I’ve got a new post on liveBooks RESOLVE blog today in a continuing series called “Seeing Money” about the basics of the business side of photography:
RESOLVE — the liveBooks photo blog » Archives » Seeing Money: Tips for capitaziling on your cash flow
Here as promised is some supplemental information to the RESOLVE column:
One of the hardest nuts to crack for any freelancer is how to manage cash flow. I’m the first to admit that most of this is theory and putting it into practice takes nerves of steel. I’ve gone through phases where things are better planned, and phases where I’m so caught up in a special project or on the road shooting to the extent it’s just not possible to stay on top of things. If you can afford a business manager or bookkeeper or have a spouse or someone that can oversee and do some or all of this for you, fantastic. Currently we work with a business manager and review the payables with him and work together but I can rely on him to handle it if I’m out of the country. But as I’ve said, I did all this myself for years and even if you have help you owe it to yourself and your future to learn how it all works.
In my studio, we always insist on advances on jobs, which helps with production expenses, but even then we are often only covering 75%. And if we are producing a portfolio, book project or new web site or whatever marketing we do, we are spending without direct compensation.
Having a P&L and a budget that allows you to plan and track these expenses is critical. Getting monthly aged Accounts Payables and Receivable reports are also essential. You can look out over the next month, quarter and year and estimate your fixed expenses, taxes and probably income based on past income and see where the spikes and valleys of cash flow will occur. Try to get all your regular vendors on account so you can pay for supplies net 30. Negotiate in advance with printers and others for better terms if possible to stretch out payments. Rearrange your credit card payments so they are not all at once but spread out in the month. I limit my credit cards to one Visa and an AMEX also, keeping it simple.
So you’ve done all that and every two weeks you go to pay the bills and perhaps you see there are more bills than cash. Ouch. You can hit your line of credit if you have one, take money from savings (never do this) or call your vendors and negotiate longer payment terms. Typically, what happens is most photographers end up spending every dime they have on overdue bills or just not paying some. That leads to bad credit, ruined relationships with vendors and just a lot more stress.
To get a better handle on assessing my bills and cash flow every two weeks I get a special spreadsheet report that combines my A/P with the balances from my various checking and reserve accounts, plus any income we truly expect will arrive within the next few days. This is broken out as “MUST PAYS” and which include ANY credit reporting item or crucial must pay business item such as credit cards, loans, health insurance and the like. By just sorting your bills like this you can really clarify things in a hurry. You just must pay anything that might send you to collection or for which a late payment will be reported to a credit agency. The one thing you must preserve as a small business is your credit.
I have a total column under MUST PAYS so I can eyeball quickly what that amount is and start thinking about what’s coming next. The next section is a snapshot of my Payables and it’s aged by under 30 days, over 30 up to 60 days, 90 days and longer. Sometimes this is important to have not because we are late on something but we are able to see long term balances that are slowly being paid off.
I then look at the total due for all the bills that are due now or overdue, combined with the MUST PAYS. I then look at the balance of our main business checking to see if we have enough or if we will have to transfer cash in to cover this amount. If we are tight, my next step is to scan the bills due now to see what is under $500 and make sure we pay those first. The smallest bills should always get paid quickest in my opinion, as those vendors need it most usually. Sometimes if we know a check is coming in a day or two we might cut and hold checks. And then if there is anything that we can extend by perhaps paying half now and half in two weeks. We then call that vendor to see if that’s ok with them.
This is another step in the process I’ve added that happens to work for me and my brain and the way I process information. It might not work for you and you might be way more organized and have a mind for numbers. If so, I’m very jealous but at least I have my system to fall back on. And if you’re like me, now you can too.