Standard Scheme involves a lot more time and effort; all VAT receipts have to be logged to claim the VAT back on these purchases. You then have to calculate how much VAT has been charged to your clients (at 20%). From here, you deduct the INPUT tax from your OUTPUT tax. You are entitled to recover VAT on all relevant goods and services that you buy in (INPUT tax) but you must add 20% VAT when selling to your customers (OUTPUT tax).
Choosing between the Flat Rate scheme or the Standard Scheme will require some investigation into your business figures to analyse which scheme will be more beneficial to you. Your accountant should be able to guide you with this. If there is very little difference between the two schemes in terms of financial gain, it is wise to register for the Flat Rate due to the lower associated workload.
National Insurance
Most people who work have to pay National Insurance contributions (NICs) as well as tax. Payment of NICs entitles you to benefits later in life such as a state pension. There are different types of National Insurance contributions (below is an indication of those that may affect you in your business.
Class 1 contributions
Employers are responsible for calculating, deducting and paying Class 1 primary NICs (employees’ contributions), to HM Revenue & Customs (HMRC) on behalf of all employees, including directors, earning above the earnings threshold. These are deducted from their earnings.
Class 2 contributionsThese are applicable to the self-employed and are payable at a flat rate, either monthly or quarterly. The amount is £2.40 per week for the 2010 period.
If you earn less than £5,075 per year you can apply for a certificate of small earnings exception and not pay Class 2 National Insurance contributions.
However, you might decide to carry on paying them voluntarily to keep your entitlement to the State Pension and other benefits.
Class 4 contributionsAgain, this is payable by the self-employed in addition to Class 2 and is relevant to your profits i.e. is payable by individuals who have made a certain amount of profit in the previous tax year. You pay eight per cent on annual taxable profits between £5,715 and £43,875 and one per cent on any taxable profit over that amount
PAYE Tax:
PAYE (Pay As You Earn) is the HM Revenue & Customs (HMRC) system for collecting income tax from the pay of employees, including directors, as they earn it. If you are an employer, you will need to deduct income tax and National Insurance contributions (NICs) from your employees’ pay and submit the deductions to HMRC.
Self assessment Tax
This is a system for working out and paying tax if you:
are self-employed, either as a sole trader or in a partnership
are a company director
have income from letting any property or land you own (but if you are an employee and this income is less than £2,500 a year, a tax return may not be necessary)
You have to complete a Self assessment tax return which are issued in April each year and cover the year from the previous 6 April to 5 April. For example, the 2009-10 tax year covers the period from 6 April 2009 to 5 April 2010.
Corporation tax
This tax is paid by limited companies on their profits. Corporation tax is not payable by the self-employed. There are two key corporation tax rates: the small companies’ rate and the main rate. If your company’s profits fall between the two rate bands, you will be eligible for marginal relief. This is designed to ease the transition from one rate to the next.
Terms and Conditions
You need to have a thorough set of Terms and Conditions and get your client to sign them (see sample set – only a sample – get yours checked!). If the parents are paying, it may be a good idea to get them to sign. Get your Terms checked by a lawyer or a professional body. It really is important to get a good deposit (at least £250) to book you. The balance must be payable 3 - 4 working weeks in advance of the wedding. You will run into trouble if you expect people to pay you when they pick up their album, all the wedding budget has been spent! GET PAID BEFORE THE WEDDING.
Artistic Licence – this should detail the fact that you as the photographer have ultimate control over the poses, backgrounds and location of the photographs. It is essential to discuss with the client the type of photographs they wish to be included but if for any reason, the bride and groom as well as the guests do not participate or assist or bad weather prevents certain shots to be taken, you cannot be held responsible.
Copyright
Under the 1988 Copyright Designs and Patents Act, the copyright of all photographs generally belong to the Photographer and the company (company name), not the client.
It is an offence for anyone who is not the owner of the copyright to copy by any means whatsoever or to engage any third party to copy any images. This means that clients should not scan their wedding photos for any purpose, whether this be for printing or emailing to friends and families. This Copyright protection law should be on you literature and in your Terms and Conditions. .
However, if you wish to use photos for your website, or for a competition or exhibition, it is good practice that you include a term within your Terms and Conditions to such an effect. When the client signs the Terms and Conditions, they are accepting this clause. This prevents any comeback from the client in these situations.
It is impossible however to prevent every client copying your prints, CDs (if supplied) etc. and even if the photographer did find out, they may be reluctant to take the case to court. Therefore it is essential to charge properly for your service and not rely on reprints. If you are supplying proofs to the client you can protect yourself by either printing off small images (inkjet), by stamping COPYRIGHT over the images or putting them in a lockable album. If on CD, supply as low resolution images only.
Insurance
It is imperative that you get yourself fully insured for the following:
Professional Indemnity
This insurance covers any failure to fulfil contractual obligations whether this is as a result of negligence or matters beyond your control. For example, if digital files are non retrievable and you have to reconvene the wedding party (some guests having travelled thousands of miles), hire out the venue once again, order in new flowers etc. Typical limit of indemnity - £50,000.
Public Liability
This insurance covers you for damage or injury to members of the public. For example, a guest may trip over your tripod or camera case, break a limb and have to take time off work. You could be held responsible for the injury and the claim could bankrupt you. Typical limit of indemnity - £2 million.
Equipment
It is obvious that this insurance is essential (covering loss and damage to equipment). Obviously ensure that you have fully insured the full value of your equipment.
Grants
Make sure that you do some research on available grants either for a business start up businesses or for an established business (whichever is relevant to you). There are excellent specific grants available if you are a rural business and your business plan shows that you are planning to ‘sustain your environment’ by using local resources and employing local staff (i.e. positively feeding back into the rural community).
You need to do a search on the internet for grant funding on a local or national level.
It is a very good idea to contact you local Business Link as they will be able to provide good information on funding as well as good general advice on all aspects of running a business. They operate a grant finding service - GRANTnet to help you identify suitable funding for your business. This is an interactive database that includes over 4,000 grants and incentives and the data derives from EC and Government sources.
Their websites are a wealth of information and you can also meet direct with an advisor which is invaluable. They also have training days in specific business areas throughout the year.
We run Wedding and Portrait Photography Courses with some of the top pro tutors..Remember that we run Wedding & Photography courses (including Essential Business Advice) using Top Pro Tutors in fantastic venues and using at least 9 models on every course. Check these out on:
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