If you’re starting a business in something you’re passionate about and don’t necessarily have a business background, it’s easy to not think about the bottom line – how much money are you really making. We can go into a long discussion about this, but initially I wanted to cover the topic in a very basic format.
Profit is essentially a function of revenue and cost. That is, how much money are you bringing in compared to how much you are paying to have your business function. The reason I wanted to discuss this is because there are many small factors that need to be taken into consideration when you’re looking at your bottom line. It’s always important to remain knowledgeable and understand all of what goes into running a business so you can be successful.
Costs are things like licensing your business, equipment purchased, gas for getting to and from clients, car insurance/maintenance, even small items like paper, ink, or advertising. Don’t forget to include what you will be getting paid, labor is a cost that you need to take into consideration unless you want to work for free. Costs may depend on how many clients you have, or they may be a cost regardless of the number of clients. A fixed cost is an expense that is paid regardless of the number of clients you are working with, this will be something like the rent you’re paying at your studio or the cost of the equipment you’ve purchased. A variable cost will change depending on the number of clients you serve or the amount of work you’re performing. Variable costs will include things like travel expenses or prints. Revenue is the amount of money that you receive, including discounts and deductions for returned or refunded products. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold.
When you understand the profit function, this will help you determine what prices to set in order to cover all of your costs – you will break even when your costs equal your revenue. Although there are many other factors that will need to be taken into consideration when setting prices, this will help you get a realistic look at what you will need to charge to make a profit in your photography business.
In future blog posts I will continue to discuss profit and how important of a role accounting plays in your business. Subscribe to my blog to receive e-mail updates for new posts.