Below are several P&L spreadsheets to illustrate what they can reveal about actual photography businesses. As a starting point for reading and interpreting the numbers, focus on the gross profit and operating expense lines, and find those numbers expressed as percentages of the total income. If those percentages make sudden changes or fall outside the norms described in the glossary above, then there may be problems. In that case, says Biscotti, "I go back up the line, through the components [of income, direct expenses and operating expenses], to see where they're not making the mark."

Business dropped off in 1996 because the photographer had some large one-time assignments in 1995. Despite a nearly $300,000 drop in gross income, bottom-line profit (before the photographer's pension and salary) was a healthy $226,000. That was 35 percent of gross income, well above the 25 percent model.

In 1997 the numbers show that more business doesn't necessarily mean more profits. This photographer's gross income went up almost $250,000 from 1996, but his bottom-line profit dropped from 35 percent of gross income to just 24 percent. That drop was primarily the result of a precipitous drop in gross profit from 70 percent of gross income to 49 percent of gross income. "A big reason for that was the type of assignments that he was taking on in that particular year. They had high expenses, so they weren't as profitable," says Biscotti. "He's still O.K. From a bottom-line standpoint, he made a lot of money in 1997. He made $213,000. And in 1996, even though business was way down, he made $226,000. He didn't do badly. He did very well against the average."

The photographer did well despite the instabilities because he kept tight control on his operating expenses. "He ran the studio lean and mean," says Biscotti. "He cut back on a full-time assistant and used freelance assistants instead." His studio costs and advertising costs were also well below average at 3 percent of gross income, which helped buffer the drop in gross profit.

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ASSIGNMENT PHOTOGRAPHER
12/31/94 THRU 12/31/97

		ACTUAL		ACTUAL		ACTUAL		ACTUAL
		Dec. 31, 1994		Dec. 31, 1996		Dec. 31, 1995		Dec. 31, 1997
		Your Studio		Your Studio		Your Studio		Your Studio
	Model	#	%	#	%	#	%	#	%
INCOME:
Photo Fees	48%	573,380	58.30%	635,810	67.70%	232,734	36.00%	387,826	43.80%
Job Expenses	52%	409,349	41.70%	303,855	32.30%	413,662	64.00%	498,013	56.20%
TOTAL	100%	982,729	100.00%	939,655	100.00%	646,396	100.00%	885,839	100.00%
DIRECT EXPENSES:
Rep's Commission	12%	0	0.00%	0	0.00%	0	0.00%	16,500	1.90%
Job Expenses	40%	292,726	29.80%	249,385	26.50%	202,715	31.40%	432,571	48.80%
TOTAL	52%	292,726	29.80%	249,385	26.50%	202,715	31.40%	449,071	50.7%
GROSS PROFIT	48%	690,003	70.20%	690,280	73.50%	443, 681	68.60%	436,768	49.30%
OPERATING EXPENSES:
Studio Facilities	7%	22,353	2.30%	26,450	2.80%	24,579	3.80%	27,760	3.10%
Advertising	4%	2,009	0.20%	1,833	0.20%	0	0.00%	8,291	0.90%
Insurance	3%	20,927	2.10%	23,291	2.50%	12,156	1.90%	5,235	0.60%
Depreciation Equipment &
Auto Expense	3%	32,191	3.30%	35,291	3.80%	38,457	5.90%	25,420	2.90%
Professional Fees	1%	28,144	2.90%	28,923	3.10%	31,010	4.80%	71,750	8.10%
Telephone	1%	13,062	1.30%	13,805	1.50%	10,625	1.60%	12,852	1.50%
Salaries & Taxes	2%	77,914	7.90%	72,222	7.70%	55,238	8.50%	35,017	4.00%
Other Office Exp.	2%	53,817	5.50%	36,742	3.90%	45,523	4.80%	37,086	3.90%
TOTAL	23%	250,417	25.50%	238,557	25.40%	217,588	33.70%	223,411	25.20%
Profit Before Comp
To Officers, Other Income,
Pension/Tax. Prov.	40%	439,586	44.70%	451,723	48.10%	226,093	35.00%	213,357	24.10%
Pension		35,079	3.60%	35,000	3.70%	36,105	1.75	6,586	0.70%
Officer's Salaries		220,800	22.50%	325,800	34.70%	138,098	16.80%	158,553	16.90%
Other Income		-913	-0.10%	-3,646	-0.40%	-4,306	-0.50%	-3,553	-0.40%
Interest Expense		3,964	0.40%	4,172	0.40%	2,577	0.30%	8,693
Provisions for Taxes		17,259	1.80%	4,334	0.50%	4,770	0.50%	14,500	1.50%
NET INCOME		163,395	15.60%	86,063	9.20%	48,849	5.20%	28,578	3.00%

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Example Number 2: Oppressive Overhead

This photographer, who shoots a combination of still- life and location work, has historically had a healthy gross profit, amounting to more than 60 percent of gross income. But, says Biscotti, "He is being eaten alive by overhead." Then he hit an off year. Gross income dropped dramatically, gross profit dropped slightly. His overhead, which was far too high to begin with, went even higher, and he ended up $127,000 in the hole. He's still trying to dig himself out.

This photographer's problems start with his studio facilities, which cost a whopping 17 percent of his gross income last year. Biscotti, who recommends that photographers spend only about 7 percent on this line item, says, "He owns his studio. He feels like it's an investment that will come back to him, so he discounts it in his mind and says, 'I don't care that I'm spending 17 percent on something that I should only be spending 7 percent.' " To make matters worse, he's way over- staffed and spends more than twice as much as he should on advertising.

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STILL-LIFE & LOCATION PHOTOGRAPHER
DECEMBER 31, 1995 to 1998

		1995		1996		1997		1998
	Model	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent
INCOME:
Photo fees	48%	213	60%	276	53%	353	56%	237	54%
Job expenses	52%	142	40%	247	47%	283	44%	198	46%
TOTAL	100%	355	100%	523	100%	636	100%	435	100%
DIRECT EXPENSES:
Rep's Commission	12%	19	5%	47	8%	78	2%	53	12%
Job Expenses	40%	73	21%	153	29%	154	24%	119	27%
TOTAL	52%	92	26%	200	38%	232	36%	172	40%
GROSS PROFIT	48%	263	74%	323	62%	404	64%	263	60%
OPERATING EXPENSES:
Consulting		0	0	0	0	0	0	0	0
Studio Facilities	7%	64	24%	68	13%	70	11%	72	17%
Advertising	4%	44	12%	32	6%	40	6%	42	10%
Insurance	3%	7	2%	6	1%	8	1%	10	2%
Depreciation, equipment
& auto repair	3%	11	3%	22	4%	34	5%	51	12%
Professional fees	1%	11	3%	31	6%	23	4%	27	6%
Telephone	1%	9	3%	9	2%	9	3%	9	2%
Salaries and taxes	2%	25	7%	39	7%	36	6%	69	16%
Other office expense	2%	29	8%	16	3%	12	2%	13	3%
Bad debt exp.		0	0	0	0	0	0	0	0
TOTAL:	23%	221	62%	223	43%	232	36%	293	67%
PROFIT before Officers comp,
other income, tax provisions and T&E	25%	42	32%	100	19%	173	27%	30	-7%
							add officer salary		91
							add T&E		-6
							loss per first mt f		-127

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Granted, studio shooters tend to be more profitable than assignment shooters at a given level of gross income, because studio shooters have lower job expenses.

But that doesn't account for all the difference here. This studio shooter is so profitable because his fees are high, relative to his job expenses. Moreover, he doesn't have a rep, does very little advertising and most of his overhead expenses are average or below average, according to Biscotti. This photographers is also disciplined about making corrections.

The numbers reflect two notable corrections since 1993. First, his direct expenses in 1993 exceeded his billed job expenses ($89,000 and $49,000, respectively), which means he was paying a lot of out-of-pocket expenses that he wasn't passing along to clients. "I told him you have a problem with your job expenses. You're not billing out your job expenses properly," Biscotti says. "It took him a couple of years to turn that tide. But by 1996 he was accruing a markup. It's not a big one, but it doesn't have to be."

The second correction has been a gradual reduction in his studio facilities cost. This cost more than 11 percent of his gross income in 1993. Biscotti advised him that that was too much, so he immediately reduced the size of his studio. The cost was still too high, but "he grew into it" by increasing his volume over the next several years, Biscotti explains.

A hard-core financial analyst might look at this photographer's profits and criticize him for not maximizing his opportunity. With so much profit, he could easily expand the business without taking on debt and make even more money. But Biscotti explains, "He's content with the work he's doing, and doesn't want to drive himself crazy. He's worked very hard. He puts in a lot of shooting days. He's putting big bucks into his pension plan. He's doing the right thing. He has a million dollars put away for his retirement and has another ten years to go, so he's in good shape."

CATALOGUE SHOOTER:TABLETOP/STILL LIFE
30-Jun-97

	Model	Your Studio		Your Studio		Your Studio		Your Studio		Your Studio
		1997		1996		1995		1994		1993
		#	%	#	%	#	%	#	%	#	%
INCOME
Photo Fees	48%	331,877	72.90%	201,163	76.16%	273,700	81.10%	318,695	82.85%	311,475	86.64%
Job Expenses	52%	122,915	27.03%	62,954	23.84%	63,773	18.90%	65,988	17.15%	48,032	23.36%
TOTAL INCOME	100%	454,792	100%	264,117	100%	337,473	100%	384,683	100%	359,506	100%
DIRECT EXPENSES
Rep's Commission	12%	0	0	0	0	0	0	0	0	0	0
Job Expenses	40%	105,233	23.24%	56,084	21.23%	66,807	9.80%	69,857	8.16%	89,264	24.83%
TOTAL DIRECT EXPENSES	52%	105,233	23.34%	56,084	21.23%	66,807	29.80%	69,857	18.16%	89,264	24.83%
GROSS PROFIT	48%	349,559	75.86%	208.033	78.77%	270,666	80.20%	314,826	81.84%	270,242	75.17%
OPERATING EXPENSES
Studio Facilities	7%	30,352	6.67%	30,124	8.38%	33,174	9.23%	34,533	9.61%	41,474	11.61%
Advertising	4%	731	0.16%	354	0.10%	745	0.21%	845	0.24%	4058	1.13%
Insurance	3%	22,501	4.95%	21,972	6.11%	20,898	5.83%	18,194	5.06%	14,951	4.36%
Depreciation, Equipment & Auto	3%	15,097	3.32%	15,419	4.29%	2,640	2.13%	5,923	1.65%	6,289	1.75%
Professional fees	1%	3,555	0.78%	6,924	1.93%	5,575	1.55%	2,235	0.62%	6,825	1.90%
Telephone	1%	3,127	0.69%	2,838	0.78%	2,471	0.69%	2,226	0.62%	2,133	0.59%
Payroll and other taxes	2%	12,695	2.79%	7,485	2.08%	9,662	2.69%	19,100	5.31%	16,365	4.59%
Other Office expenses	2%	10,868	2.39%	11,854	3.30%	9,985	2.78%	10,088	2.81%	9,032	2.51%
TOTAL OPERATING EXPENSES	23%	98,926	21.79%	96,950	26.97%	90,150	25.08%	93,144	25.91%	101,400	28.21%
PROFIT before Comp to
Officers, other income,
Pension & Tax Prov.	25%	250,633	55.55%	111,063	51.80%	180,516	55.13%	221,682	55.93%	268,842	46.97%
Pension		37,490	8.24%	21,930	6.10%	31,304	8.82%	47,500	23.21%	34,468	9.59%
Officer's Salaries		203,000	44.64%	90,000	25.03%	128,000	35.60%	190,000	52.80%	138,000	38.39%
Other Income		-8,637	-1.90%	-6,064	-1.69%	-10,445	-2.91%	-9,543	-2.69%	-9009	-2.51%
Interest expense		0%	0	0%	0	0%	0	0%	0	0%
Provision for Taxes		7,725	1.70%	2,767	0.33%	7,376	2.05%	429	0.12%	3,000	0.83%
NET INCOME		11,055	2.43%	2,450	0.73%	23,882	7.08%	6,704	3.99%	2,383	0.66%

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How could that be? Slow-paying clients may cause an unexpected rise in accounts receivable. So a photographer who thought he'd have plenty of money coming in suddenly finds himself without enough cash to pay staff salaries and rent when the first of the month rolls around. Or a photographer with seasonal fluctuations may find herself with just enough cash on hand to get through a lull-but not enough to pay out-of-pocket expenses on the first new jobs once business picks up again.

"If you read any book on finance or business, one of the things you'll read over and over is that what kills small businesses early on is lack of cash flow," says accountant Tom Kelley.

Cash-flow statements, which tell what puts cash in and what takes cash out of a business, aren't much use for small business, Kelley says. More important to the small-business owner is a cash-flow model that keeps track of when cash will be flowing in and out, and warns you in advance of a shortage.

"Some of the accounting software does have canned reports that will help you with that sort of thing," Kelley says. "If you're entering your bills as they're coming through the door, you [can] print out an accounts payable listing or a cash-needs listing by when it needs to be paid. That's the first piece of it. Then you can work up the accounts receivable end of it, the same way according to when you expect clients to pay their bills.

Then, by comparing cash needs and cash inflow week by week into the future and keeping a running tally of cash on hand at the end of each week, you can anticipate cash shortages in advance. "You can't go too far, because the information [about anticipated receivables and payables] becomes less and less dependable the further out you get. But going a month or so into the future gives you some really good information."

Kelley set up such a model for one studio that called him in a panic because of a sudden cash crunch. Based on its experience with its clients, the studio "was able to make fairly good guesstimates of when the cash would come through, and we knew when the studio had to pay various expenses. So we micromanaged their cash for a couple of months. Every Friday we met and literally said, 'Here are the bills you can pay this week and that's it. I don't care what comes through the door. There are no emergency checks.' "

Of course, a less harrowing way to shepherd a photo business through a cash crunch is with a line of credit from a bank. Banks are eager to make such loans, but of course they'll want to see those profit-and-loss statements first to assure themselves that their debtors-photographers or otherwise-are good for the money.

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