Over the last few weeks, we've listed the steps to better understanding your business numbers, from organizing your sales to tracking your expenses. After all this work, though, you can't forget to be careful when considering your bottom line.
Step 4: Calculate your owner's compensation + net profit.
In order to accurately see how your photography business is doing, you need to calculate your owner's compensation + net profit (also known as bottom line profit). Measuring your bottom line in this way combines the amount that you have taken out of the business as personal compensation (salary, draw or distributions) with the amount of the business's profit or loss.
Viewing these amounts together helps you understand the reality of said bottom line, making it easier to recognize the dangerous practice of writing personal compensation checks above and beyond the ability of the business to support it. For example, if a photographer draws a salary of $60,000, but the business suffers an $80,000 loss, the photographer's bottom line "profit" is actually a loss of $20,000.
You can make even more sense of this calculation by comparing your owner's compensation + net profit number to the PPA benchmark (from PPA's Benchmark Survey). By doing so, you'll see where you should be aiming for a healthy bottom line!
Step 4: Calculate your owner's compensation + net profit.
In order to accurately see how your photography business is doing, you need to calculate your owner's compensation + net profit (also known as bottom line profit). Measuring your bottom line in this way combines the amount that you have taken out of the business as personal compensation (salary, draw or distributions) with the amount of the business's profit or loss.
Viewing these amounts together helps you understand the reality of said bottom line, making it easier to recognize the dangerous practice of writing personal compensation checks above and beyond the ability of the business to support it. For example, if a photographer draws a salary of $60,000, but the business suffers an $80,000 loss, the photographer's bottom line "profit" is actually a loss of $20,000.
You can make even more sense of this calculation by comparing your owner's compensation + net profit number to the PPA benchmark (from PPA's Benchmark Survey). By doing so, you'll see where you should be aiming for a healthy bottom line!
- Get more help in making your numbers make sense by reading the latest benchmarks and findings from PPA's Benchmark Survey, including the PPA Business Handbook.
- Missed a step? Read these earlier blog articles on making your numbers make sense: Step 1, Step 2, Step 3.
- 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 your real bottom line.
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