Welcome back to “The ABC’s of Art Marketing”—an alphabet guide to marketing your art, from A to Z. In today’s article, I’ll be focusing on the letter “B” and the importance of building a solid foundation for your fine art business.
B – Building your Business Base
An ounce of prevention is worth a pound of cure. Trite? Yes, but it’s true. Tempting as it may be to ignore things that sound thoroughly unpleasant like business structure and regulations, spending a little time to arm yourself with information can ensure that you protect your legal rights, and that when all is said and done, that you will own what you want to own, get paid for what you want to get paid for, and keep as much money after taxes as possible. Business Attorney Nina Yablok
Your fine art is a “product” in the eyes of the IRS. You make it, promote it, sell it, distribute it and handle customer service. That makes you an artist-entrepreneur, which means that there are a few business basics you need to attend to before you market your art.
Don’t be discouraged by the length of the to-do list below. Instead, work your way through it, and build yourself a solid business base. When you’re done, you’ll be able to market your art knowing that you are clear on your responsibilities as an artist-entrepreneur, and that your rights are being protected.
1. Set up a business bank account
Set up a separate bank account for your art business. Run all income and expenses from your art business through this account—and of course, do not use your business account to fund any personal expenses. Doing this as soon as possible will greatly simplify your life at tax time.
2. Create a business entity
A business entity describes how you set up your company for tax purposes. Types of business entities include sole proprietorship, partnership, limited liability (LLC) or incorporated company (Inc.)
For most artists, a sole proprietorship makes the most sense.
3. Purchase any required licenses for your art business
Consult official local, state and federal government websites for regulations and licenses. If you have difficulty understanding the terminology, there’s usually a number to call.
4. Choose a name for your art business
If you’re not doing business under your own name, you’ll need to come up with a name that will work for you. You may hear this referred to as “DBA” or “Doing Business As”—to give you an example, my own company, Artist Career Training, is my business name.
Make the name memorable, easy to spell, and one that people will immediately associate with you and your work. You will use it for your bank account, legal documents, and domain name.
5. Implement a records & filing system for your art business
Once you have a business bank account, tax ID numbers, and any necessary licenses, you’re considered a “real” business.
Set up your filing system to keep track of all your business transactions and legal tax deductions. Look at the tax form you will be filing at the end of the year, or consult a tax professional, and create folders in your filing system that correspond with the expense categories on the tax form.
Doing this as early as possible will help a lot at tax time.
6. Start regular bookkeeping and accounting
You’ve already set up your filing system (right?) and you’re conscientiously filing all your receipts in the correct files. Figure out a system that works for YOU to monitor your monthly and quarterly progress, so you can easily submit annual reports for tax purposes.
You can hire a bookkeeper or an accountant to help with this task (bookkeepers record transactions, while accountants analyze and interpret the results, and help you navigate tax laws, reports and payments) or like many artist-entrepreneurs, you can take on this role for yourself.
7. Apply for a business credit card
When you’re just starting out, you may not feel the need for business credit, but as your business grows, there may be times when you need credit. A line of credit can help you continue to work, instead of waiting for income to buy supplies.
Be conscious of your current total debt, however. Paying credit card interest each month can be a hindrance as well.
8. Get insurance for your art business
When you’ve been making art for a while, you‘ll have a considerable amount of time and money tied up in your art inventory and the tools of your trade.
The kinds of insurance to consider depend entirely on your risk tolerance, what your business risks are, and the financial health of your business.
9. Plan for and pay taxes on your art business income
Submit your tax forms and pay your taxes on time to avoid interest, penalties and hassles. Typical taxes that artists need to know about in the United States include:
• Federal income tax on business profit
• State income tax on business profit
• Sales tax (typically a compilation of state, county and city taxes) on your art sales.
• Self-employment tax (SE tax).
(NOTE: Self-employment tax is a Social Security and Medicare tax for individuals who work for themselves, similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. Since you are your own employer, you have to pay “both sides”—employer and employee—of this tax.)
10. Copyright your artwork
Yes, your copyright exists from the moment the work is created, but if you ever need to sue someone in federal court for copyright infringement, and be reimbursed for your legal fees, your work must first be registered with the U.S. Copyright Office.
11. Calculate the cost of goods sold for your art
You need to know how much it costs you to produce your art so that you can manage your cash flow and to calculate an accurate picture of profit or loss for your business.
12. Set up credit card processing for your art business
Some art sales occur simply because the buyer can charge the artwork on a credit card and pay for it later. This convenience can also be the deciding factor in the purchase of a higher priced original, rather than a cheaper reproduction.
Get a merchant account (basically requiring a credit application) through the bank or financial instituation where your business bank account is held. This will allow you to process credit card payments in person, or on your website.
If you’d rather not get a merchant account, some online payment processors (like PayPal) make it possible to run credit cards for your customers as well.
13. Draft the appropriate legal documents for your art business
Legal agreements protect the money you make, help you keep what is rightfully yours and let others know what, if any, rights you are willing to transfer to them.
I wrote a series of articles on this topic which may be helpful:
14. Create a profit and loss statement for your art business
A profit and loss statement (P&L) is the easiest, simplest and most visual way to keep track of income, expenses, and the final profit that stays in your pocket. You don’t have to be a math genius or accounting whiz to use one to track:
• Gross Income (money you were paid)
• Expenses (money you spent to earn income)
• Gross Profit (income left over after the cost of creating the art)
• Net profit (final income left over after all business expenses and taxes are deducted)
15. Register a domain for your art website
Register a domain name for your art business, even if you are not yet ready to build a website. Ideally you should use your business name as a domain name to keep everything simple. If your business name is not available as a domain, perhaps consider a different business name, or modify it slightly so that your domain name is very close to your business name.
The longer you grow your business, the more you will want to protect it and ensure that you have a solid foundation for the future. Start with the list above, then make sure to keep good records, stay up-to-date on business regulations on your area, and conscientiously pay your taxes—it’ll all pay off later when your business is thriving.
Follow the links below to read more articles in “The ABC’s of Art Marketing”—an alphabet guide to marketing your art, from A to Z:
A — Appreciating your Audience
B — Building your Business Base (current article)
C — Coming soon!