Recently I polled a group of makeup artists and hairstylists asking them what they wanted to learn more about, what their biggest challenge is in business right now. Over 50% responded that they were struggling with the admin and accounts side of their business.
For those of us in Australia, it’s that time of year when we need to think about getting all our records in order and “doing our tax” as we call it. But even if you’re located somewhere else in the world, keeping good records of your income and expenses is vital if you want to run a successful business.
In this blog post you’ll learn some basics of accounting… it doesn’t need to be scary, and you don’t need to give away control of all of your business finances to someone else. And even if you are at that point in your business where you can pay a book-keeper or VA to take care of your accounts, you still want to have an understanding of how it all works. Remember: Knowledge is Power.
The key terms here are Income(sometimes known as Sales or Earnings) this is the money you receive from your clients. Then we have Expenses(sometimes called Costs) – this is money that you pay out in order to run your business. The number we like most is Profit; which is Income minus Expenses. If your Profit figure is negative, that means you have made a Loss. While nobody likes a loss, it is quite normal in the first couple of years to make a loss, that is, you are spending more than you are earning, AND you may be able to carry that loss forward to offset profits in future years (which means paying less tax!)
Note: You may hear or read about the terms Gross Profit and Net Profit, and these apply to business that are selling a product, not a service. If you are retailing makeup products to your clients, please speak to your accountant to ensure you are recording your cost of sales and operating expenses properly.
Turning up to your tax agent or accountant with a shoebox of receipts and bank statements is actually going to cost you in two ways: Obviously the longer your accountant needs to spend getting all your figures in order, the more they are going to charge you – most accountants charge by the hour. Secondly, not knowing where your business is, financially, at any one time means that you’re not able to maximise your profit and your eligible tax deductions.
I saw a post recently on a makeup artists’ Facebook group where an artist was asking: “other than makeup, what other things can you claim on your tax?” The short answer to that question is “Anything that you spend in order to earn money in your business may be a possible deduction”. So, the list will vary for each artist, depending on your business, but here is a list of some of the things I spend money on in my business:
- Makeup products
- Hair products
- Skincare products
- Accountant’s fees
- Business Insurance
- Website costs (hosting, domain registration)
- Subscriptions (calendar, Apps, cloud storage)
- Bank fees
- Office Supplies
- Marketing (business cards, flyers)
- Motor Vehicle expenses (fuel, servicing, tyres, repairs)
- Retirement Planning
I don’t have a studio, although I do sometimes see clients in my home, so my accountant claims a portion of my rent and electricity, and also an amount for laundry (washing towels that I place on client’s tables or studio benches) – and come to think of it, we should be claiming a portion of our water bill for all the water we use washing our brushes!!
(This list is by no means exhaustive… you may have other things you are eligible to claim, again, speak to your accountant about which expenses might be deductions. I recommend keeping receipts for EVERYTHING – because you never know!)
Some makeup artists I know use accounting software (like Xero, or Quickbooks) that you can link to your bank account, to record all your income and expenses. The benefits are that it is time saving and you don’t have to remember to keep receipts. The disadvantage I’ve found with these programs is that I can’t customise it to my business, and then there is the issue of Cash payments. If money is not going through your bank account, you do need to remember to manually record it, and that’s both cash you receive, and cash you spend.
I am old-school, and I like to have as much detail as possible (ok, I’m a bit of a stats/figures nerd) so I still use an excel spreadsheet. I have a column for each category of expenses so at a glance, I can tell how much I have spent on makeup supplies, how much my insurance is costing, and how much I’ve spent on tolls.
Whichever method you decide to use, keeping on top of your records is the key. My recommendation (and what I teach ALL my students) is:
Step 1: once a week to spend 15 minutes recording everything you have received and everything you have spent in your business in the last week along with the date that money was received or spent. If you’re using a software, review the automatic entries to ensure that everything is there, recorded properly and manually record any cash transactions.
Step 2: at the end of every month, look back over those figures to determine your total income and total expenses for the month, and that will give you your profit. (Profit = Income – Expenses)
Step 3: Do the same thing at the end of each quarter (for the quarter) and at the end of the year (or financial year).
BONUS: Keeping regular records like this (seriously it takes me 10-15 minutes a week tops) means MUCH less heartache and anxiety when it comes to the end of the tax year!!!
This monthly/yearly report is known as your Profit and Loss Statement, and contains a SUMMARY of all your income earned, and money spent on each category. If you can go to your accountant/tax agent at the end of the financial year with a Profit and Loss Statement rather than a shoebox full or receipts and bank statements, she will love you so much more (and, charge you less for preparing your tax lodgement!)
Knowing what your business is COSTING you to run will help you so much, particularly if you are currently working in a job, and hoping to go full time as a makeup artist or hair stylist. You probably know how much money you need to live, what your personal monthly living expenses are: Rent/Mortgage, Food, tax, school fees, clothing, entertainment etc etc… OR, you know what you are currently earning (and don’t forget tax) in your job.
Let’s say that’s $5000 per month, just to use round figures. If you charge $100 per makeup, you might think that means you need to do 50 makeups each month to earn the same money, HOWEVER, you need to take into account your business expenses. If you discover your business is costing you $1000 per month to run, you actually need to do 60 makeups that month to be earning $5000 profit (income less expenses).
Every successful business has a budget – they know the costs of doing their business and how much they need to do to make a profit.
To help you figure this out, I’ve created (and updated) the Makeup Artists Costs worksheet, where you can simply plug in your expenses and current prices, and the worksheet will tell you how many faces you need to do (or days, if you’re a commercial artist charging a day rate) in order to cover your business costs and start making a profit. You can download the worksheet HERE.
Once you know the cost of running your business, you can then figure out how much work you need to do to be covering your business costs and your living costs. Won’t it be easier for you when you know what it will take for you to say bye-bye to your boss and HELLO to being a full-time freelancer?
I hope you’ve found this post helpful, please feel free to share it to other freelancers or across social media. I’d love to hear your thoughts, so drop me a comment down below!
Don’t forget to download my FREE Makeup Artist Costs worksheet!
Disclaimer: The information provided in this post is general in nature, and not intended to be financial advice or tax advice. For advice particular to your business please consult your accountant or tax advisor.