# Profit



## jowensphoto (Jun 6, 2013)

What do you consider profit? Obviously there is CODB, but do you consider YOUR pay rate as part of the profit? 

What do you consider a good profit margin?


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## 12sndsgood (Jun 6, 2013)

What's profit?  lol


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## ronlane (Jun 6, 2013)

I wouldn't count my pay as part of profit. The profit would be return on equity. To me you have to factor in a salary for yourself into the codb. This will help with pricing. So that if you decide on a 5% profit margin, you have room to work with and still be able to pay your bills without loosing money. When biding on a job, you then know that you have 5% of the cost to work with a customer.


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## amolitor (Jun 6, 2013)

This is probably a good question for your accountant. There may be tax implications, for instance. It might be more or less complex, for instance, to purchase new gear out of "profits" than "salary". If you have a day job which (for example) contractually restricts you from earning too much outside that job, there may be other considerations.

It probably doesn't matter much, I am pretty sure most of the legal machinery for small businesses treats all the money the same way whether you paint it profit colored of salary colored. Still, it's worth a check with the accountant. You might have special circumstances.


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## jowensphoto (Jun 6, 2013)

amolitor said:


> This is probably a good question for your accountant. There may be tax implications, for instance. It might be more or less complex, for instance, to purchase new gear out of "profits" than "salary". *If you have a day job which (for example) contractually restricts you from earning too much outside that job, there may be other considerations.*
> 
> It probably doesn't matter much, I am pretty sure most of the legal machinery for small businesses treats all the money the same way whether you paint it profit colored of salary colored. Still, it's worth a check with the accountant. You might have special circumstances.



Considering what it pays - that would just be cruel and unusual  

Luckily, I have some friends in the accounting biz


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## ronlane (Jun 6, 2013)

What day job (other than a photographer) would limit the amount of money you could make outside of that job? And why would you want to work for someone that would want to limit your income?


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## amolitor (Jun 6, 2013)

For one, being on faculty at Old Dominion University. A surprising number of employers would prefer that you focus on working for them!


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## ronlane (Jun 6, 2013)

I could see where a university may want faculty to focus on research or writing for text books and stuff like that. I also understand that companies wanting that from a employee at work.

However, for me, I would have to question whether I would want to work for someone that is wanting to limit my earnings potential/power. [maybe that's just me]


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## amolitor (Jun 6, 2013)

It's definitely a question worth asking 

On the other hand, it seems to be pretty easy to get around. "My company earned $750,000, but only paid me $2,999.99, which is co-incidently one penny under the limit in my contract. Go suck it."


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## cgipson1 (Jun 6, 2013)

When running a business.. I have an account (Salary) and the business has an account (Positive = Profit / Negative = Loss). That was pretty much the way my accountants always had me set it up.


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## Gavjenks (Jun 6, 2013)

It doesn't really matter which is which if you have your own business that only employs you.  You just get money coming in.

Then, if you spend that money on groceries, you pay full tax on it.  If you spend it on photography business related stuff, you get a tax writeoff on that portion. That practical difference is essentially what determines what counts as "wages" versus "profits"

The IRS isn't going to care if you arbitrarily decide to call it "business profits" or not.  They care what you spend it on.  "You are what you receipt" as they say.



As for just your own personal decisions about whether you are making enough money to be "worth it," don't look at it in terms of profits and wages.  Just look at the entire amount of money you have coming in per year minus your expenses.  Then consider your opportunity costs.  In other words, how much more or less net money could you have made in OTHER PROFESSIONS, or with OTHER PRICING?  If any of those amounts are higher than what you got, that's an "opportunity cost" and you have to make a decision about whether to change to that lifestyle instead, or whether the cost is worth it for some sort of "fulfillment" or whatever intangibles.


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## jwbryson1 (Jun 6, 2013)

From a financial accounting standpoint, your profit or (loss) is simply your total revenues - total expenses.  So let's say you ran your business for 1 year and were paid a total of $40,000 by your clients during the course of the year.  Let's then assume that you had total business expenses of $10,000, including supplies, insurance, depreciation, interest, etc.  Your "profit" would be $40,000 -  $10,000 = $30,000.

From a tax perspective, it is a bit different because some of the expenses that you claim for "financial statement purposes" are treated differently for tax purposes. For example, on the above hypothetical, let's assume your equipment costs are $15,000 (camera body, lenses, lighting equipment, etc.).  For financial accounting purposes, you may depreciate the equipment over a period of 5 years, so you would claim a deduction of $3,000 per year for financial accounting reasons ($15,000 / 5 = $3,000 per year). For tax purposes, however, you may depreciate the same equipment over a different period of time.  Assuming a 3 year useful life for tax purposes, you would claim a tax deduction of $15,000 / 3 = $5,000.  So your tax depreciation is different from your accounting depreciation.

Make sense?


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## tirediron (Jun 6, 2013)

Dunno... but I'm hoping I'll recognize it if I ever come across any!


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## ronlane (Jun 6, 2013)

^^^ me too.

Personal:

Equipment = $1,500 / 3 years = $500.00 per year. (Depreciation)
Revenue = $200

Cold hard facts = -$300 on the first year depreciation without paying myself anything or counting all the time I spend working on getting better at photography and post processing.

NOTE: I am not a professional and realize that I am not ready to open my own shop. The revenue I made was because the person I was shooting wanted to pay me and we agreed upon a little something.


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## imagemaker46 (Jun 6, 2013)

I consider anything that doesn't cost me money as profit, unfortunately my profits don't always look so good.


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## 12sndsgood (Jun 6, 2013)

i'm at the point where anything bought, paid for, etc comes out of the business.  one day I hope to pay myself a bit.


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## KmH (Jun 6, 2013)

What counts is what the the Commonwealth of Virginia and the US Federal government think.
www.score.org

Your salary should be considered part of your cost of doing business, just like paying someone to clean your studio would be part of your CODB.

It's a good business practice to keep your personal income separate from your business income.

Commonwealth of Virginia Department of Taxation

In Virginia and being self-employed, you may have to pay use taxes and unemployment insurance taxes as well as personal and business income taxes. Virginia Employment Commission | Virginia Employment Commission

As far as the feds - Filing Information for Self-Employed & Small-Business

If you do not meet federal requirements, they may deem what you do a hobby, making a variety of federal business deductions unavailable to you.
Is Your Hobby a For-Profit Endeavor?


> An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year.If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations.


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## cgipson1 (Jun 6, 2013)

KmH said:


> Your salary should be considered part of your cost of doing business, just like paying someone to clean your studio would be part of your CODB.
> 
> It's a good business practice to keep your personal income separate from your business income.



^^^ THIS!


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## 12sndsgood (Jun 6, 2013)

Wonder by their definition do you have to figure in your hourly cost and minimum wage, or can you pay yourself a dollar  a year like you hear some ceo's doing.


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## jwbryson1 (Jun 6, 2013)

12sndsgood said:


> Wonder by their definition do you have to figure in your hourly cost and minimum wage, or can you pay yourself a dollar  a year like you hear some ceo's doing.




Let's assume she establishes an LLC as her business entity of choice.  As a single member LLC, she can elect to either be taxed as a C Corporation, in which case the LLC will be responsible for paying federal income taxes on its net income, or alternatively she can elect to be taxed as a "non-entity" (aka "disregarded entity") which means that the earnings of the LLC flow through the entity directly to her and she reports her gross receipts and expenses on Schedule C.  As a non-entity, she could end up reporting taxable net income on her personal tax return without ever taking a dime of distributions from the LLC.  That sucks because it's like "phantom income" since you didn't pay yourself but still have to pay taxes on the income...


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## amolitor (Jun 6, 2013)

jwbryson1 said:


> 12sndsgood said:
> 
> 
> > Wonder by their definition do you have to figure in your hourly cost and minimum wage, or can you pay yourself a dollar  a year like you hear some ceo's doing.
> ...



I am so turned on right now.


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## 12sndsgood (Jun 6, 2013)

and this is why I have a guy do our taxes.


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## jwbryson1 (Jun 6, 2013)

amolitor said:


> jwbryson1 said:
> 
> 
> > 12sndsgood said:
> ...



Me too.  I guess I'm in the right business...


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## KmH (Jun 6, 2013)

Earning 20% more than your costs is a good profit margin for a retail photography business.
Few retail photography businesses achieve that though. 

Various professional photographer association surveys have shown that photographers that do not have a studio generally have a higher profit margin than studio owners do.
But while studio owners generally have a lower overall profit margin because they have higher costs, their total revenue is much higher so they realize more income.


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## jwbryson1 (Jun 6, 2013)

12sndsgood said:


> and this is why I have a guy do our taxes.



I usually bill at $425 per hour.  You do the math.


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## kathyt (Jun 21, 2013)

jwbryson1 said:


> 12sndsgood said:
> 
> 
> > and this is why I have a guy do our taxes.
> ...


That's not what you charged me. I got a discount.


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## Gavjenks (Jun 25, 2013)

*Edit*: Apparently I already posted something similar to this on page 1, and have NO RECOLLECTION of doing so, even though it was just 2 weeks ago, and even after reading it. Plus I missed it when reading through the thread again just now at first. I think I may be going insane.


In general, in any self-employed business, you should count your own  time as an expense equal to whatever you would have been able to make per hour if you were doing whatever else other than photography would make you the most money per hour.

So if you're a neurosurgeon, and are considering leaving your job to start a photography business for purely financial reasons, then you need to value your time at $600 an hour or whatever in order to determine whether your business is making you net profits or not.

If, on the other hand, you're a high school dropout, then you only need to value your time at minimum wage (assuming you can hold normal jobs at McDonalds, etc. if not, less than minimum wage) in order to determine whether you are making a net profit or not.

https://en.wikipedia.org/wiki/Opportunity_cost


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## Steve5D (Jun 25, 2013)

There are two different kinds of "profit".

The first that you'll ralize is "gross profit". This means that if you shoot a wedding for $5,000.00 on a Saturday afternoon, and a 50 year anniversary party on Sunday for $750.00, your gross profit for the weekend is $5,750.00.

Out of that "gross profit" comes the other kind of profit, which is "net profit". After you deduct what it cost you to do those two weekend jobs, you get the _net _profit for your business. Out of the gross profit also comes your pay. If your CODB for those two gigs is, for argument's sake, $1,000.00, your net profit is _not _$4,750.00. Give yourself a paycheck out of that $4,750.00, and the _remainder _is the net profit realized by your business...


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