Too often you read about a photographer going out of business and leaving dozens of clients hanging out to dry. It happens all over the country and probably all over the world. This event has several significant consequences. Innocent clients lose their money. Photographers lose their business and their personal reputation. The photography industry gets a black eye, making it hard for the rest to do business. All quite needlessly.
The solution is simple. Create a reserve or escrow account for fulfillment funds only. That way the money is always there to pay your labs and album companies and not get behind on product deliveries. While the account can be a separate business checking or savings account, it should be one that is easy to put funds into whether you make direct deposits or make a bank transfer.
The easiest way may be to use a connected account in the same bank. But while it is easy to transfer funds to your fulfillment account, it is also tempting to remove the money for the wrong expenses. Some photographers use a business checking account at a different bank, making it more difficult and less appropriate to use those funds incorrectly.
Either way, have a Visa or MasterCard check card for the account, and use it only for labs, album companies, and similar fulfillment expense. You will also find it much easier to track your costs, both for your accounting and cost control and for the IRS.
So, how much money should you keep in reserve? You should already have a handle on your fulfillment cost factors and this percentage is what should always be in the reserve account. If not, it's time you make this calculation, which is vital to running your business profitably. While you need to also know all your other expenses and be able to budget payroll, overhead, equipment and other costs, it is your fiduciary responsibility to always know your true fulfillment costs and be able to deliver to your clients what they ordered. It can be cumbersome and time-consuming to calculate a percentage for each order, so use whatever method works best for you to determine how much money from each order goes into reserve. The important thing is to make an honest estimate, or greater, and save that money.
Best of all, your reserve account will give you the peace of mind that no matter what fate comes to your business, you will be able to walk through your town with a clear conscience. People will respect you and you will be able to try again, starting a new photography business with the approval and respect of other photographers and, most importantly, your clients. If you have to close your doors, or go part-time, you will be able to take a few hours every week and finish delivering those prints and albums. And still be able to answer your phone without fear.