Just how long do you want to be in business?
The ultimate goal for most business owners is that they can build a business that is sustainable long term.
There is one BIG thing that often times holds business owners back from building a business that is sustainable 5, 10, or even 20 years down the road.
It is hard to plan for the growing expenses associated with a business.
Often times we sit down and ask ourselves, “What are our current expenses in our business?” We write them down, add them up, and then plan our pricing based on these expenses.
When we sit down at the end of the year and look at our bank account we wonder, “Where has all the money gone?!” <- I hope you said that in your best Jack Sparrow voice.
The problem is, that we had a million other expenses pop up during the year that we didn’t plan for, or our business had a huge growth spurt and it simply took more money to run our business than we had expected.
If we continue to plan our businesses in this old fashioned way, we will constantly be adjusting our business each and every year and playing the catch up game.
So what should we do instead?
We should take a new approach to planning our photography business’s budget and financial goals.
As a general rule of thumb, as our business grows our expenses also grow. So your $50,000 business takes about 1/2 as much money to run as your $100,000 business….or 1/4 as much money to run as your $200,000 business.
Our $200,000 business has more expenses because as we have more clients it requires more systems and programs to help us automate things, often times growth also comes with outsourcing more tasks, or even adding employees…..sometimes it also includes things like big investments in gear, or education to step up our game.
If we plan our business’s budget using percentages we will be set up for success as our business grows.
When I began to really dive into learning from some of the best marketers in the business world. I started to hear things like “Budget 4-7% of your revenue for Marketing” and something dawned on me that using this same method for my entire budget could truly change the game in figuring out exactly what I needed to be making per client to be profitable.
Then I read the book “Profit First” by Mike Michalowicz and the pieces truly fell into place.
I sat down with my giant business spreadsheet and started crunching the numbers, and realized looking back through the years that this was truly the solution to pricing my business for long term success.
I was tired of strategizing each and every year, and adjusting because I always spent more money than I had planned because as I became busier I was searching for ways to take the weight off of my shoulders and lighten my load, which often times led to spending more money.
So instead of planning and saying “My goal is to make $100,000 revenue this year and I *think* I will have $40,000 worth of expenses.”
I can say something like this “I plan on making $100,000 this year, 20% will cover my COGS, 20% covers my operating expenses, 15% will be set aside for taxes, 5% for savings, and 40% for owner distributions.” I can say I know exactly where every single penny goes in my business using this method.
The best part?!
My percentages will stay just about the same as my business grows, and will only need minor adjustments.
To give you a better idea of why this works so well, for example.
Or let’s talk about our Marketing budget. If we have say 5% set aside for marketing, this tells us sooo much! It tells us that if our average client spends $5000, then we can spend around $250 to acquire each client. It tells us that if we go to that big event and spend $3000 to attend, we need to book around 12 clients for the even to have paid for itself. It tells us if our cost to acquire a client through a FB ad was really worth it. If that $10,000 sponsorship we did for a big event paid off.
In another blog post I will go into more detail about how to manage your money in your photography business using this method along with the Profit First system for managing your bank accounts.