One of the things I hear a lot from freelancers is that they struggle with organising their business finances. If that’s you, I get it! As creatives, we are all about our art; as service professionals, we are all about our clients and ensuring they have a beautiful experience with us. However, as freelancers, we are also ENTREPRENEURS which means, in order to be successful, FINANCIALLY successful, we also need to learn about business, how to run our business, and how to ensure we are profitable.
If you have a desire to make this your “full-time” career, some basic business knowledge will help you along.
I know this is a really un-sexy blog topic, and let’s face it… its pretty boring (what’s that stereotype about accountants?) – you’d probably much rather be reading a post about the latest looks and products, but that’s not going to put more money in your bank account, and that’s what I want to help you do!
I remember when I was first starting out, in the days before Facebook and Instagram, I was a member of a Makeup Artist Chat forum. One of our fellow artists asked “If you could start all over again, what would you focus on learning?” and one very senior, most-respected artist (who now owns one of the largest online makeup stores in the USA) said she would focus on learning how to run her business first. That really stuck with me, and its something I have become passionate about. As the sole income earner and provider in my family – I need my business to be making a profit. As a makeup artist educator, I am also passionate about helping other makeup artists and hairstylists have more successful (and PROFITABLE) businesses too.
What does it mean to be profitable? And what does it take?
Firstly, Business Economics 101: Profit = Revenue (earnings) less Expenses.
That means, your PROFIT is what is left over from what you collect from your clients (your Revenue), after you have paid all your business expenses. Its all very well to be earning $50K from your makeup clients, but if you are SPENDING $30K to run your business, that doesn’t leave much for you to pay rent, and feed and clothe yourself (let alone pay TAX!!). Here in Australia your “taxable income” (ie, that amount you are obliged to pay tax on) is pretty much the same as your profit.
So the first thing I suggest is that you have a good look at your income and expenses. Whether you decide to work on a financial (fiscal) year, or calendar year, it really doesn’t matter. I actually keep records for both, as I like to measure my improvement year on year, and of course, I need to keep my financial year records for when I file my taxes each year. By keeping track of your income and expenses, at least on a monthly basis, you won’t be in for a nasty shock at the end of the year when it comes to tax time, and you also won’t be wondering where all your money went!
There are several different computer software programs and apps that you can use to record your income and expenses, check out Xero and Quickbooks, but I am kind of old-school, and I like to use an Excel Spreadsheet. Several reasons, firstly, I can customise it exactly how I want it, secondly, I can see everything at a glance, and thirdly, its free. I have one sheet for my income, and I separate that out into Commercial work, Film/TV, Weddings, Other Event makeups and Education. I have a second sheet for my Expenses, and I have columns set up for different categories of expenses: makeup supplies, parking, advertising costs, web subscriptions like my calendar service, etc etc. I keep a third separate sheet for my Motor Vehicle Expenses, as I can only claim a certain percentage of those expenses (to claim Motor Vehicle Expenses you will need to keep a log book for 13 weeks and determine what percentage of KM driven is for business purposes). At the end of the financial year, I simply send that spreadsheet to my accountant, and she takes care of the rest (it’s a lot cheaper than arriving at her office with a box of receipts!!)
Whatever method you use, make sure that you are completing it regularly, so that you always “Know your Numbers” and are aware of how profitable your business is at any one time. I actually record all my income and expenses each week, on a Friday morning. I tally up all the revenue I have earned that week, and then all my expenses, to determine my profit. I then pay myself 10% into my retirement fund (Superannuation), and I also prepay my tax each week (usually between 10-20% depending on how much I earned that week – we all know how our earnings can vary hugely in this business!)
I can assure you there is not much worse than getting to the end of what you feel has been an awesome year of business, only to be hit with a big tax bill. And you’ve already spent the money that should be going to pay that bill. I had an artist practically in tears on the phone with me recently, who had visited her accountant with a box of receipts and no idea of what was actually going on in her business. When she was told how much tax she owed she was so discouraged she considered giving up makeup altogether. Please don’t let that be you!! Keep track of where you are at in your business, and set some money aside for your tax so you don’t have that nasty shock at the end of the financial year. Depending on where you are in the world, there may be options for you with pre-paying your tax, speak to your accountant or tax agent about the best way to set it up for you.
Some people like to have a separate bank account for their business – and they have all their invoices paid into that account, and pay all expenses out of it too. This is probably a good idea if you have another job. Personally, I just have the one account and everything goes in and out of that account, my business expenses, and my personal expenses too.
Keeping track of your income and expenses will also help when you want to go out and spend money on your business, whether that be to buy new tools and products, or to invest in advertising and education. I strongly recommend you set aside a percentage of your income for further education, staying relevant and up-to-date in this fast moving industry is really important. You might also consider some business training too!
I hope this blog post has been helpful for you, as always, if you have any questions, comment below, or send me an email at email@example.com or come and join the conversation on my Facebook Page.
If you would like to receive Weekly Hints and Tips direct to your inbox, please join my Weekly Newsletter List!
DISCLAIMER: The information provided in this blog post is of a general nature and is not intended as financial advice. We are not financial advisors, tax agents or accountants. For advice specific to your business and circumstances, please see your finance professional.