I would like to start with a quote from Oscar Wilde: "When bankers get together for dinner, they discuss art. When artists get together for dinner, they discuss money.”
The main approach to have healthy finances is to be organized. Being organized is not that difficult. You can achieve this goal by:
1. Changing and/or creating habits that will help you to reach the goal of being organized, it is a mindset.
2. Conduct yourself as a business. This doesn’t mean you have to wear suits or speak or using business lingo. What this means is to be organized and be aware of your asset, expenses, earnings, and growth value. A tangible example is: You don’t need to sort all your receipts, but you DO need a documentation system for them, and you need to have the right categories in your bookkeeping to save you hours of recalculating.
3. Open a Separate Bank Account. It is highly recommended to have a separate bank account for your business. This bank account doesn’t have to be necessarily a formal business account, just ensure it is dedicated only to your business.
Some of the benefits of having a separate bank account exclusively to your business are:
a. Creates a paper trail. The bank statements will tell you the whole story every month, and you can track the expenses and income by yourself. Make e-folders for each year and download the statements every month. I recommend renaming the downloaded files so they will show in order. i.e., 1. January, 2. February, 3. March, etc.
b. It will become the backbone of your bookkeeping.
4. Bookkeeping. It is important to track all your income and all your expenses. Whether you use a software, a bookkeeper or manually do it yourself. You want to have a clear picture of your income and business-related expenses. The lack of a complete accounting of your business-related expenses might lead you to conclude that you have profits on your sales that are not “accurate”.
There might be “hidden” expenses that you probably are not considering, mainly because they don’t belong to the “direct costs” of making your art pieces.
Beside the direct costs (i.e., burners, wood, sandpaper, graphite paper, pencils, color, etc.). There are operative costs you might not be considering, such as:
-Printing: Paper and ink
-Travel expenses (gas, bus, taxi). Business related.
-Office supplies, Internet services, software
-Giveaways, shipping (yes, you paid for them)
-Webpage, domains, email services
-Apps that are business related (i.e., mileage tracker)
-Online courses, memberships
-Promotions/marketing (FB, IG ads, flyers, fair fees)
-Equipment depreciation (burners, computers, printers, etc.)
-Financial Fees (credit card, square, bank, PayPal)
-Your time? (Are you paying yourself?) (*)
-Contractor Fees (CPA, Lawyer, Designer, etc.)
-Space (home office, studio, etc.), among others.
The best practice is to record all your expenses, even the smallest one. In following publications, we’ll provide templates to better record your expenses.
The use of your “home office” is a deduction for your Federal Taxes more than an expense, unless you are renting. This space could be just a corner of your house that you dedicate to make your art pieces. It is good idea to have a sense of this deduction because there two methods that can be used. The IRS Pub.535 explains how to apply this deduction on your taxes. Consult with your tax advisor.
It is never too late nor too difficult to get serious about your money setup. Getting organized isn’t that hard when you have a good guide, this could give you extra time and takes away stress. In other words, knowing where you are and where you are standing on could give you peace of mind.
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(*) One thing is paying yourself and another is the profit you have or want to have from your business.
DISCLAIMER: The information provided is educational in nature and should not be viewed as specific financial advice. Please contact and discuss it with your financial or tax advisor.
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