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HOW TO OPEN AND OPERATEA PHOTOGRAPHY BUSINESS
by James Vail
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Copyright 1997 by James Vail
All rights reserved. No part of this book may be reproduced except as may be expresslypermitted by the Copyright Act or by the publisher.
Cover and text illustrations by Laurel Vail
Library of Congress Cataloging-in-Publication Data
Vail, JamesHow to open and operate a photography business / James Vailp. cm.Includes bibliographical references.ISBN xxx1. Photography--Business methods. I. Title
Manufactured in the United States of America
First Edition/First Printing
This book is intended to provide information on the topics covered that is accurate anduseful. Neither the author nor the publisher is engaged in rendering legal, financial,accounting, and other professional services nor do they assume any liability resulting fromthis information. Reference or mention of any company does not constitute anendorsement.
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INTRODUCTION
Of the spectrum of small businesses available that can be built up from nearly nothing,photography stands out from the rest. Most photographers started out with equipmentalready on hand with operations out of their homes. They love their craft and their
business fulfills their dreams. A day at work is a day of creation not just making a living.However, the field is very crowded and only the good survive. Good means skilled inphotography and also skilled in business.
This book is written to fill in the knowledge gap on the business of photography.It is not about how to photograph. If you don't know that already, don't even considerstarting a photography business. The business side of the trade can, and may have to be,learned quite quickly. Hopefully this book contains all the basic information you will needuntil experience finishes your education.
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CONTENTS
RUNNING YOUR OWN BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Are You Really Ready for a Business ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Pros and Cons of Running Your Own Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2The Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CHOICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Assignment photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Stock photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Advertising photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Corporate photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Retail photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Editorial photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Specializations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9News photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Portrait photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Wedding photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Fashion photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10School photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Actor and model portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Travel photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Nature and wildlife photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Real estate photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Catalog photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Specialized Subjects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Art Portfolio Photography, Copying and Reproductions . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Where Do You Fit In? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
BUSINESS STRUCTURE, AND STARTUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Choice of Business Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Sole Proprietorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
How to Register Your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Steps to Incorporating a Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
RECORD KEEPING AND ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Purpose of Keeping Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Other Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31State Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Federal Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Cash vs Accrual Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Uniform Capitalization Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Business Loss vs Hobby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Vehicle Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33Start Up Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Office in the Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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Self Employment Tax (SECA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Estimated Tax Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Entertainment and Gifts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Filing Dates for Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
PRICING FOR PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Retail Photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Commercial Photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Pricing Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Advertising Photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Corporate Photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Editorial Photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Stock Photography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
FINANCING START-UP AND GROWTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Personal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Friends and Relatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Debt Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49U.S. Small Business Administration (SBA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49Small Business Investment Companies (SBIC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Economic Development Commission (EDC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52State Financing Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53Consumer and Commercial Finance Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
MARKETING YOUR PHOTOGRAPHY BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Publicity and Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Your Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Agents: Stock, Reps, News Syndicates, and Galleries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Assignment Representatives (Reps) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Galleries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Your Own Mini-Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63Wire Services and News Syndicates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Professional Organizations and Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Books and Periodicals for Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
DEALING WITH EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Permanent Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Temporary Personnel Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70Independent Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Employee Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
COPYRIGHT BASICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73Licensing the Use of Your Photographs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74Work for Hire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
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RUNNING YOUR OWN BUSINESS
Are You Really Ready for a Business ?
Starting a business is a personal act. Only you can determine if the situation is right.
There are really only two basic considerations, why and how. Why, is rooted in yourgoals, both personal and financial. How, is made up of your skills and resources. Abusiness plan goes a long way towards answering these questions. Before you doanything, at least put together the information needed for a business plan. In additionto a plan, you need a hard, objective look in the mirror. Are you skilled andexperienced enough to produce a professional quality photographic product demandedby the marketplace? If not, proceed no further. Poor quality work will kill a businessfaster than any other cause.
Photography is an odd sort of profession, it requires skills but no formal education.Most of its practitioners started out as hobbyists even if they were formally trained.
They genuinely love their work. Most are small businesses in a trade that anyone canget into. Yet they thrive in this competitive environment because it is their passion,their life. If you want to compete with them, you had better be like them.
Whether its a part time extension of your hobby or a full time commitment of your lifeand resources, your direction should be goal-oriented. Running a business is hardenough without a star to steer by. Taking what conveniently happens along is aformula for dissatisfaction with your business further down the road.
Photography aside, do you have entrepreneurial skills? Listed below are personaltraits that have been shown to be key characteristics for entrepreneurial success. The
list can be used to reveal what skills you possess and what weaknesses for which youneed to compensate.
Goal oriented Ability to network and use feedback
Ability to be self-starting Integrity
Commitment Ability to analyze opportunities
Decision-making ability Self-awareness
Problem-solving ability Ability to deal with frustration
Ability to deal with stress Ability to deal with problems and failure
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Pros and Cons of Running Your Own Business
Advantages Disadvantages
You are in charge: You are in control of
your life. You have freedom to becreative and do the things you want todo. Of course this freedom must bebalanced with your responsibility to thebusiness.
There is a much higher ceiling to yourearnings: The fixed pay scale of a job isnow only limited by your skill and talent.
You set your hours: You can adjust your
work hours to when and as long as youwant.
You can build a dream from scratch:Achieving your goal can fulfill your life.
You can do something you like: Nearlyevery professional photographer stillhas photography as a hobby.
You risk losing every thing you put in: If
you fail, you risk losing your investmentof time, money, skill, and sacrifices.
Stress can become a constantcompanion: Any problems at workbecome your problems, its your busi-ness and your the one to deal withthem.
Working long hours can become thenorm: 60 hours a week is not unusual.
You also take the business around inyour head the rest of the time.
You wear many hats: If your aphotographer employee, all you need toknow is photography. As a studioowner you must be knowledgeable inphotography, personnel management,finance, taxes, and marketing.
The Business Plan
A business plan can range from ideas in your head to a formal report that becomes animportant business document. The plan provides two major functions:
1. It is your roadmap to your goals and it can show you if the path your taking ispossible or doomed before you start out. If it can't be made to work on paper it'sunlikely you will make it work in practice. In addition, use your plan as a yardstick toestablish objectives and the schedule to attain them.
2. No one will consider any type of financing for your business without some kind of a
plan on your part. This even includes family and friends but it really applies to financialinstitutions.
The outline on the next page provides an adequate framework for a business plan.Many books have been devoted to writing business plans. Some of them would leadyou into elaborate and detailed plans but for a small business startup the plan shouldonly be a few pages.
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Business Plan
1. Business descriptionAddress of business
Phone number of businessNames of participants in the business, including their addresses, phone numbers and socialsecurity numberBusiness structure, (e.g., sole proprietorship, partnership, or corporation)Required permits or licensesBanker and insurance agent
2. PurposeState your business objectivesEstimate start-up funds required and their sourceRepayment plan, if necessaryProvide a short resume
3. ManagementOperator of the businessYour schedule of expected income and owner drawings
4. LocationWhy your location was selectedLocation benefits to your businessDisadvantages of your location
5. PersonnelStaff needed now, and in the futureStaff training planPay and incentives policy
6. SuppliersWho are they?What do they supply?Will your suppliers give you credit?Will you be leasing equipment, from whom?
7. MarketIdentify your customersPotential market growthPlanned advertising and promotionDoes your business fill a niche?
8. CompetitionWho is your competition?What more will you offer your customers?
9. Financial informationA cash flow, income, and expenses projectionA balance sheet to reflect the availability of fundsThe cost of equipment and other major supplies required
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CHOICES
The photographic career field is immense. It ranges from local sports coverage on afreelance basis to the major studio with daily fees in the thousands. Thousands ofphoto markets fall in between. Somewhere out there is a niche for you. To find where
you fit in, all the major branches of the profession should be reviewed.
Professional photography breaks down into two business types: photographycommissioned by a customer, known as assignment photography and photography thatis shot on speculation, known as stock photography.
Assignment photography
Assignment photography is the major way of doing business today. Assignmentphotography includes portraits, weddings, advertising, sports, school photography, and
most work for others. Nearly all photographers will work on assignment their entirelives.
The lack of any significant financial risk is the big attraction of assignment photography.A contract is signed before work begins, and a hefty advance can minimize losses.
Stock photography
Stock photography is the creation of a collection of photographs in the hope that astock agency can broker a market for them. Most of the stock photographs carried bystock agencies are leftovers from photographs taken on assignment. The market isquite large: brochures, books, calendars, magazine articles, advertising, etc. Anassigned shoot for these publications would cost a prohibitive amount. Its a win-winsituation. The publishers get an affordable supply of photographs on almost anysubject and the photographers profit from images that would otherwise have died intheir files.
The down side is, supply has become much larger than demand. This has resulted in aimprovement in quality of images brought on by competition. Today, most stockphotographs are shot as stock photographs and not just assignment leftovers.
Obviously being on location for an assignment is still a valuable opportunity that shouldnot be passed up for stock oriented shooting.
Unlike assignment photography, stock photography is an open marketplace. There area few rules if you want to stay competitive:
The greater number of images you present, the more likely a match to a
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customer's needs.
Your stock file needs to be fresh images that will not get dated quickly
The photographs must be unique from the competition. They can be made
unusual by carefully selecting location, composition, and subject matter.
Finding your niche in the market is probably the most influential factor in sellingyour stock. The market is looking for all subjects not just the ones you thinkwould be popular.
Weak or Crowded Market Areas:
Natural pictures (birds, scenics, insects, plants, wildflowers and cuteanimals)Major pro sports
SilhouettesExperimental, artistic and abstract photographyFamiliar places (landscapes, popular travel spots, monuments, landmarksand historic sites)
Strong Market Areas:
Your personal interests outside of photography (hobbies, reading andactivities)Local large cities and points of local interest
Occupation(s) you have, had, or want to beOccupation(s) your friends and family have to which you can get access
Sometimes a stock photograph will sell and sell again. Photographers have reapedthousands of dollars from the multiple sale of a single photograph. But, you have toopen a lot of oysters to find a pearl. Most of these photographers have large portfoliosextending over many years.
If you are starting out with stock shooting expeditions on your own, the up frontexpenses may devour you. There is no guarantee of any sales. By building a stockportfolio as a sideline while pursuing an assignment career is a much less riskydirection to follow.
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Markets
The customers buying either stock or assignment photography can be sorted into fourmarkets: Advertising, Corporate, Editorial, and Retail.
Advertising photography
Advertising photography is where the money is. It is a major supplier of the lucrativemultibillion dollar advertising industry. Some of the best photographers in this field canmake over $10,000-a-day. Even newcomers can get more than a thousand dollars aday from smaller agencies if they have enough skill and imagination. Look over a copyof the magazine Photo District News (PDN) to see the type of work that will bedemanded of you. If you have a great portfolio or reputation for the type of work thatthese agencies are using, go for it.
Corporate photography
As far as money goes, corporate photography is the next step down from advertisingphotography.
Corporate photography includes annual report illustrations, executive portraits, publicrelations material, and corporate news events. Much of the work is on location indifficult lighting situations so you better have all your studio skills and then some.
Retail photography
Retail photography is the next step down from corporate photography with regard tofees. However, the volume of business can often more than make up the difference. Infact, selling professional photographic services to the public is the primary activity ofthe photographic trade. It includes portrait, pet, wedding, and school photography.Often you can start out only shooting on location until operating out of a studio ispossible.
If you prefer working with individuals to dealing with ad agencies, companies, and themedia, this may be your niche.
Editorial photography
Editorial photography has a powerful lure to photographers just starting out. It seemsto combine the freedom and glamour of photojournalism and art. But that is not reallythe case. The editors that buy the images get to make the call on what is used andhow it is used.
Stock photographs have taken over much of the market especially in the lowercirculation magazines and textbook publishing but assignment photography is still alive
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and well at the big general interest magazines. A comfortable living can be made ateditorial photography alone if you are at the top of the profession but mostphotographers do it as a part time sideline. Even the top performers in this field coulddo much better financially if they were in advertising. For nearly everyone in editorialphotography, it is a labor of love.
Editorial work is not hard to get from specialty magazines if low budget assignmentsare acceptable. Published credits, tear sheets, or a cover credit in your portfolio canbe valuable enough to the newcomer to justify the poor rates. An added benefit is thebusiness experience gained in negotiating these assignments.
Specializations
Now that we have examined the markets, we can see how each specialty relates toeach market. Many specialties are tied to several markets that allow a much broadercustomer base. There is no law saying you can't be in more than one specialty.
Determine what you want to pursue and make a plan.
News photography
The heyday of news photography with dozens of photographers on the staffs ofnewspapers and weekly magazines is long gone. Those jobs still exist here and there,but most work is assigned to wire service or news agency freelancers. Low pay andunsteady work is the norm, so you better love constant hustle and two o'clockdeadlines.
35mm equipment is all you will need for news photography.
Sport photography
The photographers shooting for Sports illustrated have been at it for a long time.Photographing sports as a sideline gives the photographer just starting outopportunities for local papers covering community, high school, and collegiate events.Fees are dismal, but its a start. As skill improves and you get better known you cangrow into a regional or national career.
All you really need is ordinary 35mm equipment but autofocus lenses help out a lot.
Portrait photography
The typical retail photographer is doing portrait photography. Portraiture can be a fulltime or part time practice. Personal or family subjects can provide a good customerbase, but there is also a portrait market in the corporate and editorial fields. Frequentlyexecutives and celebrities require portrait photography. This latter group ofprofessionals need portraits in their business, and can provide a good starting place for
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Travel photography
If you dream of far away places, travel photography is your field. Advertising oreditorial photography promoting travel are both considered travel photography. Onegreat advantage to this field is the ability to shoot several assignments on the same
trip. Shooting places without people in them is scenic or postcard photography nottravel photography. People bring places and cultures alive and creates an experiencefor the viewer. Shooting candids of people is often not an easy task. Many culturesworldwide will resist having their image captured on film, so it will take special "people"skills to photograph them.
The demand for travel photographs is fairly steady, but competition from localphotographers and stock agencies has increasingly cut the supply of assignments to amuch smaller piece of the pie. For this reason it has become a sideline field ratherthan a full time pursuit.
35mm or medium format equipment is used in editorial travel photography. Advertisingmay require large-format equipment.
Nature and wildlife photography
There is a large editorial, stock shot, and advertising market for natural subjects.Making a living from nature and wildlife photography is nearly impossible initially, butwith years of determined effort, a photographer can gain experience and build areputation good enough to make a living at it.
Editorial work calls for 35mm equipment, while artistic work such as calendars usemedium- or even large-format equipment.
Real estate photography
Real estate photography serves the needs of the real estate industry. Most of the workinvolves brochures published about expensive properties. Few photographers make aliving from this narrow field alone, but it can be a profitable item in a line of services.
Equipment can be 35mm or medium-format.
Catalog photography
Catalog work can be boring and demanding, but you can make a living at it. Thedemand for catalog photography is increasing as mail-order marketing expands. Often,the catalog has to be updated and issued monthly.
The demanding aspect of catalog work is the very precise dimensions and layoutrequirements. The boring aspect comes from photographing products for marketing
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qualities rather than your artistic desires. But it is steady repeat business with goodexperience.
Specialized Subjects
These are specialized subjects for photographers that enjoy pets, motorcycles, oldcars, or boats and photography. It is an ideal sideline for the retail photographer. Somephotographers specialize in these subjects and go to shows and gatherings. Becausemost events are held on weekends, the photo booth can be an perfect sidelineopportunity.
Beyond owners and breeders, specialized magazines need the same type of photos. Inaddition, these subjects are common place in advertising.
Art Portfolio Photography, Copying and Reproductions
Artists need photographs of their work for presentation purposes and photographersneed copying for archiving and restoration. For the photographer such work is usefulas a secondary source of income.
Where Do You Fit In?
The choices are almost too wide. You will probably end up as a combination of thesespecialties that will make you unique. Keep in mind, photography should be fun, butyou must earn a living too.
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BUSINESS STRUCTURE, AND STARTUP
Choice of Business StructureAll businesses must be one of three possible legal structures:
Sole proprietorshipPartnership (general or limited)Corporation (regular 'C' type or close 'S' type)
Most start out as sole proprietorships, but a sizable fraction still choose the other twooptions.
Sole ProprietorshipThe one person owner business is a sole proprietorship. If your not a partnership or acorporation you, are by default, a sole proprietor. Everyone is a sole proprietor right
now. Starting and ending the business is a snap. You get to make all the decisionsand the profits are all yours and taxed like personal income.
On the other hand, you may have sole control but you also have sole responsibility.Debts, lawsuits, taxes and obligations can be extracted from the owner as if they werepersonal liabilities. Many laws that benefit your employees don't apply to youpersonally. You are taxed on the income of the business regardless of whether youwithdrew a larger or a smaller amount for your own use.
PartnershipA partnership is similar to a sole proprietorship except it is owned by two or morepeople joined by a partnership agreement that can range from a handshake to adetailed legal document. If this sounds a lot like a marriage, its because it is. Allpartners own the total business, assets and debts. This means each partner can makedecisions, hire, fire, remove cash and borrow money without even consulting the otherpartners who are all responsible for any liabilities incurred. If a partnership agreementis carefully written, misunderstandings are less likely but the liability is still there.Procedures for withdrawal of a partner must also be described in the agreement or elsethe legal tangle can equal a divorce. On the plus side, a partnership can often bringtogether the skill, financial resources, labor sharing and management ability that is
needed to start a business at all. In addition, the operation need not be any morecomplex than a sole proprietorship.
A written, signed partnership agreement is recomended and it should specify:1. What are the business goals.2. What each partner contributes. Federal laws do not require partners to make equalcontributions or even make them at the same time.3. How the profits and losses will be divided.
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4. How and when withdrawal of funds and payments of profits are made.5. Provisions for the death of a partner or if a partner wants out.6. Defining the limits of financial and legal powers of each partner.
Partners are not employees and can only draw a "guaranteed payment", or share in the
profits of the partnership or both. Profits and guaranteed payments are personallytaxable to each partner. Self-employment tax that includes social security andMedicare tax is also the responsibility of each partner. Partnerships must file a form1065 "partnership income tax return" even though a partnership itself pays no taxes.
If you are considering a partnership, you should look into forming an S corporationinstead. It is more complex to run, but it does protect the owners without resorting to adetailed partnership agreement. Another possibility is the limited partnership involvingone general partner that runs the business and one or more limited partners that onlyinvest money without further liability. Special tax laws apply and state or countyregistration is usually required.
CorporationA corporation is a business organization that exists as a legal entity separate from itsowners. It can have a single owner and a single share of stock or hundreds ofstockholders. Unlike its proprietorship or partnership cousins, the liabilities of thecorporation do not extend to stockholders beyond their original investments (unlessthere is negligence by its officers). It can be bought and sold by simply marketing itsshares.
The reason corporations aren't more popular are complicated set-up, extensive
regulation and double taxation. The set-up isn't as bad as most people think. Booksare available at most large bookstores or libraries that can walk you through theincorporation process. The regulation consists mainly of record keeping anddocumenting meetings and decisions. Some good books that covers startup andoperation of a corporation and also comes with fill-in-the-blanks software are:
The Corporate Forms Kit by Ted Nicholas, $19.95 from:
Upstart155 North Wacker DriveChicago, Il 60606-1719
or
J. K. Lasser'sLegal and Corporate Forms for the Smaller Business
Macmillan $34.95
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Double taxation by means of corporate tax on profits and income tax on stock dividendshas a work-around for the smaller corporation that can treat its stockholders asemployees and pay out salaries instead of dividends. Another alternative forcorporations with not more than 30 or so stockholders is the S corporation. Scorporations have the advantage of no corporate tax and the ability to pass losses to its
owners so they can apply them to their personal income taxes.
How to Register Your Business
If the name of your business is different from your personal name you need to registerit. Your city or county clerk will register your business name and can tell you if it isalready in use. This is known as filing a Fictitious Name Statement.
Prior to starting your business, gather information on the following topics:
Licenses, Zoning and municipal business taxes - source: Your city or county
clerk
State, and sales taxes - source: Your state's Department of Revenue
Federal taxes and other mandatory employment deductions - source: InternalRevenue Service Publications #334 "Tax Guide For Small Business," #15"Circular E, Employer's Tax Guide" and #589, "Tax Information on SCorporations." (if applicable)
Labor laws and immigration requirements - source: Internal Revenue ServicePublication, "Handbook for Employers" also try your state's Department of Labor
Consumer protection legislation - source: Your state's Department of ConsumerAffairs, usually it is under the Attorney General's Office
A partnership must obtain a federal identification number by submitting Form SS-2,"Employer's Federal Identification Number." If there are to be no employees, mark theform "FOR IDENTIFICATION ONLY." Otherwise the IRS will sendyou payroll forms.
A sole proprietorship only needs to submit a Form SS-4 if there are employeesinvolved. It should be noted that family members even if paid a salary are notnecessarily employees.
Steps to Incorporating a Business
Corporations are licensed by the states, not the federal government. The requirementsand fees vary from state to state. Most libraries and bookstores carry a book that
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describes incorporation in your specific state.
Typically several documents are submitted as part of the incorporation procedures Theprimary document is a "certification of incorporation" that is often only one page. Thisdocument usually must show the following information:
1. The name of the corporation.2. Location of the registered office of the corporation3. The nature of the business (Word this as broadly as possibly)4. The type and maximum amount of capital stock to be issued5. Names and mailing addresses of incorporators6. Names and mailing addresses of acting director(s) until elections can be held7. "Stated capital" required at time of incorporation (Most states have a minimum)
In addition to filing the certificate of incorporation, many states require one or more ofthe following procedures:1. Reserving a name with the state prior to filing the certificate of incorporation.
2. After the first board of directors meeting a statement naming the elected officersmust be filed.3. Formal permission to issue stock must be Requested. This includes a description of
stock distribution and proposed use of the proceeds.
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RECORD KEEPING AND ACCOUNTING
Financial record keeping isn't just a good idea, its the law. Businesses must keeprecords for both planning and tax reasons. However, there is no single official method
required for accounting records. What ever method you choose is ok as long as theyare in a form that can reconstruct your business activities.
Purpose of Keeping Books
Accounting measures, records, and interprets the condition and activity of yourbusiness. It is required to document income and expenses claimed on your tax returns.Beyond taxes, bookkeeping is important for the following benefits:
Information on your present financial condition that will allow you to make better
business decisions.
Bank credit is possible. Banks require at least a balance sheet for a business loan. Atleast one years of records are needed to establish your financial condition.
It gives you detailed hindsight to see where your income is coming from and see whereyour major expenses came from. This allows you to find the ripest areas for efficiencyand profit.
Requirements
Legally, your bookkeeping must keep track of both your income and expenses. Theways to achieve this ranges from cross hatch paper with hand lettered headings tocustomized computer software. The ledgers should be at least as comprehensive asthose included at the end of this chapter. The column headings should, as a minimum,correspond to financial data required by the IRS tax forms. Additional columns can beadded that will help you visualize unique aspects of your business but in the end, itshould be an easy transition between ledger and tax form. If your running a smalloperation and own a computer, software such as "Quickbooks" can meet most of yourneeds. Even some of the larger wordprocessors such as "WordPerfect" or "MS Word"
Have a tables function that can do automatic mathematical operations.
The ledgers at the end of this chapter include:
Income ledger and year-end summaryExpenditure ledger and year-end summaryProfit & Loss statementPetty Cash ledger
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Credit ledgerEquipment ledger & Depreciation worksheetsBalance sheet Payroll ledger
In addition, a check/deposit ledger is needed but that can be associated with the
business checkbook. If cash must be used at all, a receipt or expense record shouldbe produced immediately. Try not to go to bed at night without the books up to date.Its very easy to let this stuff get away from you.
Other Records
Associated with the ledgers are a steady flow of invoices, expense forms and receipts.For small businesses, a monthly envelope system will work. For larger businesses, aformal accounts filing system is needed. This file has different structure depending on
your type of business (e.g. wedding files are different from stock files). A computerdata base can be developed that cross-indexes names and dates.
Files for your slides, negatives and prints are a necessity for even a modest level ofbusiness. These are your product, your inventory and they must be easily retrievable.Everything that is an image comes in either a box, envelope, sleeve or slide mount. Alittle printed label can be affixed to any of these containers without damage. Anordinary wordprocessor set up to print tiny labels can double as a simple searchabledatabase by virtue of its word search capability. Information such as date, location,subject, account, model release and category can all be stored in a computer file evenif it isn't all printed on the label. How the storage file is set up is once again a functionof what type of photographer you are. Using the example above, stock files are set upby subject and wedding files are set up by client.
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IncomeLedger
Month of:
Sales Date Taxable Sales Sales Tax Non-Taxable Sales Total Sales
Shipping Wholesale Other
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Totals for month $ $ $ $ $ $
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Income LedgerYear-EndSummary
Totals for Month of Taxable Sales Sales Tax Non-Taxable Sales Total Sales
Handling Wholesale Other
January $
February $
March $
April $
May $
June $
July $
August $
September $
October $
November $
December $
Total for year $ $ $ $ $ $
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Expenditure Ledger Month of:
Date Check Payee Total Supplies Labor Non- Trans- Adver- Telephone Taxes and Other Non-Number and employee portation tising & Utilities Licenses deductible
Postage
$ $ $ $ $ $ $ $ $
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Expenditure LedgerYear-end Summary
Total Supplies Labor Non- Trans- Adver- Telephone Taxes and Other Non-and employee portation tising & Utilities Licenses deductible
Postage
January total
February total
March total
April total
May total
June total
July total
August total
September total
October total
November total
December total
Unpaid bills (Acc'ts. Payable)
TOTALS FOR YEAR
ADDITIONAL EXPENSES:
Returned checks ( from "BadDebts" folder)
Uncollectible accounts (from"Bad Debts" folder)
Auto expense (if you take thestandard mileage rate)
Depreciation (from Equip ledger& Depreciation worksheet
$ $ $ $ $ $ $ $ $
Profit & Loss Statement Month of : Year-to-Date
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Income from ledger $ $
Beginning inventory $ $
Purchases $ $
$ $
Estimated inventory
$ $
Cost-of-goods-sold $ $
Gross Profit $ $
Other expenses
Rent $ $
Supplies $ $
Other $ $
Total Other Expenses $ $
Net Profit $ $
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Petty Cash Ledger
Date Payee Amount Balance
(Beginning balance) $
$ $
$ $
$ $
$ $
$ $
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CreditLedger
Month of:
Sale Date Customer Invoice Number Total Sale Date Paid Memoamount
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Balance Sheet
as of December 31
Assets
Current Assets
Cash $
Accounts Receivable $
Less allowance for bad debts $
$
Prepaid insurance $
Inventory (at lower of cost or market)
$
$$
$
Other Assets
Equipment, at cost $
Less accumulated depreciation $
$
Total Assets $
Liabilities
Current Liabilities
Accounts Payable $
Loan payable, portion due within one year $
Long-Term Liabilities
Balance of loan payments $
Total Liabilities $
NET WORTH (owner's equity) $
$
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PAYROLL LEDGER
Name___________________________________________________________________ Social Security____________________
Address_________________________________________________________________ Pay Rate_________________________
_________________________________________________________________
PAYCHECK CHECK NO. PAY HOURS GROSS F.I.T SOCIAL MEDICARE STATE OTHER WITHHOLDING NET PAYDATE PERIOD REG O/T SECURITY INCOME
EQUIPMENT LEDGER AND DEPRECIATION WORKSHEETS
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DATE DESCRIPTION METH. WRITE NEW % COST REDUCTION WRITE BAL. TO DEPR. BAL.TO DEPR. BAL.TO DEPR. BAL.TOOFF OR FOR INV. OFF BE DEPR. 19 _ BE DEPR. 19 _ BE DEPR. 19 _ BEPERIOD USED CREDIT DEPR.
TAXES
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Local Taxes
Local taxes usually take the form of business license fees and property taxes. Propertytaxes may mean more than real estate. Often your office and studio equipment isassessed as capital equipment and taxed as if it were real property. Ditto with vehicles
of any kind. Check with city or county tax offices for a complete picture.
State Taxes
State taxes often include income, sales and property taxes. A call to your state taxoffice should get you a package of instruction and forms.
In most states the sales tax is at the state level. Some states tax goods but notservices unless the goods and services are commingled. An example of this type ofpitfall would be an invoice with a combination of photographs (taxable goods),
expenses and services (non-taxable). Because they all appear on the same invoice theentire amount is taxed because they all become part of the goods. Even if photographsare treated separately, this may be confusing. Is a photograph a product or a service?Interpretation of this question varies from state to state, so get a firm answer from alocal tax specialist.
In every state that has a sales tax, the business collects it for the state and must have abusiness tax number issued by the state tax office.
Federal Taxes
Volumes have been written on dealing with federal income and employment taxes sothis thin chapter is not even close to a complete guide. If your looking for freeguidance, the IRS has a set of publications directed to the small businessman. Theyare: Internal Revenue Service Publications #334 "Tax Guide For Small Business," #15"Circular E, Employer's Tax Guide" and #589, "Tax Information on S Corporations."
What I have tried to do is to point out issues that most impact the photographic trade orsmall business in general.
Cash vs Accrual Accounting
Photographers often receive cash advances on work to be performed. How these arehandled depends on whether you use cash or accrual accounting method. If you usecash accounting the money is considered earned income when you receive it and it is
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subject to taxes. Any part of it you return later, is a reduction in your income at thatlater time. Accrual basis bookkeeping records income at the time it is earned, not whenit's paid. At year-end, if you have work partially completed, a fraction of the advancemay have to be reported on your tax return.
Uniform Capitalization Rules
Photographers have a special IRS exemption from the burdensome "uniformcapitalization rules" that apply to craftsmen and manufacturers. Makers of goods can'tdeduct production expenses until the goods are sold. The uniform capitalization rulesdo not apply to self-employed photographers. They can deduct their costs the sameyear they are incurred. This applies to individuals who produce photographs,photographic negatives or transparencies but not to film makers.
Business Loss vs Hobby
If you show a consecutive loss for three out of five years, the IRS can determine yourbusiness to be a hobby and disallow any losses. However, the IRS may allow thelosses based on evidence that you are operating a real business with a profit motive. Arecord of marketing activity is usually sufficient. Many businesses with losses forseveral years get by without ever being audited by the IRS. If you want to hold the IRSat bay until the full five years are up, you can by filing Form 5213, Election to PostponeDetermination. This form must be filed no later than the third tax return of the business.
Travel
For travel to be deductible, it must be entirely business related with any personal travelexpenses removed. If travel is primarily personal, no deduction for the travel itself isallowed except the cost of business activities alone. This is an obvious dilemma for thetravel stock photographer. Its the same sort of problem as was discussed earlier underbusiness vs. hobby, with the same sort of remedy. Sales of the travel photographs or atravel sales history is the best defense.
There are two ways of establishing travel expenses, expense account or perdiem.
Expense accounts reflect actual detailed and receipted records of expenses whileper-diem is a fixed allowance acceptable to the IRS. The rates vary year to year andlocation to location. IRS rates are found in IRS publication #1542, Per Diem Rates,and general travel rules are found in IRS publication #463, Travel, Entertainment andGift Expenses.
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A final word on travel. When overseas travel is necessary, returning home throughcustoms with bags of foreign made cameras and equipment can be simplified with acustoms receipt. You can get this useful slip of paper by lugging all your equipmentdown to the customs office at any US coastal city or international airport. They willrecord a description of each piece along with its serial number, if available, and certify
it. The list is also useful at foreign customs exams where they want a declaration list ofall the equipment your bringing in.
Vehicle Expenses
Vehicle expenses are handled similar to travel with two methods available. The firstinvolves a record of actual expenses and deprecation that is prorated for personal use.The other is a flat per mile rate with a separate per mile rate deducted from thevehicle's depreciation. These rates vary from year to year so you should keep currentwith the IRS travel publications.
Depreciation
When a piece of durable equipment is brought into the business, some of the cost canbe written off the first year but some of the cost may have to be spread out over fiveyears. Most office equipment, photographic apparatus and vehicles are considered"five year equipment." Here's how it works. If you are a small business, (less than$200,000/yr equipment purchases) you can deduct up to $17,500 the year of purchaseunder "Section 179 Deduction" rules. Your write off can't exceed your income, but youcan carry it forward. The alternative is to distribute it over five years using your choiceof three methods. These are presented in the table below:
Year MOD 150% Straight AutomobileACRS ACRS Line Limits
1 20% 15% 10% $3060 max2 32% 26% 20% $4900 max3 19% 18% 20% $2950 max4 12% 17% 20% $1775 max5 11% 16% 20% $1775 max
6 6% 8% 10% $1775 maxper year
The automotive numbers are subject to change so check the IRS instructions eachyear. Using the automobile limits, any vehicle costing more than $16,235 must beDepreciated over more than 5 years.
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Start Up Expenses
Expenses incurred prior to your first income producing activity are treated likeequipment (capital investment) and must be amortized over five years. The solution tothis problem is to start the business at home and don't set up a studio until after the
"official" start of the business.
Office in the Home
IRS Publication #587, Business Use of Your Home, details the rules covering homeoffice/studio. Basically, you may prorate the cost of operating your home by thepercentage of floor space used.
Self Employment Tax (SECA)
Social Security and Medicare taxes for individuals and partners kick in at $400 income.Once you reach that point, you pay The SECA tax that represents both employer andemployee halves of the Social Security and Medicare taxes. The tax applies to all ofyour business income, not just the part above $400.
Estimated Tax Payments
If you will owe more than $500 in taxes, the IRS wants quarterly payments. IRS
Publication #505, Tax Withholding and Estimated Taxes, details the requirements.Often your bank can set up a special tax account and automatically transfer the fundsto the IRS.
Entertainment and Gifts
A rule of thumb for gift giving is, no more than $25/year to any individual and freesamples don't count. Entertainment in general can only be 80% deductible. Ifentertainment becomes a major expense of your business, expect some questions fromthe IRS.
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Filing Dates for Tax ReturnsFor calendar-year businesses the dates of IRS form submittal are given in the followingtable:
Form No. Use Applicability Key Dates
Special use forms:
4868 4 mo. extension for filing Indiv. 4/15
7004 6 mo. extension for filing Corp 3/15
8736 3 mo. extension for filing Part. 4/15
2553 Corp. electing to become S corp. Corp 4/14
5213 Election to postpone determination Indiv. 4/15
4562 Vehicle expenses & depreciation Indiv./Part./Corp 4/15
8829 Business use of home Indiv./Part./Corp 4/15
Normal use forms:
1040 Income tax return Indiv./Part./Corp 4/15
W-2 Withholding info to employee Employer 1/31, 2128
W-3 Withholding info to IRS Employer 2/28
W-4 Employee deductions for withholding Employer end of year
941 Income tax & SS deposit Employer 1/31, 4/30, 7/31,10/31
940 Fed unemployment tax return Employer 1/31
5500 Employee benefits Employer 7/31
508 Fed unemployment tax deposit Employer 1/31, 4/30, 7/31,10/31
1099-MIS > $600 fee, rent or > $10 royalties Indiv. /Part. /Corp 1/31
1099-DIV > $ 10 dividend payment Corp 1/31
1099-lNT > $ 10 interest payment Indiv./Part./Corp 1/31
1120 Corp. income tax return Corp 3/15
1120S S-Corp. income tax return Corp 3/15
Sch C Income from business Indiv./Part. 4/15Sch SE Self employment tax Indiv./Part. 4/15
1040-ES Estimated tax for individuals Indiv./Part. 4/15, 9/15
1065 Partnership tax return Part. 4/15
Useful Publications from the IRS
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Number Title
17 Your Federal Income Tax334 Tax Guide for Small Business463 Travel, Entertainment, and Gift Expenses
505 Tax Withholding and Estimated Tax523 Tax Information on Selling Your House525 Taxable and Nontaxable Income533 Self-Employment Tax534 Depreciation535 Business Expenses536 Net Operating Losses538 Accounting Periods and Methods541 Tax Information on Partnerships542 Tax Information on Corporations544 Sales and Other Dispositions of Assets
550 Investment Income and Expenses551 Basis of Assets553 Highlights of (the Year's) Tax Changes560 Retirement Plans for the Self-Employed583 Taxpayers Starting a Business587 Business Use of Your Home589 Tax Information on S Corporations590 Individual Retirement Arrangements (IRAs)917 Business Use of a Car946 How to Begin Depreciating Your Property
U.S. Government
Internal Revenue ServiceEastern Area Distribution CenterP.O. Box 85074Richmond, VA 23261
Central Area Distribution CenterP.O. Box 8903
Bloomington, IL 61702
Western Area Distribution CenterRancho Cordova, CA 95743
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PRICING FOR PROFIT
It is possible to write an entire book on just the subject of pricing your work. In fact,several have been published and they still leave you wondering what you should
charge. There is no magic single answer to the question. There are only pathways tofollow to find what your work is worth.
The major variables include :
Local cost of living. -- It's far cheaper to do business in Idaho than in NewYork.
Nature of the business -- Wildlife shooting in nearby mountains will cost only a
fraction of the cost of a Sports Illustrated swimsuitshoot.
Market -- Portraits or weddings are priced locally and magazineor stock are priced nationally.
You are the only one that can determine prices for your photographic products andservices. There are books and associations that can help you, but you will have to doyour own research. Your bottom line will be based on what branch of photography youchoose, where you work, where you sell your work, how you manage your operation,and how you stand among the competition.
Retail Photography
If you plan to start a retail operation, either from a studio or from your home, a localprice survey is needed. The easiest way to do this, if you have the time to wait, is tovisit one of the local bride shows they have every spring at large shopping malls. Its asimple matter to gather up all the brochures from every studio in your region. Fromthese brochures the price ranges for every service and package can be compiled. Anexample of this sort of survey for 1996 in eastern Idaho is presented on the followingpages. All this survey tells you is what the competition is charging. Your prices willdepend on your expenses and how you run your business.
Most portrait photographers calculate the cost of operating the studio, equipmentdeprecation, film, print finishing, retouching, along with personal income needs and tryto translate that into specific prices. Often the costs are divided between a sitting feeand the charges for prints.
In dealing with the competition, try to lead them with quality and service not with pricesso low that nobody makes money. You are in business to make profits, charginganything less than what you could be getting gives your profit to the customer not to
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you. If you start out pricing in mid-range for your area, you can then raise your rates asyour reputation for quality and service matures.
The photographer owns and should retain the negatives of each assignment. Thecontract should indicate this and include the pricing of future prints. Additional prints
have always been a significant source of income for the retail photographer. The retailclient has to pay someone to make prints from the negatives anyway so it might as wellbe you that gets their business.
Retail photographers should require payment upon or prior to delivery of anyphotographic products. For weddings and such, a pre-deposit of at least 50 percentshould be part of the contract. The road to financial ruin is paved with photographersthat handed over the pictures without full payment. If they want credit ask to put it on acredit card.
Commercial PhotographyIn commercial photography, stock agencies or publications often have control of yourprices. If you work through a stock agency and it sells rights to one of your shots, youwill get a portion of what the agency negotiated. In the case of magazine and bookpublishers, that publisher's going rate is what you will get paid, unless you negotiatemore. If you choose the negotiation path, two sources of price information are veryuseful. The first is the annual book:
Photographer's Market, M. Willins, Writer's Digest Books.
This book lists every publisher that you would ever encounter and the rates they will
initially quote you. The second source is :
American Society of Media Photographers Inc. (ASMP)419 Park Avenue SouthYork, NY 10016(212) 889-9144.
The ASMP periodically publishes suggested rates for the profession to strive for. Thisrate structure is summarized in the data that follows. The differences between the firstsource and the second is the gap to be negotiated. If you're going to win at negotiationyou better have a product better than the competition or unique work. Without someform of leverage the negotiations will end quickly.
Typically photographers sell only limited rights to their photographs and never sell thecopyright. The client only buys the right to use the image for a limited number of timesand over a limited time period. Good images can be sold over and over again if thesale of rights are done properly. Obviously, for enough money a buyout can be
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considered, but rarely is a client that anxious to pay a very large sum.
A little legalese is in order here. There are only about half a dozen terms that youreally need to know:
Nonexclusive unlimited use The client is granted multiple use of the image for anypurpose, but the photographer has no restrictions on reselling the image.
Nonexclusive limited use The client is granted use of the image for a specificpurpose, but the photographer has no restrictions on reselling the image.
Exclusive limited use The client has exclusive use of the image but for only a limitedspecific purpose.
Exclusive unlimited use This is called a buyout. The client has exclusive use of theimage for any purpose and as often as the client wishes. Neither the client or you are
allowed to resell the image to a third party. If the copyright were to be sold to the client,you would lose all control over its use and resale.
Geographic and Time limits The rights described above can have time limits andgeographic limits placed on them. Beyond the specified time and geographic limits,the photographer is free to use the image at will. Magazines often demand "First NorthAmerican Rights." Once the issue containing the image comes out, the photographercan resume resale efforts with the image.
Pricing Practices
Advertising Photography
Every advertising assignment is different. Budgets, skills and creativity demands canrange from the local used car dealer ad to a national account. The starting point is dayrate plus expenses, weather days, and margin. A creative fee can be added if theassignment is technically demanding or if a creative director gives the photographerdiscretion in creating the image. Finally, a usage fee will top it off based on rightsbeing bought, audience size, and duration of use.
Some photographers have half-day, hourly, daily, and weekly rates, each a bit moreeconomical than the shorter rate. Fees are often adjusted by local, state, and nationallocation.
It is typical to charge time and a half overtime for work exceeding eight hours in anyday and for any weekend work. All rates should be portal to portal, and include
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mileage, travel expenses, operating costs, and materials. For food and lodging there isa choice between per diem or actual expenses.
Overhead should be included as part of your hourly rate or day rate. Rent, utilities,office supplies, depreciation, and anything else that's not a direct material or labor cost
must be pro-rated over all the hours you bill over an entire year. Don't separate it outon your bill but include it as part of your personal billing rate.
Corporate Photography
Pricing of corporate photography has similarities to advertising photography although itpays a little less. The usage fee is much smaller because the use of images is typicallyvery limited. Creative fees, on the other hand, can be much larger due to a tendency ofcorporate clients to depend on the photographer to double as a creative director.
Editorial Photography
The industry increasingly meets photo needs from the stock agencies on a price perimage basis. If you are working through a stock agency, your cut may only be half ofwhat the client pays. The few editorial assignments that are given out by the bigmagazines are paid on a similar negotiable fee plus expenses basis as advertising andcorporate photography.
Books
There are two common forms of compensation for coffee table books, as they arecalled. The photographer gets a flat fee, or royalties on the book sales often with anadvance on future royalties.
Textbook publishing has gone almost entirely to stock sources.
Stock Photography
The pricing of stock photographs is entirely different from assignment photography.Stock pricing is by the image and varies from buyer to buyer. Stock photography has
become the big growth area in commercial photography but the sellers have increasedmuch faster than the buyers. In such a buyer's market average photographs areusually purchased on a take-it-or-leave-it price ceiling. This does not mean the sameprice to every customer. A national ad campaign should have to pay many times morefor an image than a local marketing brochure. Know your prices for every market andusage. Never sell an image for significantly less than market value.
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Prices
Edit Adver AssignMagazines (National) $1000 $1900
$500 pd/$500 page(National ad $15000+/Dbl pg)
Sunday Supp. or Magazine (Regional or trade) $850 $1100$400 pd/$400 page
Daily Newspapers (Large >300K) $750 $1500
Daily Newspapers (Small
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investment.
There is a financial term called leverage, which is the use of other people's money tomake a profit for yourself. Obviously the less money you put into the business the lessrisk you take and the more risk your investors and lenders take. Your contribution is
viewed as an incentive to work hard to make the business successful. If your fractionof the investment amount needed to get the business established (called equity) is lessthan 25 percent, most lenders won't touch you. Of course, lots of collateral or anoutstanding past management history can bring about an exception to this rule.
Banks
Banks are set apart from other financial institutions because they make loans andaccept deposits. They are regulated in such a way that they must be prudent with thedepositors money and they can make only the safest of loans. They come in several
varieties, such as thrift institutions, credit unions, savings and loans, or commercialbanks. Their category can indicate the kinds of loans these banks specialize inmaking. Savings banks specialize in consumer loans. Commercial banks preferbusiness loans. However, don't give up on a savings bank for a business loan. It mayknow you better or have more money available. Keep in mind when dealing with anybank that bankers don't like risk. Safety of their funds is always the highest concern. Itmay be hard for a starting business to borrow from a bank since establishedbusinesses that are competing for the same money are viewed as having less risk.
Don't just limit your efforts to small community banks. Many nation-wide commercialbanks have sizable set-asides for small business loans.
U.S. Small Business Administration (SBA)
SBA has a Congressional mandate to assist in meeting small businesses financingneeds. The SBA's 7(a) loan program, the Small Business Investment Company (SBIC)program and the new Greenling revolving line of credit are the primary tools in meetingthis mandate. The SBA Loan Guarantee Program provides financing in cases in whichbanks feel uncomfortable with the risk by allowing banks to recover up to 90 percent oftheir money from the SBA if the borrower defaults. The SBA guarantees the loan up tothe maximum of $750,000. There is no lower limit, however, most banks prefer to workwith amounts over $10,000.
The guarantee allows banks to loan above their normal regulatory limit. This feature isan incentive for small banks. Loan terms are typically better than for ordinary bankloans. An SBA loan can be longer than bank loans with lower payments. Your equitythat is required for an SBA loan can be 30 percent versus the 40 to 50 per-cent bankrequirement. The interest rate also less because the SBA has established a 2 percent
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above the prime rate upper limit.
Even the application is easier if the loan amount is under $100,000. The Luetic loanprogram has reduced the old one-inch folder of paperwork down to a two-page applica-tion.
Direct Loans smaller than $150,000 are available to borrowers who are unable to find alender in spite of a good faith effort to finance the project with a private lender.However, direct loans are available only to Vietnam-era and disabled veterans, thehandicapped, low-income borrowers and businesses located in high unemploymentareas.
Several types of businesses are not allowed to receive loans directly from orguaranteed by the SBA. Businesses dealing in the creation, origination, expression ordistribution of ideas, values, thoughts or opinions, currently are not eligible. Therefore,if your photography business is journalistic in nature or inseparably related with the
television or printed media, you're out of luck. Everyone else should be careful to avoidthe above words or the term "media" in any application.
Application begins with a loan request at a bank along with supporting documentation.Most of the information comes out of your business plan.
If the lender can't or won't make the loan, the applicant should request that the lenderutilize the SBA Guaranty Program. If the lender is agreeable, the applicant thencompletes a formal application for the SBA. If the lender is not agreeable, the applicantcan still apply for a direct loan from the SBA if s(he) falls into one of the categories ofspecial loans discussed above.
The SBA generally deals only with the private lender if a guaranteed loan is involved.The lender in turn interacts with the applicant.
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The table that follows is a summary chart of the special loans of the 7(A) program.
Amount Maximum InterestProgram Up To Maturity Rate Eligibility
Regular Business Loan 7-10 yrs for Set quarterly Must meet SBA'sDirect-- $150,000 working cap. up to 2.75% size and policy
above prime
Guaranteed-- $750,000 10-25 yrs for M & E(SBA Share) 25 yrs for bldgs
Veterans Loan 7-10 yrs for Set quarterly Must meet SBA'sDirect Only- $150,000 working cap. size & policy &
10-25 yrs be Vietnam-erafor M & E veterans and25 yrs for bldgs veterans with
30 percent ormore disability
Handicapped LoanDirect-- $150,000 7-10 yrs for 3 per cent Must meet SBA's
working cap. size & policy &10-25 yrs be operated by or
Guaranteed-- $750,000 for M & E for the handicapped(SBA Share) 25 yrs for bldgs
Seasonal Line 12 months Up to 2.75% Must meet SBA'sof Credit above prime size & policyGuaranteed Only $750,000
(SBA Share)
7(a)11 Loan 7-10 yrs for Must meet SBA'sworking cap. size & policy &
Direct-- $150,000 10-25 yrs 3 per cent be low income orfor M & E located in a high25 yrs for unemployment area
Guaranteed-- $750,000 buildings Up to 2.75%
(SBA Share) above prime
Small Loan ProgramGeneral $75,000 Lender retains one
half of guarantyfee
Greenling $750,000 5 years Negotiated up Must meet SBA's
(SBA Share) to 2.25% above size and policyprime
Disaster Loans 3 per cent President or SBAdeclares disasterarea & physical oreconomic damage
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The SBA is the mother lode of everything you could want for small businessinformation. Forms and publications are available at:
Small Business Administration (SBA)
1441 L Street NorthwestWashington, DC 20416(202) 653-6600
SBA PublicationsP.O. Box 30Denver, CO 80201
Free guides on business and shareware software are available at their Internet Homepage:http://www.sbaonline.sba.gov/index.html
Small Business Investment Companies (SBIC)
SBICs are licensed by the SBA and work under its guidelines. They are statechartered, privately owned organizations. The SBICs make direct loans toentrepreneurs for start-up and expansion as well as equity investments.
Your business must meet several conditions in order to receive assistance from thesesources.
The Directory of Operating SBICs is available by visiting the SBA regional or district
office nearest you or by writing to: Deputy Associate Administrator for Investment, U.S.Small Business Administration, 1441 L Street, N.W., Washington, DC 20416.
Additional information can be obtained by contacting the National Association of SmallBusiness Investment Companies located in Washington, D.C.
Economic Development Commission (EDC)
The Economic Development Commission is a part of the U.S.Department of Commerce.Its mission is to lends to businesses in order to create new jobs in economicallydeprived areas. There are several qualifying conditions that must be met, with locationthe dominating one.
The EDC can be contacted through the U.S. Department of Commerce inWashington,D.C., or your local office of the Department of Commerce.
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State Financing Programs
Many states have programs available to small businesses who need financing. Most ofthese programs are tied to economic development and job creation. Some of these
programs can take a second mortgage position to existing debt and charge lowerinterest rates. Many special set-asides for women, or minorities are typically found inthese programs.
Consumer and Commercial Finance Companies
Consumer finance companies and commercial finance companies deal in small loanssecured by collateral. Most finance companies limit loans to several thousand dollars.They will consider loans with 100 percent financing and can be more flexible aboutlending because the loans are secured by an asset. However, Loans from this source
are more expensive because they are considered to be more risky. In some cases, theinterest rate you will be charged will be the highest allowed by law for your state. Inaddition, failure to repay your debt will result in the seizure of the item that youpurchased with the funds.
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MARKETING YOUR PHOTOGRAPHY BUSINESS
So often at the start up of a studio, the entrepreneur has to some degree the attitude"build it and they will come." Only a modest fraction of time and resources are allottedto marketing. When reality finally sets in, more than half your time can be tied up in the
marketing effort, at least during the early years of your business. Much of the effortinvolves maintaining a reputation for quality and service.
Advertising
The need for advertising is dependent on the branch of photography. If advertising isneeded, you must decide on the form of media and budget.
Retail photographers typically use the Yellow Pages, newspapers, radio, direct mail,and brochures.
Commercial photographers typically use display advertising and photographydirectories specifically aimed at photo buyers.
Effective advertising pays for itself and then some but with advertising being soexpensive a bad choice can be a dreadful financial burden. Hiring an agency is a goodidea for a mature business with sales that can absorb the additional cost of an agencyfee. Start-up businesses need to take it slow and careful with an emphasis on low costpublic relations and limit advertising to the minimum.
All advertising should meet certain criteria:
It has to be targeted at users in the geographic market for the photographer.
It has to single out the photographer from all others.
It has to be an affordable loss if the ad fails to produce business.
The path to effective advertising is a road with many branches. There is no best way.You must explore for your individual situation the various forms of advertising andchoose those which will most influence customers and be cost-efficient.
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49
Radio. In many places, Specific groups can be The large number of stations The effect of advertising is cumulative. Several small ads are better than aradio provides a mediumthat is highly competitive forlocal advertising.
targeted (for example, in urban areas causes the single large one. It's also better to group your ads together than to widelycommercials on rock audience to become distribute them.stations for high-school fragmented. To cover aportraits). broad audience, time must Radio commercials are most effective when tied into simultaneous print ads.
Commercials can't be stations. The effects of People listen to the radio only during certain times of the day. The morningavoided or skipped. diluting the advertising over and evening driving slots, usually from 6:00 to 9:00 A.M. and 3:00 to 7:00
Radio personalities have concentrated message. specify what time period you want to the radio station .high credibility with theiraudience. When a radio Good time slots are very Sometimes stations will barter a promo for prizes they can give away to on thepersonality announces a expensive. air.commercial, it's oftenreceived as an Message duration is usually Radio can effectively present an image or a couple ideas at best. It is a poorendorsement. brief, with minimal detail. place for prices and telephone numbers. You should refer the audience to your
be purchased on several
multiple stations is loss of a P.M. are considered prime times. When you buy the time you'll have to
Yellow Pages ad.
Radio audiences peak in size in the spring and summer, as opposed totelevision viewers which increase in the fall and winter
Brochures. Commercial Brochures provide the most Brochures are expensivephotographers have longrelied on brochures as mini-portfolios. Portraitphotographers use them ashandouts and rate listings.
informative media with and are not effective unlessvirtually no restraint on used with a highly targeteddetail. market.
You can control the qualityof printing and paper to bestpresent your work.
Direct Mail. Mail advertising Direct-mail is the most Response rates are often The right mailing list is the key to successful direct-mail. You can make ais effective with the rightmailing list.
focused medium for low. One half to two percent computerized list yourself or buy a list from a list company already on labels.targeting the specific market is a typical range of returnyou are trying to reach. rates. Use a reply card with a Business Reply Postage Number so you will only pay
It is the best approach to Even bulk postal rates andproduce repeat business. volume printing may not
make this methodaffordable.
for the returned cards.
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Magazines. Magazine The quality of the Magazines are passive so Most magazines wil l send you an "Ad Kit" on request. I t includes demographicadvertising is often effectivefor certain types ofphotographers.
reproduction and paper are readers can skip the ads. and, reach data, their rate schedule and a sample magazine.superior to newsprint.
Niche or local publications magazines can have high magazines. Trade magazines are publications that go to certain types ofallow precise targeting of a rates. businesses, services and industries. Consumer magazines are generally themarket. kind you find on the average newsstand. Investigate which type would do your
You can include as much months.
detail as you wish, and ads The same ad can run 3-5 times before its appeal lessens.can be clipped and saved.
Messages tend to be more effective.image-oriented rather thanprice-oriented.
Even city and regional There are two categories of magazines: trade magazines and consumer
The lead time is long, often business the most good.
Local bridal catalogs that are distributed for free are highly targeted and very
Specialty Advertising. People like them, use them, Rarely do you have space Ask around before buying specialty advertising through the mail and never buyThese are promotional itemssuch as pens, calendars,and tee shirts carrying anadvertising message.
and carry them around as a for more than a name and it over the telephone.constant reminder logo
They have a very slow return a beneficial distribution plan.period for actual sales, oftenmonths or years.
Specialty advertising is a great goodwill gesture but don't do it unless you have
OUTDOOR ADVERTISING People that pass by are Outdoor advertising targets Outdoor advertising is best when coupled with other media. It should beBillboards, benches, exposed to your message an audience in motion. coordinated with other advertis ing.posters, signs and transit over and over for months Messages must f it in a 2-3advertising all share the because it is in one of their second glance time. As in real estate the three most important aspects are location, location, and
same category. pathways to work, school, or location.shopping. The typical three month
contract is not very flexible.
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Television. TV is a highly TV commercials reach the One television ad during TV is a visual media, so is photography. It offers a great opportunity to useeffective medium. Itseffectiveness is reflected inits price. Don't use TVunless you can afford it.
Cable advertising can be amuch lower cost alternative
and it's often easier to reacha targeted audience.
largest audience of any prime time can exceed the your own creative skill in presenting your message.media. cost of one radio spot during
Advertising on television cancreate instant validity. Not only is actual
Your ad can reach the but production costs can beaudiences you have targeted even higher.
with less fragmentation.
drive time by 10 to 30 times.
commercial time expensive
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Publicity and Promotion
Publicity differs from advertising in two ways: Advertising is paid for and controlled byyou while publicity is provided and controlled by someone else. Although the processis different, the goal is the same - recognition of your business by potential clients.
Publicity is of greater value than advertising because it is not paid for and controlled byyou. This adds to its credibility.
Community service and business organizations can expose you and your business topeople that may become clients or business associates. They also can be a pathwayto publicity opportunities.
Getting a positive image of your business in print and electronic media is the main goalof public relations. Business profiles of local entrepreneurs, awards on their work, andcommunity service are common themes in business news and community news. Yourmedia sales rep can often be helpful in getting your story or upcoming announcement
to the right reporter or editor because the advertising
