When I made the schedule for this educational series, I had no idea the world would be in the situation that is in right now. So it's crazy that this would be the week that we talk about running a legal business. Unfortunately right now, many photographers are finding out the hard way why they need to be running their business legally. For those of you who are just starting out, this is a great time to learn why you should get legal before you do anything else, and how to do it!
Contrary to popular belief, it is not that hard to become a legal business. Yes, it costs money. Yes, there's boring paperwork involved. But imagine how much money and paperwork it could cost you if you get caught running a business illegally... Yep, so let's talk about the "Why" first!
There's really only one thing to say here. If you don't take your business serious enough to do it right and be legal, then what gives you the right to ask anyone else to take you and your business seriously and give you their hard-earned money? Let that sink in for a minute.
The most common issue I see new photographers having is their clients aren't following their policies and they don't understand why. And when they are asked what their contract states, they say they don't have one because they're "just starting out and don't think it's necessary". WRONG. When you are conducting any type of business transaction, even if money is not involved, you need to have a contract.
But there's so much more to running a legal business than just having a contract. You also need to register with the IRS and your State Department of Revenue and pay taxes. So how do you do this? Like I mentioned before, it's actually quite simple, if you let it be! This country, and your state, LOVE small businesses! They want you to succeed and there are so many amazing resources they give you to help you succeed! So let's talk about the steps you need to take to make your business legal so you can start taking on clients!
6 Steps to Starting Your Photography Business Legally
Step 1: Establishing your Business Name and your Business Structure
Choosing your business name may be either the easiest, or hardest thing you do! There's a few things to consider when choosing your business name:
1. Do you use your own name or create a generic business name? If you plan to be the "face of the business", then naming your business after yourself is perfectly fine! Naming your business after yourself can also be a great way to help potential clients to connect to you, as they your personal name can have more credit to some people. There are a few downsides to think of as well. If you ever decide to add employees, hand down the business to children or sell it, you may have to think about a re-brand in the future. A more generic business name can give you more freedom to change your business structure through out the life of your business.
2. Is the name you have chosen already taken? There are a two parts to this. First, you need to find out if the name has been trademarked. If it has, you will not be able to use it. If it has not been trademarked, then the second thing you want to find out is if it's being used anywhere else. How do you find this out? Google! Google your desired business name and see what pops up in the search. If someone in your area, even the whole state, is using that name, then it would be a good idea to choose another name. The last thing you want is to be confused with someone else or have another photographer be credited for your work accidentally.
3. Is the name you have chosen available as a web domain? Your website is your store front, and for most clients, the first impression of your business! You want to make sure your web domain is, not only available, but also easy to remember.
Once you've determined that the name you have chosen is available and ready to be used, your next step is to decide what your business structure will be. There are four main types of business structures in the U.S.: Sole Proprietor, Partnership, Limited Liability, and Corporation.
- Sole Proprietor: Sole proprietorship is the simplest organizational structure available. Typical sole proprietorships are home-based businesses, shop or retail businesses and one-person consulting firms. Owners of sole proprietor businesses are responsible for their own record keeping and paying the IRS in the form of self-employment taxes. However, this type of business provides no protection for business owners, as they can be held personally responsible for their company's debt and financial obligations.
- Partnership: A partnership is formed when two or more people join, or partner, together to run a business. Each partner has equal share in the net profits and losses of the business. Like a sole proprietor, each partner reports their income on their personal tax return and pays self-employment taxes to the IRS. They are also personally liable for financial debt and obligations of their company and they are also responsible for the actions of other partners. Although partnerships can be formed through oral agreements and handshakes, it's a good idea to have written agreements in the event of disputes or lawsuits between partners.
- Limited Liability: The limited liability structure is considered a hybrid as limited liability companies can be formed as corporations or partnerships. LLCs can provide owners, who are commonly referred to as members under this structure, the protection from liability and other obligations similar to a corporation. Limited liability companies can also be set up and managed like partnerships. The taxation of LLCs also depends on its structure.
- Corporation: This type of business structure separates the liabilities and obligations incurred by company operations from being the responsibility of the owners. Corporations are regulated by the laws of the state they are set up in. Unlike sole proprietor and partnership businesses, corporations are taxed as separate entities at corporate tax rates. The IRS taxes corporation owners at individual tax rates. There are two common types of corporation structures: Subchapter C and S. The different between the two subchapters stem from different tax rules. Ordinary corporations are considered Subchapter C corporations. Subchapter S corporations, unlike Subchapter C companies, can pass income and losses onto their shareholders to avoid paying federal income taxes. This prevents double taxation of corporation profits.
If you're unsure of which structure is right for you, then it would be a good idea to consult with an accountant. If it's just you in your business, you can always start as a Sole Proprietor and then change to an LLC or Corporation when you are ready.
One last thing you'll need after deciding on a name and business structure is obtaining a Doing Business As (DBA) Certificate. Obtaining a DBA is different for each state, both in how you file and how much you will pay to file. Google "DBA in (your state name)" to find out what you will need to do. Once you have your DBA, you will be able to do the next three steps!!
Step 2: Register with the IRS for an EIN
If you decide to be a Sole Proprietor, it is not necessary to have an EIN. However, it is a good idea to consider it as 1.) you don't have to give out your social security number for any reason and 2.) it's free so why not?
It's that simple!! I keep two copies of my EIN letter, one on paper in my business firebox and the other as an electronic copy on my server. Now you can use your EIN for Step 3: Obtaining your business licenses and Sales Tax Permits!
Step 3: Obtain your business licenses and sales tax permits
This step is a little more complicated for me to explain clearly, as each state, county and city have their own rules about what kind of businesses need to register and for what kinds of licences and permits. Just for example, I am located in Arlington, TX. The rules for registering my photography business were quite simple. I had to register my DBA at my local courthouse and I had to register as a home-based business in my city.
Texas photographers are also required to collect sales tax on all services and products, including digital images, so registering with the Texas Comptrollers office was also required. Some states may call this office the Department of Revenue office. Filing sales taxes are also very simple and can all be done online. The frequency of payments is determined by how much sales tax you collect each year. You will file yearly, quarterly or monthly and they will tell you when you sign up which one you will be responsible for. They will also contact you each year, by mail, to let you know if you need to change your filing status.
Step 4: Separating personal finances and business finances
This is the step that a lot of Sole Proprietors miss, but if you want to make tax time in April 10 times easier, separate your personal and business finances! Creating a separate business banking account is crucial to keeping your numbers straight throughout the year and being able to save during the slow times in business.
When looking for a bank to set up an account with, there are a few things to think about. One, do they have a good reputation? Have you heard other small business owners use them, or is it a bank you already use personally and are happy with their services? It's important to choose a bank that you like working with and can make a good relationship with the employees. After all, they'll be seeing a lot of you hopefully!
The other thing you need to look at is their options for business accounts. What do they charge and how do they allow your business to grow financially? Do they offer low interest credit cards and business loans? I suggest going in to speak with a representative of each bank you are looking at and have them explain the benefits of banking with them as a business.
I use Texas Trust Credit Union for my personal and business banking needs. I have been a customer with them since I was a child and have always been happy with their service. Their business account options also made the most sense for me for the first several years of my business and they have more options as I continue to grow.
All you need to set up a business bank account is your DL, your DBA, your EIN and the minimum amount of money that particular bank requires to open an account. I was there for 10 minutes and that's it! Super easy!
Step 5: Create contracts and business policies and have them reviewed by a lawyer
Now it's time to start working on the inner legal setups of your photography business. Making sure you have all of our policies and legal paperwork in place, before taking on clients, will help ensure that all parties will be on the same page from the beginning. It's important that you also use these same policies for all of your clients. Believe it or not, clients talk, and you want all your clients to tell everyone the same thing so there is no confusion on what your business does and how it handles business.
Here's a list of some policies that you'll want to determine:
1. Scheduling Policy: Is this done online, over the phone, in person, etc.? Will you require a deposit? How far out, or how soon, can people schedule? Will you shoot on certain days?
2. Payment Policies: Will they be required to pay in cash or check? Do you offer online payment options for credit cards? How much of a deposit will you require? Will you allow payment plans?
3. Late/No Show Policies: What happens if clients are late to shoot? How soon, prior to the shoot, can they cancel or reschedule? Will there be a fee for cancelling or rescheduling? How many times will you allow them to cancel or reschedule?
4. Session Policies: How many people will you allow in a portrait session? Both to be photographed and as spectators? How long is the session? Is there a distance limit you will travel before charging travel fees?
5. Image Delivery Policies: Will you deliver digtial files, physical prints or both? If you sell digital only, how many images will they receive and how will you deliver them? If you want to sell more than digital files, do you want to do In-Person Sales or let the clients do it on their own through an interactive online gallery? What kind of physical products will you offer? How long is the delivery timeframe for physical products?
6. Unhappy Client Policies: What is your definition of an unhappy client, and how do you decide if they are truly, and rightfully, unhappy? If they are truly unhappy, for a real reason, how do you plan to make it right? If you think they are lying about being unhappy just to get a refund, how do you plan to handle the situation?
These are just some of the questions you need to be asking yourself as you create your policies for your business. Once you've determined all your policies, you will be able to put it into contract form for your clients!
Creating contract forms can be very daunting, and if done incorrectly, can cost you. While there are a ton of free options on the internet for photography contracts, I highly recommend investing in one from a good lawyer. There are quite a few options out there, but the ones I use are from Engaged Legal by Caroline Fox. The thing I love most about Caroline's templates is that she makes everything really easy to understand! And once you purchase a template from her you will always get updates, as laws change, at no extra charge. I promise, I am not getting paid to tell you this! I truly believe Caroline's templates are the best!
No matter how you choose to create a contract, the only way to ensure that the contract will hold up in court, and in your favor, is to have your attorney look at it. Every state has different laws about contracts, so you want to make sure, even a contract template drafted by a lawyer, will work in your own state.
Step 6: Obtain business and equipment insurance
Last, but certainly not least, you need to obtain both general liability business insurance and equipment insurance.
General Liability Insurance is especially important if you plan on being a wedding photographer or plan to shoot any kind of event. More and more wedding and event venues are requiring vendors to have liability insurance, and if you don't have it they will not allow you to photograph on their property. What is General Liability Insurance? Also known as Business Liability Insurance, it is is coverage that can protect you from a variety of claims including bodily injury, property damage, personal injury and others that can arise from your business operations. Here's an example: You are photographing a wedding and a guest trips over your light stand during the reception and breaks their leg. Your liability insurance will cover that.
Equipment Insurance is obviously coverage for your equipment should it break, get lost or is stolen. There are many different policies and your coverage would be based on the amount of equipment you have, what kind of photography work you will be doing, and what kind of travel your photography business does. It's important to note, if you will be traveling outside the country, whether or not your policy will still work if something happens when you're out of the country. Not all policies include that and may have to be purchased as a rider on your policy.
As a member of the Professional Photographers of America, I actually have both my equipment and liability insurance policies through the affiliate companies they include in my membership. If you do not wish to become a member, there are other great insurance companies you can go through, like Hill and Usher. You might even be able to get insurance through the same company that your home insurance is with.
Wow! I just word vomited a lot at you! I already know, some of you reading this are feeling totally overwhelmed, and I completely understand. I remember going through all of this and worrying whether or not I was doing everything right. If you feel this way, it's ok to ask for help and there are several ways you can do so!
Probably the easiest and most efficient way to get help setting up your business is to get in contact with your local SBA office and setting up an appointment with a consultant! This link will take you to the list of offices around the country: Small Business Association Locations
Another way you can ask for help is by asking another well established photographer in your area! The days of competing with one another are behind us, and there are so many wonderful photographers out there who offer mentorships and can help you get your business started! Just make sure they really are a legal abiding business first! One of my favorite joys in this world is helping new photographers bring this business dreams to life, and take on a handful of new mentees each year. There's no need for you to do this alone :)
I hope this was helpful in some way to you! If you have any questions, please feel free to leave them in the comments below or reach out by email! Happy Friday and stay safe everyone!