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Did you know that only 50% of small businesses remain open after five years? Studies have shown that 75% of businesses make it through their first year, and by year two, 69% are still open. However, according to a Forbes study, the number plummets by year five

Some of the most common reasons for closing a business are a lack of customers or clients and insufficient cash flow.

As a creative business, we have busy and slow seasons.  To run our businesses full-time with no other income, we have to learn to plan financially for our slow seasons.

Today I am excited to share with you my journey in discovering how to plan for the famine during the feast and the steps I took.

Planning for the Famine during the Feast

The ebbs and flows of a creative business are a challenge for newbies and veterans alike.  The highs are high, and the lows, well, sometimes they can feel like rock bottom.

In year nine of running a business, I learned how to plan for the famine during the feast.  Consquendently, it was the Spring of 2020 when I first learned who Mike Michalowicz was.  He single-handedly changed the course of my business for the better!  (More on this below!)

Unless you have a studio, your creative work is 90% dedicated to an outdoor space. If you live somewhere with extreme weather (pretty much anywhere besides Southern California!), your business experiences busy and slow seasons.

One month, you might gross 25k; the next, you’re collecting retainers.  And let’s be honest – we can’t pay our bills with retainers alone!

So, how can we beat the static odds of quitting our dream due to a lack of income?

The simple answer is that we must take charge of our numbers to succeed in the entrepreneurial life.  We must know our numbers.  

Here are the steps I implemented in 2020  to help plan for the famine during the feast!  

  1. READ AND IMPLEMENT PROFIT FIRST (WITH SOME TWEAKS)

Since starting a small business doesn’t require a fancy college degree, business owners must figure a lot out independently.  You don’t know what you don’t know, including how to pay yourself while still having enough money to run your business successfully.

Profit First by Mike Michalowicz is a book every business owner should (and needs to) read.  It’s a common-sense setup for your finances.  The book gives business owners a simple plan to follow when money is collected from paying customers.

This book walks you through setting up your business for financial success using a unique accounting model that follows the Sales – Profit = Expenses equation.  

If you haven’t read the book, here’s the gist:

  • First, you’re going to open FIVE checking accounts at one bank and two at a separate bank (these accounts are marked with an *).  Look at your local community banks, credit unions, and some regional banks to see which ones don’t charge a fee for additional checking accounts. (I live in Ohio, and bank with Huntington with no additional fees)

Checking Accounts to Open and How to Label Them

  • Income
  • Profit*
  • Tax*
  • Owner’s Compensation (Personal Income)
  • Operating Expenses (Business income)
  • Complete the Instant Assessment to determine the percentage of income allocated to which checking account. 
  • Ensure that the money from every client transaction you complete is transferred into the INCOME Account.
  • Mike teaches that you make money transfers on the 10th and 25th of every month.
  • Until you reach your Target Allocations, you will revisit your percentages every quarter.

I do a more advanced Profit First-inspired setup where I make transfers into additional accounts.  These accounts are:

  • Sales Tax
  • Subcontractors Pay (my editor and second photographer gets paid out of this account)
  • Holding Accounts (this is part of the secret to planning for the famine during the feast)

Completing this step took time, and the bank looked at me like I had grown three heads.  However, this is the number one advice I give to every new creative.  You have to read Profit First.  The sooner you read this book in your business journey, the better.

Click here for my full review on using Profit First for Photography.

  1. DETERMINING YOUR MONTHLY EXPENSES

It’s time to figure out how much income your household needs monthly to survive.

In your personal life, you’ll have expenses necessary to survive (e.g., mortgage, utilities, childcare) and luxuries (e.g., Starbucks trips, and monthly manicures).

Add these numbers up, then compare how much you need to pay yourself monthly to the percentage on the Instant Assessment.  Is the number higher or lower than Profit First determines?  If it’s higher, this indicates you need more work and/or raise your prices (or cut back on your personal expenses!)

  1. “PUT YOUR PANTS ON” NUMBERS

What is the exact number you need to charge per session?  Per wedding?  Based on various formulas, you should know exactly how much you need to charge per session/wedding and how many bookings you need a year to keep the lights on.

There are plenty of cost-of-doing-business calculators out there, but few that deep dive and give you a realistic idea of what the “put your pants on and leave the house” number has to be.

(My favorite is Ben Hartley’s inside of his Booked Solid course!)

Part of completing a CODB also includes examining business expenses. Think of your long list of subscriptions (AI editing/culling, Adobe, Prime, Website, Galleries, Email Marketing). The list feels endless!

Like your personal expenses, you’ll compare the total business expense number to the Instant Assessment from Profit First. Is the number higher or lower than 30% of your Real Revenue?  If it’s higher, this indicates you need to cut some business expenses or raise your prices.

A Secret to Creative Entrepreneurial Success

So now you’ve read Profit First, opened your checking accounts, and determined your personal and business monthly expenses, it’s time for the grand finale. 

Let’s wrap all this up with a pretty bow so you can understand how to prepare for the famine during the feast.

  1. Pay Holding Accounts

When you implement Profit First, you must open two additional accounts.  I call these my pay-holding accounts.  One account is for personal, and the other account is for business.

  1. Know your numbers
    Knowing your numbers lets you see what you need to pay yourself and how much your business account needs to pay for expenses.
  2. Complete your bi-weekly Profit First Spreadsheet 

When you have your numbers in your spreadsheet, you’ll easily be able to tell if your owner’s compensation (personal income) and operating expenses (business income) are above or below what is needed. (Want a copy of my spreadsheet?  Sign up here for it’s release coming soon!)

  1. During the feast, transfer the excess monies into the respective pay-holding accounts

For example, concerning the Owner’s Compensation, say you need to pay yourself $2000 every two weeks, and your month of May grossed $24,000.  Based on the structure taught in Profit First, your owner’s compensation transfer will be greater than $2000. You then transfer the excess to your holding account.  If income in July-October is also high, your pay holding accounts should grow substantially. When income is slow during the famine months, and transfers are less than your target, you have money saved. (See image below for an example on my spreadsheet)

Following what is taught in Profit First and saving money during the feast for the famine, you are one step closer to beating the odds of successfully running a small business. This simple yet effective accounting method has been a game-changer for my business, and could be for you, too!  It’s easy to set up and manage.  If you haven’t read Profit First yet, I can’t recommend purchasing the book and diving into it ASAP.

Here are some helpful links for you as you embark on this journey

Thank you, Loren Jackson, for all of this incredible info!

Find out more about Loren at the links below!

Loren Jackson Photography Website

Loren Jackson Instagram

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