Wednesday, August 15, 2007
Cash Flow 101
Inside every successful photographer there's a successful businessperson. One of the most important aspects of making a living in this field is managing your resources to keep your cash coming in.
I'll Pay You Back On The Second Tuesday Of Next Week
Understanding your debt is absolutely crucial to expanding your profitability. Some of you reading this are carrying school loans, others have put camera and computer gear on credit cards. Undoubtedly, you're making your monthly payments and randomly throwing more money than the minimum required at one debt source or another. There's a smarter way to make your payments.
Make a list of all your sources of debt and then determine which one is costing you more money than it's worth. Most school loans have a decent single-digit fixed interest rate. As much as you want to separate yourself from your school experience, just keep paying the required minimum amount of this loan on time. The interest rate is great. It looks good on your credit report and your cash in hand will better serve you in other ways, like paying off your credit cards.
Credit card companies have created an environment of legalized stealing. Beyond the universal default penalties and brutal late fees, credit card companies have started to compute interest based on the average daily balance over the last two billing periods. Unless you pay off your balance for two months in a row, the two-cycle method will include the prior cycle's average balance in calculating your finance costs even though you paid off that cycle's balance in full. Simply put, if you charge $10,000 in May and pay it off on the due date, but still carry a balance and only charge $10 in June, your finance charges for the end of the cycle in June will still be, in part, based on the $10,000 balance you had in May.
The convenience of credit cards has become too expensive to consider them for anything except specific needs. Use one credit card for your living expenses and pay it off fully every month.
If you need to finance equipment, consider the following options. Almost all camera companies have some sort of lease-to-own program. Don't listen to the pitch from the camera salesperson; he or she makes money on selling you stuff. Get the information and review the terms. If that option isn't available, look at your credit card situation. If you have access to a credit card with a low interest rate and that card has a zero balance, you may be able to use that. But beware. If you buy a few thousand dollars' worth of gear at 2.9% because of a special limited time deal, don't put anything more on that credit card. As soon as you charge more on the card, the additional charges will be charged at a higher rate. Any payments you make go to the charges with the lowest interest rate first.
For example, if I charge $3,000 at 2.9% and then make an additional $1,000 in purchases that's assessed at 12%, any money I send to the credit card company goes to the amount at 2.9%, so they can keep charging me the higher interest rate for as long as possible.
If you're in significant credit card debt, you need a plan to get out. A simple method is to start paying as much as you can toward the credit card with the highest interest rate. Try to quadruple the minimum payment. Live without cable, eat quesadillas for a few months and just focus on diminishing that balance. With the other credit cards, pay the minimum due and then move on to the next highest interest rate, etc. Your goal is to stop giving away money.
Of course, as soon as you get rid of your cable TV and convince your significant other that tuna canned in Chile is every bit as gourmet as eating Chilean sea bass at a fancy restaurant, you'll book a major advertising job. You have no money to produce the gig because you were silly enough to take the advice of this article, and your parents are climbing Everest without cell phones. Oh, sh...
Creative Financing, Or Financing For Creatives
A photographer I knew occasionally used to hock his camera gear at a pawnshop to pay his rent. When he picked up a model portfolio shoot, he'd ask for the fees up front and in cash. Then, as the makeup was being applied, he'd run down to the pawnshop and collect his gear with the cash.
My first major production, I ran up $3,000 on credit cards and borrowed $5,000 in cash from my dad. If you ever meet him, he'll be sure to tell you the story of how his benevolence launched my career—at least he has with every girl I've ever dated. It was my first experience with creative financing. Although not as desperate as hocking camera gear, it was a lot of scrambling to make it seem like I had my act together and was ready for the big leagues.
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