New Studio Part 4: Financing - DPChallenge Forums

Canon EF-S 18-55mm f/3.5-5.6

02/19/2005 08:26:24 AM · #1

I promised I'd try to write about what I'm learning as I go from DPC flunkie to studio owner. This is the fourth chapter.
New Studio Part 1: Starting Out
New Studio Part 2: Organization
New Studio Part 3: Plotting a Course
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"Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver." - Francisco D'Anconia, Atlas Shrugged.

Despite popular wisdom to the contrary, you don't need tens of thousands of dollars to open a photography business. (If I'd said this in the first part of this series, we'd probably have a lot more readers still with us!) We started Picture Infinity with less than $4000. We had a camera, backup camera, lots of memory, a laptop, a tiny bit of other gear, 3 lenses and one single client. If it's possible to start with that, it's possible to start with just about anything.

So where do you find the money to start and run your business? While there are many slightly obscure places that hand out money for any number of reasons, we will skip a few of those on the off chance you don't qualify for a grant of some type (if you are a German monk with 14 fingers and plate flute, there's probably a research grant out there for you.)

We have identified 7 major sources of financing your startup:
Loans
1) bank loans
2) family and friends loans
Income
3) personal income
4) business income
Investors
5) investors/angels
6) partners with $
7) miscellaneous (grants, gifts, selling things)

Loans are a reasonable way of starting your business finances. Do a search for "funding a new business" on any major start engine. 9 of the top 10 links are practically guaranteed to be loan sites. You can ask for loans in a great variety of amounts, repayment terms, and from any number of sources, both online and in your own hometown. The great advantage of loans is their widespread availability. Even with poor credit parents, family and friends often will help out as they are able.

The downside of loans is that they often accrue interest and they have to be repaid (Dang, I know!). It can be detrimental in many respects to have poor credit. The Better Business Bureau wll revoke your business membership if your credit history is very poor. You should focus on building your business (and personal) credit history without wrecking it.

Investors also make up a good portion of money available to new studios. You should be aware that there are two types of investors:
1) Angels and capital investors. Capital investors are investors who give you money for a financial stake in your company. If your investor putsi n 50%, he or she may be due 50% of the profits at the end of the year. While most of these investors are "limited partners" and do not take on an active role in the business, you should clearly spell out everyone's roles - rights, responsibilities, etc. right from the start. Investors generally want to put in money, then sit back and watch you earn them a profit. Not a bad gig - for them! If you need the money, however, this is a possible avenue. Just understand what is happening.

2) Partners - sometimes a business will grow by admitting a new general partner into the fold. This new partner may bring equipment, capital and may even need to pay an entry fee to join your business. Generally, partners participate in the business a lot more than investors do. They may do photos as well, or they may be a graphic designer, photo retoucher, or other similarly related line. Or they may be a fantastic office manager. They may run the day to day doings of your business.

Adding a partner to your business has a few advantages and one major disadvantage. First, you add not only more money to your business, but another body. Thus, you've added time to your business. Since time is your most limited and critical asset, this is fantastic! You've also added a second eye, a whole new brain to pick for ideas. On the downside, you do lose a good portion of your control. No longer are you the be-all, end-all boss. You need to share resources, share decision-making and share profits.

Before we hit the best source of money for your business, I want to remind you that there are grants you can try to get. You can also add gift money and if you really need some cash, you can always sell things. Put an old lens on ebay, auction off some old videos, sell your kids to Nigeria - that sort of thing!

The last (and possibly best) place to find funds is ... you! Income put into your studio keeps it self perpetuating. How do you currently live? can you divert $25 a week to your new studio? Do you have savings? You can sell stock photos, participate in craft shows, or divert your paycheck from Burger King. Capital investments in your own business not only grow the business but increase your stock in it.

Also, your business provides you with income. If you absolutely need to take some money out, of course you should do so. If you only want it for the latest and greatest but not necessary thing, consider putting it off. I get $500 deposit checks and I want a new lens. I know that I need 3 of them to get the new computer, and it's hard to wait, but you have to. Remember when we did our business plan last chapter? That's where this comes in. You need to know how much of each wedding needs to go back into the business.

Use your plan, use your resources and try to make more money. The product of this business should be your livelihood. Once you're making it, just keep up the same intensity and keep looking for ways to grow your fledgling studio.

Good luck!

Til next time,
Matt

Message edited by author 2005-02-19 08:26:45.

Sonifo

Canon EOS-400D Rebel XTi

02/19/2005 11:18:33 AM · #2

Thanks again, Mavrik! You are being very helpful.

02/19/2005 11:33:25 AM · #3

Thanks! I hope if anyone has anything to add, they will. I am the first to admit this is all new to me. This isn't a professional telling you what anyone should do - this is someone going through it all for the first time, learning day by day. :)

I know a number of people here are going through the same sort of thing and I definitely encourage them to add their input to each topic as well. :)

Thanks again! I'm glad they are being read.

M

02/19/2005 01:34:52 PM · #4

Cashflow is #1.
The biggest reasons new businesses fail is lack of it. If you get debt to begin the business, you must have the cashflow to pay the bill. It is way to easy to borrow the money, and hard to pay it back. This can be an issue with a partner if things get tight, or if you need the biz to generate income for you to spend on silly things like food and rent.

If i recall, you should have 6 months of cash reserves - so if your bills (camera payemnts, studio rent, internet, phone, etc) are $300 a month, you need $1800 in cash set aside just for that, and if you need $2000 a month in income then add another $12,000. This way if things get slow you have a safety net to keep the bills paid and you fed. This is the hardest part of a new business - getting that savings account built up.

I sold real estate for about 5 years - some part time and some full time. You work a lot harder if it is your full time job! Extra cash is one thing, but when you need the income to pay for your car or your kids dentist it adds a whole new layer of stress to your life.

Also, if you start part time (out of your home with what you have, shoot an occasional wedding or grad pic) and then decide to go full time, the going 'legit' gets real expensive fast. You should always have insurance and a business license, tax ID, etc, but as a part timer you might not. Going legit you must, and add in a commercial phone line, advertising...

In real estate my best month i made over $7000. I also had 4 months with $0 income. One must be disciplined when it comes to the money!

02/20/2005 09:28:22 AM · #5

Originally posted by Prof_Fate:

Cashflow is #1.
The biggest reasons new businesses fail is lack of it. If you get debt to begin the business, you must have the cashflow to pay the bill.

Absolutely. This is why I make loans the first and almost least important thing we concentrate on in our business. We don't want to go into debt because, as you say later in the post, once you start owing 10s of thousands, and it's a "real full time gig" then it's a whole other ballgame and I think the best thing to do before that is a) know what you are getting into and b) have a real, concrete plan for how to put food on the table.

Originally posted by Prof_Fate:

If i recall, you should have 6 months of cash reserves - ... This way if things get slow you have a safety net to keep the bills paid and you fed. This is the hardest part of a new business - getting that savings account built up.

This is the traditional wisdom and probably not a bad idea. My thinking is that you have to be able to respond to the month-to-month changes in this business. If business really slows down other than in the winter months, you're probably doing something not quite perfect as well and you probably need to rethink what is happening to your business. In the times we live in, time is all-important and if you fall 6 months to the wayside, you need to rethink almost everything from the ground up. Solid advice on the reserves though.

Originally posted by Prof_Fate:

In real estate my best month i made over $7000. I also had 4 months with $0 income. One must be disciplined when it comes to the money!

And the wedding photography business can be even more fickle. We haven't shot a wedding since October, but we have the ENTIRE summer full of them. Ed Lilley, an author-wedding photographer, averages 80% of his income between May 1 and Oct 31. Gotta be a good money manager to survive, for sure!

Thanks for adding your thoughts, Chris. It's good to have people who've done other lines of work in this as well.

M

02/20/2005 10:59:18 AM · #6

I got the money management thing down. I have debt too...I hate debt because it enslaves you. No debt? go take 3 months and shoot Yosemite, no worries. Have car payments, school loans, mortgage, etc, and you can't take 3 months off. Limits your options, but hard to avoid.

I spent 11 years in the motorcycle business, and in PA it is seasonal. I was paid a commission as well...so in November I'd make $300 in two weeks, and in April $1200. If your bills are designed around the $300, then when you make $1200 you can party, er, I mean, invest.

One other thing to watch out for, although probably not as much an issue with a freelance photography biz, is growth and financing it. In the bike biz we had one brand, grew that (mostly mail order parts sales) and then took on a second brand...now we needed more inventory, computer changes, more warehouse, more advertising, more employees, etc, etc. Get debt to do that, and then wait for the cash flow to catch up. Grow too fast and you will choke on some part of the growing pains.

One of the hardest things is to delegate a task you once did. No matter how good i might be at setting up lights or filing or photoprocessing, I will not do it the way you do. So once you hand over that job, keep your fingers out of it and let the employee do it. Or you will all be nuts!

02/20/2005 11:14:47 AM · #7

Ive enjoyed your posts and now find myself going back to read "part 3" because it is the area that boggles my mind the most. Have you thought about creating a chapter on "workflow"?

02/20/2005 11:27:38 AM · #8

Originally posted by grigrigirl:

Ive enjoyed your posts and now find myself going back to read "part 3" because it is the area that boggles my mind the most. Have you thought about creating a chapter on "workflow"?

Not to but in, but

workflow? as in file processing or the advertise/prospect/sales presentation/close/shoot the shots/PP&print/delivery? or do you have something else in mind?

If the first one, I keep changing. My Fuji and Canon need very different PP work in PS, and now that i have started shooting in RAW, we add another layer. And thw workflow varies depending on output (web vs print) and what kind of print (photos or offset or wetweb, etc)

Message edited by author 2005-02-20 11:28:24.

02/20/2005 11:41:43 AM · #9

time is money. Im thinking mostly in terms of file processing. I would love a simple tutorial on shooting raw. A lot of things about file processing i dont understand. Such as using the crop tool in photoshop...if I choose an 8x10 or 4x6 crop, it changes the dpi of the file. What steps should we take in order to maintain the highest file quality for print. If I know an image will be printed in 8x10, what is the best way to crop for this without losing dpi? I am clueless and still learning.

I dont mean for this to change the topic of mavriks original post.

I followed mavs advice in part 3 and created an inventory of albums. WOW..that was a chunk of change!!!

crabappl3

02/20/2005 11:47:53 AM · #10

I usually work my images in an 8x10 crop, but I don't specify a dpi in the crop tool. If the client then orders and image at a 5x7 or 4x6 ratio, I then crop that size from the 8x10 crop. I note on my site that purchased images at different sizes may result in different crops. In the off chance that a larger image is purchased, I then do an upsize to the size requested 16x20, 11x14, etc to 200 dpi.

This has worked out pretty well thus far.

-danny

Originally posted by grigrigirl:

02/20/2005 01:58:31 PM · #11

Originally posted by grigrigirl:

Ive enjoyed your posts and now find myself going back to read "part 3" because it is the area that boggles my mind the most. Have you thought about creating a chapter on "workflow"?

I actually have a list of about 16 topics I want to cover and post process workflow is on the list. :) It's further down tho because I truly feel that this other stuff is much more important.

As far as part 3 - that's the most important chapter yet, including this one. Having a business plan and something more substantial than "I want to shoot as many weddings as possible this year" is an absolute necessity. :) If you want, I can do that article differently or re-look at how I have written it?

M

02/20/2005 02:00:48 PM · #12

As far as crop size, I don't crop the edited files until after they are backed up. I backup a full size copy of every file I finish. THEN I crop to 4x6 because that's what I upload for proofs and what they get for their packages mostly. I offer all the other sizes recropped from the originals as people want them.

Smugmug lets you upload the biggest version and then the buyer can specify their own crop. I want this in DPCP2.

M

02/20/2005 02:17:15 PM · #13

my lab lets me upload the largest possible file as well. Thats why Im concerned about trying to crop an image in PS. If i assume that someone will want an 8x10 of a group shot...and then use the little cropping tool in PS set at 8x10...it seems to resize the whole file somehow and changes the DPI. This is my concern. Not sure it makes complete sense. If I just crop an image without the cropping tool being set to a certain ratio..then the dpi remains untouched. This is my confusion.

03/14/2005 05:29:58 PM · #14

Originally posted by grigrigirl:

I am thinking on the workflow thing...perhaps we can trade answers - how many shots do you take at a wedding? How many of those do you PP? (and to what extent or does it vary by pic type?) If you supply 175 +/- proofs, have you PP'd them all? And of course, how long does this take?

I ask because i am wannting to get into wedding photography and still researching all the needed bits. I have recomendaiton to shoot it all in RAW, or just the church shots in RAW (i.e. the most important shots of the day). I have seen photogs sites that have BAD WB, no cropping (an arm stuck in here or there on edges of pics, etc). Obviously not everyone does PP.

For RAW since i don';t have PS CS, i use canon's Digital Photo Pro 1.5, but it wonly works with CRW files. It can save TIF and JPG. I have done a few pics this way...doing 200 is another ballgame...

IN PS 7 if i resize (to a given inches (12 for example) the 180DPI remains the same. (menu: Image->Image Size->Document Size)

If i choose the Crop tool I can set a ratio, a given size and a DPI for the finished image.

You can change these DPI settings.

If you use the marquee tool, you can crop and set it for given ratios as well and the DPI will remain untouched.

DPI matters only for printing. Generally you want 250 DPI (so an 8x10 needs to be 2000x2500. You can fudge that to 200 and be OK.

I have not done enough printing from PS to know what the quality of the end pic is if you upsample, downsample or just lose track of all that was done. 98% of my work is for the web. And 100% of my prints are done via a lab on a Fuji machine.

Hmm..must go and test this...