Taxes, and products, and savings, oh my!

There are a LOT of things to think about when it comes to your business finances.  After making it through another lovely season of tax time (sense the sarcasm), Chris and I sat down and took another good look at our practices for setting aside money for taxes, client products, and all of that (not-so) fun stuff.  It prompted me to share a few quick thoughts about setting aside money in your business.  Maybe you’re like us and already do this, or maybe you haven’t started doing this, but in any case I think this is a good refresher!

Let’s use the example of a $5,000 check.  This could be a payment on a package you have, or it could just be payment for any other miscellaneous service you provide.  When money comes in, it’s tempting to think a $5,000 check means that you have $5,000 to spend……

Think again!  Let’s look at the major areas that must first be accounted for:

*Product Cost – this is what it costs you to give a client their package and any associated products.  Even if these products (like albums ,etc) won’t be collected until after the wedding, you need to always have this money available, or else you’ll be looking for this money later and realize you’ve already spent it!

It’s pretty amazing, but our account for these product costs has sometimes had a balance of up to $15,000 at one time because of all the outstanding product that we are waiting to deliver!  It’s really tempting to use that money, so it’s all the more important to keep it tucked away so that you’ll be all set when a client orders their products.  I make it easy and have a little list of the product cost for each of our packages, and whenever I am inputting deposits, etc, I check my list and automatically put aside the flat amount for the products in that particular package.

*Taxes- this is the big one!  Only you and your CPA can decide what percentage you need to be setting aside for taxes, but generally 20-30% (and possibly higher) is a healthy estimate.   Obviously, this depends what tax bracket you fall into though, so check with your CPA. 

*Sales Tax- Don’t forget sales tax, based on the area you live in.  You should have a separate account for this as well so that you can collect it and keep it in an account where you won’t be fooled into thinking you have it to spend.

*Tithe/Charity – this is one that is easy to overlook, especially when money is tight but whether you tithe because of your religious beliefs, or you just believe in good karma, we think giving to some type of charity is really important and should be an automatic percentage of our income.

*Personal Savings – you need to choose a percentage that’s right for you based on what your goals are and what you feel you can put away into your personal savings account.   Keep in mind too that it’s important to have money to fund your IRA or whatever you’re doing for your retirement too!

Recap:
25% Tax
10% charity
10% personal savings
15% Product Cost (depending on your packages
60% of Total Income

This means that only 40% of your check is actually take home salary!  Keep in mind, you may want to save more in your personal account, or have higher product costs than this, so these numbers could change even more!

Suddenly, that $5,000 check translates into $1,500 of actual spending money!  Obviously, the money towards charity and personal savings is still money you are able to take as salary and for personal use, but ideally these should be set aside from the beginning.

We use ING to set up these accounts - they are higher interest yield than regular bank accounts but it’s super easy to transfer money to these accounts online from your regular bank.  It’s important to keep track of their balances, especially the product costs, so that you know which clients have money set aside for their products.  I have an easy little spreadsheet that we use to keep track of this, and am happy to share it with anyone who thinks it might be helpful for them!

Our system definitely isn’t the only one, and it’s just the one that has worked for us.  You need to know your own numbers and know the best way for you to keep track of all this based on your particular set up.  Hopefully this is helpful though, just to give you an idea of how we do things!

The bottom line: whenever you receive a check, make these transfers right away so that you know how much money you actually have for making business purchases and for personal salary.

Hope this helps!

Comments

[Alyssa Lang]

What a ridiculously great system! Would you mind sharing the spreadsheet with me? It's really hard for me to keep track of stuff like that and I think this might really help. :)

[Chad Morgan]

I'd love to take a look. Thanks you marvelous Humphreys!

[Dennis]

Excellent info....I would be interesting in seeing that spreadsheet also. Thanks....

[Amanda Harris]

Hey there - Do ING accounts charge you a service fee? I bank with Bank of America and have hesitated opening additional accounts as they charge me $14 a month for my business checking (and yes I should probably look into changing banks but since our personal accounts are there I like having it all in one place). Thanks for the info!

[Jacob Poehls]

Very educational post. It's unfortunate that it's easy to overlook some of these details. Perhaps potential clients should look at this in case they're having second thoughts about price. ha.

[Kacie Jean]

You guys always seem to post topics during the same time that I am going through all of this with my own business! I would love to see the spreadsheet you are talking about!

Thanks! :)

[gabriel ryan]

so helpful. i was just talking with my book keeper how to allot for those 'product' funds that seem to sit in limbo between invoicing and ordering product. such a great solution... already with ing so i was just able to set up a couple new business savings accounts in about 2 minutes. thanks.

[Rachael Weaver]

You guys seriously ROCK! Always with so much helpful information. I'd love to see the spreadsheet you created.
ps. When are you coming to Colorado again! Time for another mile high photographer get together!

[Kenny Kim]

Great resources! thanks for sharing. please do share the sheet w/ us! :)

[Mike Warren]

Great post Katie and a lot of insight! We know these things, yet its easy to spend the money and let the "next" event cover the previous events expenses, a big no-no! Would love to check out your spreadsheet, thanks for sharing!

[sticky]

Wow! Absolutely a wealth of information! How awesome that you are willing to share such useful info! Thanks so much:)

May I please view your spreadsheet?

[Airika Pope]

Thanks for sharing, Katie. We were definitely blown away by our taxes due this year! I would love to see your spreadsheet--thank you so much.

[Terilee]

Hi thank you for taking the time to share this tax info with us. I am just starting out and this stuff is so hard to figure out. I love the idea of the spreadsheet you were talking about. Do you think you could share it with me? I love that you are willing to share and not hold it all to yourself. Love the work.

[Alisha E.]

Oh YES! You are MOST right. Learned this the hard way this year!!!! Hubby said..ok...I am in control of the $$$$ now!!!..OK...fine by me! I just like taking the pictures anyways...haha!!!

[Karen Mikols]

I would LOVE it if you're willing to e-mail me your spreadsheet for keeping track! It'd make my life easier.

I TOALLY know I need to do the ING t hing ... UGH! Where's the time????

[Jamie B]

I would love to have a chance to use your spreadsheet! THANKS!

[Gail]

I'm pretty new to photography but want to take all the advice I can get from those who got started once themselves and have succeeded in part because of great business strategies like this. Can I get a copy of that spreadsheet too??? :)

[Gail]

I'm pretty new to photography but want to take all the advice I can get from those who got started once themselves and have succeeded in part because of great business strategies like this. Can I get a copy of that spreadsheet too??? :)

[Scott Cejka]

Great post! Thanks for sharing all this great info. Of course, we should all know this but it's a great reminder. That said, I'd love to take a look at that spreadsheet too.

Cheers!

[Kerri Banyas]

Great Info!! I would love to see the spreadsheet too if you have a moment. Thanks so much!

[jose medina]

Thanks for sharing. Starting out it's these type of things that could kill your business before it even gets a chance to take off!! I would love a copy of your spreadsheet. Thanks again.

[Chris Humphreys]

Jose...

SO true! Katie will get that out to you tomorrow! I hope it helps!

[Daniel Zain]

Great post! Even though I haven't started shooting in the States yet (next month!), I would be very grateful if you could share the spreadsheet with me. Thanks a lot & keep the great posts coming :)

[Carolyn Bowles]

thanks katie for all the fantastic information! i've been working so hard to keep all these finances straight, but need all the help i can get! i would be super grateful if you'd share your spreadsheet with me. hope all is well with you and chris!

[Juliet]

Hi, I know this post is a few months old, but I love coming back to it and reading the info again and again. I would love to see your excel sheet on this. Thanks! And loved your article in photographik :)