The following advice is specific to Australia. Most Western countries have similar structures and the broad principles are similar. However, you should consult your own advisers for specific information.
The most boring part of running a business is keeping your accounts. Boring it might be, but it is fundamental to being successful.
There are many reasons for keeping accounts, but there are two main ones.
The first is the big stick approach: the law says everyone who runs a business must keep accounts. The law isn't always specific in what sort of accounts you need to keep or how they should look, but it requires a specific outcome. In other words, you have to be able to provide certain pieces of information - such as how much money you earned, how much your expenses were, and what was your profit. It leaves the ‘how to' up to the individual, as long as you produce the results (a bit like being a photographer).
However, the accounts must be in English and, if stored on a computer, capable of being printed or viewed. In other words, you can't keep them in a format that no one else can inspect - the tax office would have a problem with that!
The tax office is the main government authority who will need to see your accounts, but you may also need to show banks, landlords, suppliers and investors information about your business from time to time.
In some ways, these legal requirements are very helpful because they make small business people prepare accounts, but the real trick is in using the accounts intelligently.
Your accounts are a report card for the way you are conducting your business. If you're doing your marketing and advertising well, you'll have lots of sales and lots of work. However, this in itself doesn't guarantee lots of profit.
Every job you do could be losing you $100, so the more work you do, the greater the loss. Although a scenario as drastic as this is unlikely in photography, it's quite common for photographers to think they're earning $100 a job when in reality it is only $10. Unless you critically look at your accounts - the results of your business activities - you will never really know how effective and successful you are as a professional.
Accounts can be prepared in many ways. It's perfectly legal to keep handwritten accounts in a ledger book, but not very sensible. Computers have made the process of collecting numbers and adding them up relatively painless. Certainly the days of incorrectly adding up columns of numbers have passed.
Since every professional photographer today uses a computer for either image editing or e-mail, there's no reason you can't add some account keeping software to keep your accounts.
At the end of the day, every business needs a ‘profit and loss' or ‘income and expenditure' statement (these are exactly the same for the purposes of this discussion). This simple statement is the key to your business. For a given period of time (usually a year, three months or a month), it shows you your gross income less you direct expenses and overheads.
It's important for a business to compare profit and loss statements from one period to another. This shows you whether your business income is increasing, decreasing or remaining static. You can also use this information to calculate ‘business indicators' such as your gross profit percentage and net profit percentage. Armed with this information, you have a clear idea of how you are performing as a professional and what you need to do to improve matters.
At a pinch, you can use a spreadsheet program (like Microsoft Excel) to keep your accounts, but when you take into account GST, staff wages and producing reports regularly, we would only recommend buying an accounting package.
There are two main players in the Australia market for small business accounting software - MYOB and Quicken.
The QuickBooks program (by Quicken) is probably the best of the bunch, but you have to be an accountant to drive it and (in my experience) small business users can easily mess it all up if they don't know what they're doing. And most don't!
MYOB seems to be an easier solution for small business users. Although not as flexible, it does everything that is required in a slightly more regimented fashion - and if you're not an accountant, that's exactly what you want from an accounting package.
Once you've set up MYOB or QuickBooks correctly (you should contact your bookkeeper or accountant for help), it can produce your quarterly (or monthly) BAS reports automatically, plus it will produce lots of neat reports to help analyse your business. Just make sure you use them.
Most successful business owners don't keep their own accounts. Their time is better spent in marketing or photography, so bookkeepers and accountants are employed to keep the books up to date. Bookkeepers and accountants are not the same. A bookkeeper ($20-$50 an hour) is like a photographic assistant, an accountant like the photographer ($150 to $400 an hour).
A bookkeeper is employed to take all the raw materials - invoices, receipts, bank statements, credit card statements etc - and enter them into the accounting software. They should also ‘reconcile' the bank and credit card accounts, which is the way beancounters check the work they have done. (Accountants like to see reconciled accounts because it gives them confidence that the accounts are correct.)
Bookkeepers need to be experienced in the software you use (MYOB is the most prevalent software in the market today) and have a basic understanding of income tax law (so they put the expenses into the right categories).
When the accounts are finished by the bookkeeper, they are given to the accountant who will check how the expenses have been allocated, make adjustments for tax purposes and calculate the taxes.
An accountant should also provide you with tax advice (how to structure your business to minimise tax) and help you with a variety of business decisions. Their experience with a range of different businesses is invaluable for you when you have an issue to deal with and they can be an excellent sounding board for your ideas.
An accountant doesn't have to be an expert in photography to be good for a professional photographer, although it helps. The most important attribute for an accountant is communication - the capacity to listen and understand your issues, and the ability to provide you with clear and understandable advice.
Does all the basics you’ll require, include a BAS statement. Frustrating for your bookkeeper to use, but otherwise it’ll do the trick.
Accounting, inventory and business management software. Very flexible, all you need as long as you don’t have staff. You probably won’t need the inventory module.
Same as MYOB Accounting, but adds payroll and time billing. If you employ staff, buy this version.
This has all the bells and whistles of MYOB Accounting Plus, and allows more than one user to access it at a time (multi-user). Ideal for larger studios with several staff needing access to the accounts.
The information in this article is general in nature and should not replace personal advice given by your own legal and financial advisers.