The artist likes to create new plots of paintings more than to make tax reports. However, if creative individuals want to earn a solid amount of money for their portraits, they must implement modern business technologies to ensure capital inflow in the long run. Accounting for artists is a good business practice that allows entrepreneurs to evaluate their profits, determine how much money is in their bank accounts, and file their tax returns correctly.
Frequently, artists who aren’t good at math find bookkeeping too confusing; however, plenty of resources explain how to correctly display each transaction in the art world.
Basic accounting terms
Creative professionals must understand numbers are as scary as they seem, and, in reality, they are one of the main assets of business development. There are several financial terms every artist should know to evaluate the effectiveness of activities:
- Income is the money that comes into your accounts. If you run your store on Etsy or any other platform, your income will be considered the cost of goods sold, shipping paid by the client, etc.
- Operating expenses are the money that leaves the accounts. These are the details artists often forget to consider because they must purchase many consumables, including paints, brushes, canvases, etc.
- Profit is your earnings (funds received into the account minus expenses).
- A profit and loss statement is a document to show the change in accounts for a certain period. Preparing such a report involves recording revenue and deducting the cost of paintings sold, operating fees, tax payments, and interest. The amount obtained as a result of such calculations is called net profit.
When you learn the basics of accounting, you can control capital inflows, outflows, and net income. It is an excellent opportunity to determine if your business is growing and when is the optimal moment to invest in expanding it.
Common types of financial work for artists
Accounting includes a list of repetitive tasks, so the introduction of elementary planning systems and the regular implementation of routine actions allows artists to successfully run their businesses, focusing on the creative component. Various financial jobs need to be done at different times, e.g., daily jobs include:
- controlling cash at the box office,
- reconciling bank accounts,
- tracking earnings and expenses.
Monthly accounting for artists focuses on what paintings have been sold, what artworks are available, and what bills remain unpaid.
If we are talking about annual work, you should perform the following actions:
- Making decisions about what to do with long-overdue invoices.
- Creation of tax declaration and settlement of obligatory payments.
- Prepare financial statements at the end of the year, including a profit and loss statement.
- Creating development strategy and successful budgeting.
Meeting financial targets on time lets the entrepreneur assess the entire financial position of the company to comprehend where the capital is going and, possibly, to find business growth opportunities. You can do the job yourself or turn to professionals to get assistance.
Keeping proper financial records is time-intensive and small mistakes can be costly. BooksTime makes sure your numbers are 100% accurate so you can focus on growing your business.
How can artists keep their accounting records?
When you start earning income from your artwork, you are no longer just an artist. You become a creative businessman who makes art to earn a living.
This opinion is wrong if you think turning your hobby into a highly-paid profession is easy. Along with developing drawing skills, there is also a need to master the art of accounting. Even if you plan to employ the services of a professional bookkeeper, this does not negate the importance of basic knowledge in the financial field to maximize profits. Whether you’re just starting as a painter or you’ve been a famous artist, here are several critical recommendations to help you correctly display each operation.
Control income and expenses
Any entity which pays taxes must control its costs. It helps you stay on budget and file your tax return correctly. How do you keep your records in order?
- Keep all bills and receipts: do not delay recording data. There is nothing more frightening than an old shoebox full of forgotten bills.
- Set up a separate business bank account: it makes bookkeeping more straightforward, as you can separate captains earned through professional activities from personal savings.
- Classes and workshops as critical components of lifelong learning: all expenses to visit seminars and other forms of training must be deducted. It includes not only the educational process itself but also travel, meals, and accommodation.
- Put a notepad in your car and write down the distance to all places related to art: these trips to shops or the masters must be added up and counted as expenses.
Regularly tracking the inflow and outflow of capital will save you time and money in the long run. It is much simpler to record each transaction when it happened than to sit and remember every transaction.
Set up an LLC or register a business as a private entrepreneur
As soon as you begin doing business, the risk of personal financial liability immediately arises. In addition, if your organization is sued, you may be held liable and made to pay damages out of your pocket. However, your savings will be protected from liability if you register as an LLC or self-employed. It means if a lawsuit is filed against you, the judges will only consider the resources of the LLC and not your apartment or car. Personal finance will be inaccessible to creditors.
Calculate a budget and stick to it carefully
Revenue and cost control help you comprehend where your capital goes and optimize your cost structure. It’s easier to set aside capital to implement specific ideas if you understand how much money comes and goes each month. By sticking to a budget, you avoid capital overruns and debt accumulation that can ruin your business.
Types of legal entities for artists that accountants work with
Suppose you don’t want to go into the details of financial procedures yourself. In such a case, we recommend finding a bookkeeper who understands the intricacies of the art business and can give valuable advice on everything from accounting to economic planning. In addition, the specialist may tell you how to take advantage of the different tax benefits you are entitled to. The services of a qualified accountant can be helpful in various groups of creative individuals:
- Contractors: painters often receive money from sources other than their freelance job. An experienced accounting specialist performs tax calculations throughout the year so that the tax period does not take you by surprise. Financial experts can offer several deduction options to cut your tax base and make your business more profitable.
- LLC and S-corporations: these companies face specific issues, such as proper business profit deductions for definite service organizations, robust cost-reimbursement programs, and adequate payroll for S-Corporation founders. Accountants use all their experience and knowledge to facilitate the process of calculating mandatory payments.
- Sole entrepreneurship: many artists work as self-employed entrepreneurs because this is the tax option that suits them best. Such creatives need to be well-versed in mandatory self-employment payments. A qualified accountant helps calculate and schedule payments so you can forecast your activities.
Financial professionals comprehend the problems artists face, so they are ready to inform you about all the innovative technologies in the bookkeeping area and changes in tax legislation. Experts will ensure transparent and consistent communication and are ready to answer all economic questions.
Most popular accounting software for creatives
Now when you learn about all the financial data that needs to be stored, what about the method of keeping books? You can buy a ready-made ledger from your local office supply store to manually process each transaction. However, it is much more efficient to digitalize your accounting without buying expensive virtual platforms. Let’s look at the most popular options:
- Xero is a cloud platform that provides access to information from anywhere in the world via a smartphone, tablet, or laptop. Specialists have created Xero to meet the needs of small business owners, so it is an excellent option when we speak about freelance artists and designers.
- QuickBooks is Intuit’s product for self-employed professionals who plan to keep track of taxes, payments, bills, spending, and more. It is an easy-to-use solution that can be simply customized to your specifications.
- FreeAgent is another good freelance software with several useful options, including time management, project management, billing reminders, and one-click report generation.
- Zoho Books is software for professionals who have established a thriving business and plan to scale it up. Such an app offers advanced project implementation tools, a CRM platform, and email hosting to take your business to the next level.
Accounting software that employs people with artistic talents offers the same options as traditional financial programs, e.g., invoice creation, expense control, and payment display. When choosing an online platform, finding a solution that suits your needs is essential. If you plan to work independently, find software to quickly and easily generate tax returns.
Working with finance in the arts is difficult, given the sheer volume of paperwork and associated legal issues. Bookstime lets you do your creative work, and we handle all the boring accounting. Financial experts are ready to guide you through the full process, from preparing the necessary reports to filing tax returns with competent authorities.
Bookstime specialists also offer services that let you predict any economic risks in your path, whether you are planning to open your art studio or work as a freelance artist. By following our advice, you will be in control of your finances and ensure your business remains healthy and resilient.
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Author: Charles Lutwidge