The Business of Photography

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The Business of Photography

102 What Expenses Can You Cut? (Part 2)

Recession Strategies: Part 2 of 4

It is far better to increase your income than decrease your expenses.

If you have a business with income of $156,250 and expenses of $156,250 (as outlined on the calculation form from Part 1 - you can download it here), you have more potential by increasing sales than reducing expenses. Furthermore, reducing your expenses may also mean reducing the standard of work you produce for your clients, which in turn can reduce your sales even further.

However, if we’re in a recession and despite all of our best efforts our sales are falling, we may need to look more closely at what we are spending.

There are two areas to consider: cost of sales (variable costs) and overheads.

 

Cost of Sales

When you look at your accounts each year (or each month as all good business people do), there are three big items: wages, rent and cost of sales. Well, at least you hope cost of sales is big because if it is, it means you’ve been doing a lot of work.

Cost of sales, however, is usually made up of lots of smaller transactions. Your lab, your framer and your album manufacturer are examples of lots of little items adding up to a big expense at the end of the year.

The question to ask yourself in tough economic times (well, actually it’s a question that should be asked regularly whether the economy is booming or not), is: Can I source equivalent supplies elsewhere for a cheaper price?

The key concept is ‘equivalent supplies’. All of us who use a professional lab can get cheaper prints at a department store if we’re happy to stand in front of a photo booth and process our files. However, many people would argue that these cheaper suppliers don’t provide the same quality as a pro lab. Of course, that depends on the quality of the pro lab as well – undoubtedly there are some bad pro labs and some exceptionally good department stores, but generally speaking we aren’t going to change from a pro lab to a department store, we’re more likely to move to another pro lab.

Now is a good time to shop around. Everyone knows there’s an economic issue and no one wants to lose customers. Can you negotiate a better deal? For instance, if you’re using two or three labs for different services, could you talk to one and offer it all of your work for a better price? Or if you have all of your work with one lab, can you move one aspect away to another lab for a better price?

[Some lab owners will read this paragraph and send me hate mail; others will read it and think what a great opportunity to grab new customers who, when the economy improves, are likely to stay customers even though lab prices edge back up a fraction.]

The same approach can be taken with album suppliers and framers. Similarly hire studios and equipment rentals are likely to be open to offers to secure a shrinking market, but before you discontinue a long-held association you’ve had with any supplier, be sure to give them the opportunity as well. Don’t find a cheaper price and just move; either find a cheaper price and then talk it over with your existing supplier, or simply ring up your existing supplier and say you’re having to look at your pricing, is there anything they can help you with?

There’s more to cost of sales than just price. A cheaper price is of little value if the quality is second-rate or has to be re-done because this could play havoc with your cashflow and possibly your reputation. Remember, your clients are probably going to play the same game with you, so make sure they don’t go somewhere else because you can’t meet their expectations.

Overheads

Changing from coloured paper clips to the plain steel ones probably isn’t going to make much of a difference to your bottom line. Businesses fail for more fundamental reasons than this, so while the small stuff is important, it’s the bigger expenses that are going to make the greatest impact on your profit (or lack thereof).

Rent is a big one. Do you need a big studio in the middle of town, can you get by with a smaller one a little further away from the action, or is working from home an option? What impact will moving your studio have on the work that just comes through the door and how much more will you need to spend on advertising to replace it? Many commercial and advertising photographers have already down-sized, choosing to hire studios when needed, so they are already working from home or a smaller, hired space. Many wedding and portrait photographers work this way as well, combining their residence and studio into the one bullding.

There are arguments for and against most arrangements, but this isn’t the point if your business is suffering. If you don’t have a lot of business, moving to a home studio could be very sensible, assuming you can get out of your lease without penalty. You may need to check a move like this with your solicitor before giving your landlord the bad news.

Wages are another expense that in tough economic times must be looked at, and it’s a hard one to face. No one likes to let staff go, especially experienced staff because by the time the good times return and you’re looking to rehire, good experienced staff will have invariably been hired by someone else. Firing staff or making them redundant can be fraught with legal complexities, although it is much easier for small businesses (like most photographic studios) than large ones.

A chat to your solicitor before talking to your staff is a good idea. And while small businesses may not have to pay out large redundancy payments, they could be liable for holiday pay and possibly long service leave, depending on which state you work in and if your staff are employed under an award.

Changing rent and staff is not usually an overnight decision, but nor should it be something you put off simply because it seems too hard. A reduction in both of these overheads can be the difference between survival and failure for a small photography studio.

Putting Off Expenses, Putting Off Payment

You may have many small business expenses that can simply be delayed, such as new stationery, updating a fax machine or having monthly accounts prepared (perhaps once a quarter is better). Similarly, rather than sending out retouching work you might choose to do it yourself. You can also look at suppliers who will give you more generous terms for payment, but be careful with this approach. Some businesses get way behind with their payments to suppliers, not realising that their business simply isn’t profitable and that every extra month they continue to trade is a step closer to bankruptcy.

If you can’t pay your suppliers within 30 or 60 days, and it creeps out to 60 to 90 days, you have a fundamental problem with your business. Don’t stick your head in the sand and ignore it.

I know of businesses out there that have survived for many years with huge debts to trade creditors (labs, album manufacturers, framers, landlords etc). Most have huge credit card bills as well and the cost of interest each year is crippling, making it increasingly difficult to recover.

Unfortunately, the majority of these businesses end up failing and when they sell their house to pay their bills, they end up with a lot less than they could have it they had recognised the problem many years earlier. Inaction for a business that is unable to pay its cost of sales and overheads is not recommended. You should immediately calculate your breakeven point, work out how you can increase your sales to cover it, and talk to your accountant or business adviser.

As with all business articles on this website, the information is general in nature and doesn't replace advice from your own advisers.

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