Jennifer Fawcett, The Number Mill

Thursday, January 21 by Juliette Wolf-Robin, ADBASE

Posted in: Industry Interviews

Juliette Wolf-Robin speaks with Jennifer Fawcett, Partner, The Number Mill in San Francisco. The Number Mill provides an array of small businesses services - including consultation, bookkeeping and business management - to photographers, artists and agents.

  • Understanding the cost of doing business
  • The pros and cons of incorporation
  • Issues surrounding sales and payroll taxes
  • Budgeting for self-promotion
  • Budgeting for a bookkeeper

Interview Transcript

This is an edited transcript of Juliette Wolf-Robin's interview with Jennifer Fawcett of The Number Mill, San Francisco.

Juliette Wolf-Robin:

How much should a photographer plan to spend for bookkeeping every month, or set aside for the idea of planning their business?

Jennifer Fawcett:

I think it depends on where the business is at... but I think, minimally, you should consider setting aside - if you're making upwards of $100,000 - you should start setting aside a couple of hundred dollars a month. And that's minimally. So... as your business grows, as your bookkeeper gets more involved in your business, if your business is growing to revenue up to $2 million, you may have somebody on board every week. It becomes a much larger part of your business and, you know, those fees can go up.

Juliette:

Do you find that photographers come to you, as they're starting their business new? Or do they usually come to you after they've been doing it a while and say, "Okay, everything's a mess; can you help me now?" What's more typical?

Jennifer:

We get both. We specifically tend to work more with clients that have been established for a little while and are coming to us. So, a lot of them have structures in place already. But there are some people that come... that have been, you know, unorganized ...

Juliette:

... winging it.

Jennifer:

... or winging it.

Juliette:

And what is the typical problem that you see with artists... where you realize there's some element that they tend to not consider, as they're starting their business?

Jennifer:

Sure. There's... making sure that everything's in-line around understanding what you're really making... having a set of books... then being able to look at how things move over a year or over the years... being able to see the up and down of your income and be able to start to figure out ways to...

Juliette:

...they're planning...

Jennifer:

Yeah, they're planning.

Juliette:

Do you find that photographers or small businesses that you deal with have a business plan in place, or do they tend to just react to what's happened this last year?

Jennifer:

There's generally a reaction.

Juliette:

Mm-hmm. They're not thinking about next year and how much do I need to plan spending towards this or that. Is that an area you work with?

Jennifer:

Absolutely. That's really our sort of specialty... working with people around planning. So we... do the bookkeeping side, but we tend to try to be more strategic with plans in working with what has happened this year, where do we need to save on overhead, where are you making profit, where do the fees need to be readjusted, what are we spending on, advertising on different areas, equipment... and really being able to plan out with them, and not to react quite as much.

Juliette:

Right. So then they know if they can actually afford that piece of equipment rather than just spending it and figuring it out later.

Jennifer:

Exactly.

Juliette:

And at what point would you recommend a small business or an artist incorporating?

Jennifer:

The incorporation question is an interesting one. There was a real movement around incorporating a few years ago. If you talk to a few CPAs, I think they'll say the same thing. Everybody was becoming a corporation. It was kind of the cool thing to do. These days, I think you need to really weigh out a lot of things before you incorporate. There are a lot of decisions to be made. Will it benefit you? There are a lot of expenses that are tied around incorporating. You have to pay certain fees. You do need to have a bookkeeper on board for probably a lot more than $200 or $300 a month keeping the books very cleanly.

Juliette:

But they're more protected right? And... lawsuits...?

Jennifer:

And not necessarily always, sometimes you could just carry a really good insurance policy that will protect you. But if you're hiring a lot of people and running a lot of things through your company, incorporating could make sense. You do want to balance it with what's happening in your personal life as well.

Juliette:

And should a photographer have a resell license?

Jennifer:

Absolutely.

Juliette:

And I heard that some agencies don't want to pay sales tax now. They don't want the photographers to charge them for sales tax. Is that something you've been hearing?

Jennifer:

Yes.

Juliette:

And how are people dealing with that?

Jennifer:

People are dealing with it a number of different ways. When we're getting into the sales tax issue, there's kind of a bigger conversation, but there are rules around the technology transfer agreement and also the digital exempt...

Juliette:

Right. If they send it electronically, it's exempt?

Jennifer:

Exactly. Yeah

Juliette:

And, does it change state by state?

Jennifer:

I don't know... I'm familiar mostly with California. But yes, every state has specific rules and I don't know how they differ from California. But in this state, I know we're dealing with that a lot with people.

People are obviously opting to go the digital route, first of all, because it avoids the sales tax. You just need to really cleanly handle that within your books and make sure that... was it really, truly, digitally transferred. It wasn't on a hard drive. If it was a hard drive, there needs to be a [rental] attached.

Juliette:

Is it different for editorial versus an advertising shoot?

Jennifer:

You know I tend to find that there's a lot more people wanting to not charge sales tax within a commercial shoot because everything's generally done digitally - because it's much bigger budget. Editorial - there still seems to be some film used, but yeah, it's so much bigger around the commercial because there are bigger numbers.

Juliette:

And what about the payroll taxes? A lot of people in the graphic arts industry started to be tagged for issues having to deal with payroll taxes. In particular, when you're hiring freelance, and I think for photographers, one of the issues that really comes out is that they're hiring an assistant to come into their studio for a short period of time. Now, that assistant is freelancing with everybody in town, so they're not really an employee. But they are coming in and working and using the supplies of that photographer. So are they considered a freelancer or are they considered a part-time employee?

Jennifer:

Well, that's the thing. The photographers, in a sense, consider them apprentices. It's sort of this idea that they're coming in and they're learning and a lot of those people go on to have their own careers. And yes, they're working for multiple people. The issue is that, specifically in California, the EDD (Employment Development Department) states specific rules around what you consider [to be] an employee versus a subcontractor. Unfortunately, photo assistants fall into an employee, not a subcontractor. Now, out there in the world, I would say it's about 50-50 on who does what. If you're not putting your photo assistance to your payroll, I think you're taking a risk. It's just that some people are willing to take bigger risks than others. But if you want to do it correctly, they do need to be run through payroll.

Juliette:

And what about figuring out promotional dollars for an artist or a small business? Do you come up with a percentage that they should be spending? And how do they calculate how much they should be spending in promotion?

Jennifer:

Well, absolutely. It's a percentage of what you're expecting, revenue-wise. You don't want to go overboard on advertising. But advertising is usually [the] biggest piece - aside from cost of goods, [and] aside from what it cost you to produce... unless you have a studio - that can be another big expense, overhead. But advertising is usually the biggest piece of the budget in the year. It really depends on where [artists] are in their careers, what they're trying to achieve that year. Some years [advertising costs] will be very high and then they'll balance it out the following year... There might be some kind of balance in their promotion. They're not redoing their books; they're just updating them. But some years they'll actually be buying entirely new materials, taking on a new rep. There could be a number of things that are happening that could make that go...

Juliette:

Is there an area that you find, typically, small businesses overspend in? Whether it's in their studio space, their travel, their entertainment, their promotion?

Jennifer:

Yeah. I think that sometimes in the studio, in the photography industry, the studio can become a big expense. I think it's really important to keep your overhead low to be able to work through the hard times and keep the money for yourself. And not get too big, increase your staff, increase your space. As we all know, a lot of people used to have studios. Now a lot of people shoot on location or they rent spaces. So I think this idea of keeping things low is becoming more interesting to people, especially throughout this year.

Juliette:

Is there an area that you think people need to pay more attention to, either spend more money or time focusing on in their business?

Jennifer:

Yeah. I think you should know what your overhead costs are, what it's costing you to be in business.

Juliette:

Mm-hmm. And you think a lot of people don't do that.

Jennifer:

No. I don't think so.

Juliette:

I think you're right.

Jennifer:

I think that it's surprising sometimes when we'll run the numbers and discover it's costing, you know, $8,000 to keep the business just open and [running]. Then the photographer says, "Okay, I have to go out and I have to earn, you know, three times that or..."

Juliette:

Right. So they'll understand better what they should be charging per day based on how much it cost for them to be in business.

Jennifer:

Which I also think is a really great thing because a lot of photographers become inspired by that and know, "Okay great. I am earning that and where is the line where I'm making my profit?" And I think the other area that can get [tough] is with a lot of people doing so much travel, you have to stay within the realm of making sure you're not spending too much on things that are billable.

Juliette:

Mm-hmm. Have you seen any changes in the fees that artists are getting lately, as opposed to in years past?

Jennifer:

That's not really my... I'm not involved in the negotiation thing, but yeah, fees have shifted this year, there have been some changes. There have also been some positive changes. It's been an interesting year.

Juliette:

Mm-hmm. Is it something that the artists and the small businesses think about at all, like maybe "I need to raise my fees because it's costing me this much to be in business"? Or do you think it's not something that they have said that they have any control over?

Jennifer:

I think it's hard. I don't usually have those types of conversations. Those tend to be negotiated by the reps and that tends to be something that just depends on the job and what's available. What we tend to look at is how to control the costs and then how to have discussions about... sometimes, with photographers, about taking on the right work. If they understand how much it's costing them to be in business and where their profit margins [are] on certain work, then they understand it's better to take this type of work - maybe a commercial piece versus a few editorial jobs. So we just start to bring some visibility to where the margins are and that can help in decision making.

Juliette:

And what about leasing equipment versus purchasing equipment outright? Do you have any advice about that?

Jennifer:

I actually don't. It just depends specifically on other pieces of your financial picture. So there could be reasons to do one or the other. Is that something that comes up for a lot of people within purchasing or leasing?

Juliette:

I think that because of the equipment changing so quickly nowadays. I think it's more of an issue than it used to be because you used to be able to buy a camera and then keep it for many years and you would have your studio equipment. Where now, because of the changes in the industry, whatever you buy could be obsolete and it could be a $20,000 piece of equipment that you're going to need to upgrade in two years.

Jennifer:

My only piece of advice on that is to look at the equipment. What we do with the photographers is to determine [whether] we are going to be able to rent back or are we going to be able to make our money back on this, and how quickly. The conversation about how long that equipment is going to last is more on their side. But we look at whether we're going to be able to afford this piece based on what we can charge for it, the job.

Juliette:

Do you find that small businesses have worked with people like yourself? Do you find that as they're starting in business, if you've met them over the years, do you think that they've really thought about the business part the way that you do? Or do you find a lot of people don't until there's a problem?

Jennifer:

I think that both types of people exist out there.

Juliette:

What is some of the basic business advice that you find you have to give people on a regular basis or you find you're constantly reminding people about?

Jennifer:

I think that there's... we were just talking about this a little bit. I think that within running your business, it's really important to let people who are really good at what they do, do what they do, and have you go out there and do what you do. So, in the photography industry, I think it's really important to have people like us on board so that we can help get all of this organized for you. But there's also a level of organization that has to happen within your own business, and you have to, you know, want to be involved in those pieces as well. You would be surprised. Creative people are actually surprisingly business-oriented, I think. People are surprised about that.

Juliette:

Well that's good news.

Jennifer:

Yeah.

Juliette:

Are there any issues that you find people are dealing with a lot or they seem confused about?

Jennifer:

Yeah. I think there are some issues that people are confused about... putting all the pieces together in terms of having a system and knowing how to integrate or work with a bookkeeper and a CPA. A lot of times we run into this interesting thing where it's like putting together a team and piecing together, you know... A lot of times you find that it's new to people. And so... we feel that we're these people in between the bookkeepers and the CPAs. There are all these people talking about information about the business and a lot of times I found that bookkeepers are just entering numbers, CPAs are just looking at things once a year. Our whole idea, or our mission [in] building this particular business is to be the people that would help translate all of that for the business owner, the bookkeeper, the CPA, and kind of be strategic with people because we want to see people succeed.

Juliette:

And your focus is on creative businesses?

Jennifer:

Yeah, exactly.

Juliette:

Do they need to be based in California, for you to work with them?

Jennifer:

No.

Juliette:

Because that's part of it, you can translate anywhere, right?

Jennifer:

Yeah. We work with... well we've worked with a few clients in L.A.

Juliette:

Mm-hmm. Well, it's still California.

Jennifer:

It's still California... We haven't actually branched out of California yet. Maybe Santa Fe.... We have actually a couple of clients in Santa Fe.

So anything else that's really critical... We find staying up with business licenses and saving money... I guess when we're talking about business in general, it's getting the right people on board, whether it's the right studio manager, the right sort of team. I mean... I just talked about this a little bit but those people, the people in your team can help make you money. So bringing the right assistant on board, bringing the right digital type. I see that people who are really good at teambuilding, their businesses soar because they know how to let go and they bring those people on and let them do their work. And somehow that makes you money; it never costs you money. And people who are sort of afraid to make that jump - "Oh I can't afford it," or there are fees associated with whoever it is, or bookkeeping, or studio manager or whoever it is... I mean look at it carefully but really, that can usually make you money.

Juliette:

That's interesting.

Jennifer:

Yeah.

Juliette:

Good teamwork.

Jennifer:

Good teamwork, I think, creates this. Especially in the creative industry, you just have to be creative about your team and the people that are on board. So, that usually makes money.

Juliette:

I like that. Thank you.

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