With so many different ways to sell art online, many artists are in the process of transitioning from hobby or casual artists to creative entrepreneurs. If that describes you, here are 7 useful tips to help you set up your business finances the right way:
1. Start a bookkeeping system
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Bookkeeping is NOT the monster it is made out to be . . . it is simply an organizational system that keeps track of your money for you and your business.
Bookkeeping seems so complicated that many entrepreneurs find themselves avoiding it, but it doesn’t have to be that way! In some cases, the simplest option is to just hire bookkeeping help—that’s easy enough, isn’t it? Alternatively, you can also do it yourself.
So what is bookkeeping, exactly?
Whether you are a corporation or a sole proprietorship, bookkeeping is simply the act of keeping proper records of your incoming and outgoing money. Be sure that you have the source documents (invoices, bills, cheque stubs, EFT transfer backup, etc.) to back it up.
Of course, formal bookkeeping is more than that, but if you’re just starting your business, this is all you need to do.
Each month, your essential bookkeeping tasks should include writing down any client sales and payments, any vendor/supplier purchases (or partial payments made on purchases). Depending on your business model, you may also need to send invoices to your clients to collect payments.
As each month comes to an end, you should be able to look at your money spent and money earned, and create a very short “Monthly Income” statement—whether you profited or lost money, and how much.
This information will also make it possible to reconcile your bank account(s) and create a monthly balance sheet.
Not sure where to start with this? Some artists prefer to use DIY bookkeeping worksheets. Refer below to tip #6, Record the profit from every sale, for more information on those.
2. Organize yourself
Although it may seem trite to mention this, being organized with all your business affairs will go a long way towards giving you peace of mind when dealing with the money aspects of your creative business.
And what do I mean by being organized? Any process that helps you efficiently handle your business transactions is a form of organization. This includes bookkeeping (which I talked about above), art inventory control, art marketing plans and any other related business matters.
I recommend starting with a basic filing box for your receipts and other paperwork. Make a habit of putting your receipts in the box, and you can find them anytime you need to figure out whether an expense was business or personal (which can be tricky if you’re just looking at credit card or bank statements alone).
As for your art inventory, it’s wise to have a list detailing each piece, where it’s stored, and other pertinent information.
And if you track your marketing activities each month, you’ll soon be able to see what activities are helping you to find art buyers.
NOTE: I’ve put together several resources to help artists get organized and keep up with each of these tasks. Click here if you’d like a copy of them.
3. Honour your priceless time
It is essential that you learn how to maximize the time you spend in your creative business. This means knowing what you spend your time on currently, and finding ways to free up time for the one thing that only you can do—creating your art.
Start by writing down the tasks you’re doing for your art business, and how long you spend on each one. Look at the outcomes of each task—if there’s little or no gain from it, cut it from your schedule. Make take for your art (more time, if possible!)
And if you haven’t already started your creative business, decide for yourself if you will begin on a full or part time basis. Then hold yourself to your decision.
4. Open a separate business bank account
Whether you plan on running your business as a sole proprietor (which allows you to combine your personal and business money) or as a coporate structure, you should always open a separate bank account for your business.
This is the easiest way to differentiate between your personal and business finances, and will allow you to review your bank balance every month (at the closing date of your bank statement) to ensure that everything is in order.
In addition, this will ensure a separate record for your business deposits and withdrawals, and make it easy to see exactly where the money is going. Knowing how much money is in your business every month is essential as well, and the only way you can do that is to set up a separate account.
5. Keep a personal money journal
Journaling has become very popular over the past few years and may be especially helpful to artist-entrepreneurs who are looking to keep better track of their money. And yes, while it can be difficult to start and maintain a personal money journal, once you have the habit in place, it will greatly help your creative business as well.
How? Simply put, if your personal money is in order, then you are more likely to experience greater success with managing your creative business money as well.
Try to figure out your personal income and expenses on a monthly basis by keeping a journal of all your purchases and earnings. Do this for a month or two, and you’ll soon see if you have sufficient cash flows to support your ambitions of becoming a professional artist.
With a nice book (or a colorful spreadsheet) to easily record things in different categories, it actually can be fun!
6. Record the profit from every sale
From the very beginning, it is helpful to see your income versus your expenses in your creative business. Do this by recording any revenue from sales of your art, along with how much it cost to create that artwork.
Also, factor in overhead, like website costs, studio costs, insurance, your salary, etc.
Recording individual sales/expenses is a good habit to get into as it will help you to determine the what you need to earn from your art to cover your cost of making art. (Click here if you’d like to download a simple tool that will help you to achieve this from the beginning.)
This method can also be used as a starting point for your bookkeeping system, since your accountant can easily prepare financial statements and tax returns from this information (together with your bank and other statements and related information.)
This will also help you later on when you begin to set up a budget for your business, as knowing your business money inflows and outflows are essential to this process.
7. Plan to pay yourself
Many entrepreneurs make the unfortunate mistake of not paying themselves. In my opinion, you need to include a salary for yourself (built right into your business expenses) for three important reasons:
Firstly, you will feel like you are in business from day one if you receive a salary from your business.
Secondly, you will be able to determine after a few months if your revenue (and sales) are high enough to cover everything—including your salary.
Thirdly, even if you start with a modest salary, you will be able to increase it over time, which will give you the feeling of stability and growth as you progress in your creative business.
And furthermore, if you are consistently unable to pay yourself at the start of your creative business, it will motivate you to look at your marketing and promotional efforts more closely, in order to generate more revenue on a consistent basis.
The most important bit of advice I can give you is this: start managing your money now—don’t wait! If you take care of it, it will take care of you, so please don’t ignore these important aspects of your life as a creative entrepreneur.
Special thanks to Shantel Susan, art business advisor and art consultant, for this post! Click here to get the financial money resources mentioned in this article, or visit her website, Shantel’s Art & Design for more artist resources.