Step 3: Track your general expenses
For each expense, list the dollar amount of the item and the percentage of total sales it consumes. Sometimes referred to as fixed or indirect costs, these expense items recur throughout the year and don't change in proportion to how much work you do. After all, rent and utilities must be paid every month! (For a longer list of general expenses, read the PPA Business Handbook or the Vital Signs article "PPA Financial Benchmarks: Cut Costs, Improve Profits.")
When reviewed individually, the percentage of most general expense items doesn't reveal much. But when grouped by business function (employee expenses, overhead, marketing, administration, capital expenditures), you can see the impact each expense has on your business as a whole.
In fact, the PPA Benchmark Survey reports let you compare your general expenses to the average studio and best-performers. Are you spending too much on new equipment? On marketing? Is that expense worth it? That's the power of making numbers make sense!
Stay tuned for Step 4 next Tuesday.
If you haven't already, now is the time to sign up for this year's Benchmark Survey. You can be a part of the only industry survey and analysis that helps photographers run better businesses.
Remember: PPA's Studio Management Services (SMS) can also help you understand general expenses and how to set up your accounts according to managerial standards.