Bookkeeping is critical to running a successful creative business, yet artists often overlook it, and designers focus on their craft. Proper financial record-keeping provides invaluable insight and enables smart business decisions.
In these circumstances, accounting firms like Amplify 11, which focuses specifically on creative people, can help bolster creative businesses. Not only doing the bookkeeping but also helping with taxes.
While these “Accountants for Musicians” can help creative businesses thrive, it’s important to know why bookkeeping is vital and if your business requires it.
Why Bookkeeping Matters for Creatives
For artists and designers absorbed in the creative process, business administration can feel like a chore, diverting energy from what truly drives them. However, maintaining organised financial records is essential for several reasons:
Financial Health: Comprehensive bookkeeping provides visibility into sales, expenses, profit margins, cash flow, and other metrics that determine the financial health of a creative business. With clarity into the numbers, artists can make informed decisions about critical areas like pricing, budgets, growth plans, and tax strategy.
Tax Compliance: Most artists and designers must file taxes related to their creative income. Detailed record keeping ensures accurate tax returns and avoidance of penalties for non-compliance. Bookkeepers also help identify tax deductions specific to creative entrepreneurs.
Access to Funding: From government grants to investors and lenders, most funding opportunities require financial statements like profit and loss reports. Maintaining orderly books demonstrates good business acumen and builds credibility with funders.
Better Decision Making: With bookkeeping providing insights into past performance, artists can better plan for the future by pricing work, managing expenses, setting financial goals, and gauging business growth opportunities.Bookkeeping Best Practices for Creatives
Maintaining organised financial records does not need to be complicated, especially with the abundance of user-friendly accounting software.
Bookkeeping Best Practices for Creatives:
Maintaining organized financial records does not need to be complicated, especially with the abundance of user-friendly accounting software. Here are some best practices creatives should employ:
Separate Personal and Business Finances: Use a dedicated business bank account and credit card to differentiate between personal and business transactions easily. It simplifies record keeping and clarifies the financial performance of your creative endeavour.
Track Income and Expenses: Record all money from client payments, commissions, licensing deals, grants, etc. Likewise, carefully log any expenses related to your creative practice, like equipment, studio rental, supplies, software, travel, marketing, etc.
Leverage Software: User-friendly accounting software like QuickBooks helps creatives easily categorise transactions, generate financial statements, create invoices, accept online payments, and automate record keeping.
Reconcile Regularly: Frequently reconcile account balances in your records with bank and credit card statements to identify discrepancies in your books. Monthly reconciliation is recommended.
Seek Expert Support: Consider enlisting an accountant or bookkeeper experienced with creative businesses to set up your accounting system, ensure compliance, maximise tax savings, and provide advisory services.
Key Bookkeeping Metrics for Creative Businesses
While maintaining complete and accurate records of every financial transaction is essential, artists and designers should specifically track a few key performance indicators that provide crucial insights:
- Income: Total earnings from client projects, licensing, grants, sales of physical products, etc. These numbers indicate demand and help set pricing.
- Expenses: All costs related to operating your creative practice, broken down by category like equipment, software, marketing, travel, service providers, etc. It helps identify waste and inform budget decisions.
- Profit Margins: The amount left over after subtracting expenses from earnings, expressed as a percentage. This metric quantifies the profitability and viability of your business.
- Cash Flow: How much actual cash you have on hand, calculated by adding income and subtracting expenses over a set period. Cash flow determines your ability to cover immediate expenses.
Regularly monitoring income, expenses, margins, cash flow, and other metrics outlined in financial statements provides creatives with clarity into the fiscal health and performance of their businesses.
The Takeaway:
Managing a creative business’s financial and administrative aspects can seem tedious, especially for artists and designers passionate about their craft. However, bookkeeping provides the foundation for sustainable creative careers and should not be an afterthought.
Proper record-keeping grants artists and designers visibility into meaningful performance indicators, helping them make smart decisions about critical business facets like pricing, budgets, growth plans, and tax strategy. Ultimately, orderly bookkeeping leads to operational efficiency, financial stability, and business longevity for creative entrepreneurs.
