Cash Flow for an Artists: What Is It and Why You Need to Pay Attention to It

/in , , ,

Have you ever opened your banking app to look at your balance, only to find it’s much lower than you thought it would be? Not my favorite feeling either, but if you have encountered this sensation, then you’ve experienced the effects of cash flow!

If there never seems to be enough cash on hand for your creative endeavor, consider signing up for our business of art newsletter.

 

Just like you need to keep an eye on your personal account balance to make sure you have sufficient funds to live, so too do you need to pay attention to what’s coming in and going out of your business to sustain your practice. That, in a nutshell, is cash flow. 

When mastered, strong cash flow for an artist can make the difference between a business that’s healthy and one that’s no longer in business, or the difference between making more art or waiting for the next check. Let’s take a closer look at what cash flow for an artist  is, how to ensure you have a positive cash flow, and the impact that it can have on your arts business. 

 

What Is Cash Flow?

Cash flow is the movement of money through your business. Typically speaking, money coming into your business is revenue, while money going out of your business is expenses. Cash flow for an artist takes into account both revenues and expenses to date, as well as future revenues and expenses. In this sense, it’s also a forecast of what you can expect financially.  

Cash flow is calculated over a duration of time. Frequently it is analyzed over the course of a month, but you might also calculate the flow for a day, week, quarter, or year. A month tends to be most helpful as “bills” or invoices from vendors are usually calculated on a monthly basis. 

What Is Positive Cash Flow?

Cash ebbs and flows; sometimes we have more cash on hand, sometimes we have less. Having a positive cash flow for an artist means that more money is coming into your business than going out. It’s a sign that your business is healthy. It’s important to note that this doesn’t necessarily mean you’re profitable, as things can change over time. 

The dynamic nature of your cash position makes it important to look at your cash flow monthly. Consistent check ups allow you to a) ensure you’re not spending more than you’re taking in and b) adjust your forecast of revenue and expenditures of future cash flow to keep sufficient funds on hand to stay operational. And yes, when you are in business for yourself you can control the expenses and revenue. You can put more energy into marketing and sales to increase revenue, and you can reduce costs by changing vendors for products and services.

Additionally, a cash flow report for a certain period is often required by banks and lenders in cases where you need to take a business loan. 

 

How to Calculate Cash Flow

There are a number of ways to calculate cash flow for an artist, some more complex than others. If you’ve invested in an accounting tool, they frequently offer a cash flow report, but it’s good to still understand how it’s measured. 

A basic cash flow formula looks like this:

Income – Expenses

So, for example, let’s say last month you sold $5,000 worth of art. But you also spent $3,000 in expenses such as supplies and materials, studio rent, utilities, etc. during the same time period. You therefore have a $2,000 positive cash flow for the month; i.e. $5,000 revenue – $3,000 expenses = $2,000 cash flow) .

You can certainly project the same numbers out over a time period, but it’s important to take into consideration that both revenue and expenses are likely to fluctuate over time. That is, you’re not going to necessarily bring in $5,000 every single month, and your expenses may shift based on your business activities. 

But, let’s say you want to project your cash flow for the next four months. That’s a little trickier, particularly for an artist with revenues and expenses that fluctuate. A cash flow report might look like this:

January February March April
Cash at beginning of period $5,000 $7,000 $5,000 $9,000
Estimated Revenue  $5,000 $2,000 $6,000 $3,000
Estimated expenses $3,000 $4,000 $2,000 $3,000
Final Cash on Hand (change in cash + cash at beginning) $7,000 $5,000 $9,000 $9,000

 

Of course, your cash flow report should be more detailed, with itemized expenses and potentially income (particularly if you have multiple income sources). 

Ultimately, putting together a cash flow report and reviewing it on a monthly basis will help ensure you’re staying on top of expenses, operating within the bounds of your income, and whether or not your business is on a positive track. 

Your cash flow report can also help you prioritize your activities. If you need more revenue, you may want to work on your sales or marketing. If you have ample cash on hand, it may be time to invest in new equipment or more materials. Understanding cash flow for an artist, can give you more time in the studio with better gear to make the things you want to make!

 

Want help putting together a cash flow statement? I’m happy to help! Set up a time to chat with me or check out one of our Coworking with Creatives sessions. 

SCHEDULE A MEETING TO TALK WITH SCOTT

How to Make Money Online as an Artist

/in ,

A common question artists ask me is how to sell their work online. For some artists, such as those who work in digital mediums, the answer is usually straightforward how to make money online. But for others whose work is more visceral, the answer isn’t always as clear. There are a number of ways artists can use the web to make money online, but there are tradeoffs for the convenience of selling work while you sleep. 

Let’s take a closer look at three common online sales channels open to artists and see how they might help you make money online as an artist.

 

Your Website

Every artist should have a website to share their portfolio and artist statement. But some artists may want to take their site a step further by turning it into a place to actually sell artwork online. Setting this up can be done fairly easily, even if you don’t know how to code. Sites like Shopify and Wix make setting up a personal website marketplace fairly easy, or if you use WordPress, there’s the Woocommerce plugin, which is free but can be a bit more challenging to figure out.

Benefits:

  • You 100% own the site and can control the content and presentation
  • You can set the price of your artwork
  • General low financial overhead

Costs:

  • You have to pay for the domain name and website hosting 
  • Potential additional costs for shop/market platform or plugin (e.g. Shopify costs a minimum of $29/month)
  • Setting up and maintaining an ecommerce site takes time and energy
  • You have to manage your own purchase fulfillment: packaging, cost of shipping, and logistics of shipping

 

Online Fine Art Gallery

There are many art galleries who have digitized over the years, as well as several galleries that are only present online. Ugallery is one of my favorites. Similar to a real-world art gallery, an online gallery curates and sells artist works, often across a variety of media. Some galleries will specialize in a specific medium, a specific geography, etc. Some might be local to you, while others might be more global. 

Benefits

  • You do not have to run your own digital market place or shop
  • Gallery will market your work for you
  • Professional representation and presentation of your artwork
  • Can potentially be passive income 

Cost

  • Limited control of the online experience for your audience
  • Galleries take commissions or charge fees for services
  • You may still have to handle shipping to customer or gallery
  • You may not be excited about the marketing or lack of marketing by the galley
  • Can’t control your own prices

 

Online Marketplaces

Online marketplaces might be the best of both worlds in terms of selling work online. Marketplaces offer the opportunity to control how your work is presented without the financial or time commitment needed to manage your own website. In some ways, they’re similar to online galleries, but they tend to have larger audiences. Etsy is likely the most well-known online marketplace for creative businesses, but there are others. 

Benefits:

  • Control over pricing and presentation
  • Established marketplace brand name
  • Community of other sellers

Costs:

  • Fees for each sale
  • Algorithm often drives visibility and you do not control the algorithm
  • You have to do your own marketing
  • You have to do your purchase fulfillment

Of course, these aren’t your only options for selling artwork online. There are also social media ecommerce channels like Facebook, as well as online merchandising sites. We’ll cover those in a separate post.

 

Feeling a little lost? I’m happy to help you figure out which of these channels is right for you. Contact me to set up a chat or check out one of our upcoming Coworking with Creatives sessions. 

SCHEDULE A MEETING TO TALK WITH SCOTT

Best Legal Structures for an Art Business

/in , ,

Art Business Legal structure was likely not taught in art school. This short post is a quick overview of the topic. 

We are NOT lawyers! This is not legal advice, but may help you converse with your future lawyer, possibly a volunteer lawyer for the arts.

You can sign up for our Business of art newsletter to get great art business content in the comfort of your own inbox.

If you’re an artist, photographer, writer, or any other type of self-employed creative worker, you are required to register as a business.This will actually help you in the long run. Registering a business entitles you to a number of protections and benefits, including (but not limited to):

  • Reducing your personal liability in case of a lawsuit
  • Potentially reducing your tax burden
  • Access to public grants and funding (PPP during pandemic required registration)

 

Although there are a variety of legal structures possible, some of them are a better fit for a creative business than others. Let’s take a brief look at the three most popular ones and discuss the advantages and disadvantages of each.

 

Sole-proprietorship

This is the simplest business structure and is a good place to start for artists just beginning to sell their work. A sole-proprietorship treats the artist and the business as a single entity.  The government (both state and federal) utilizes your social security number as your “identity.” With this basic type of business, you can deduct business-related expenses such as your materials, travel costs to work-related events, studio rent, subcontractors etc. 

That said, because you and your business are considered a single entity, you are personally liable for all business debts or damages should someone bring a lawsuit against you and win. Additionally, all business income is considered personal income and will be taxed at your personal income tax rate, including Federal Insurance Contributions Act (FICA) taxes, i.e. social security and medicare contributions. This may end up increasing what you owe in taxes, though it will depend on how much you make. 

 

Limited Liability Corporation (LLC)

An LLC is the next step up from sole-proprietorship, though depending on the type of LLC you choose, it can be very similar. LLCs are generally very flexible when it comes to how they are taxed and grant you additional liability protection in case of business debt or lawsuits. To date, there have been very few cases where liability has penetrated the LLC, but usually this is the result of abuse of the structure. 

Another advantage is that an LLC enables you to hire employees, which a sole-proprietorship doesn’t allow. Both a sole-proprietor and an LLC can hire subcontractors. There are very particular laws on the difference between the two and it is worth getting familiar with the nuance between a contractor and an employee to ensure you are operating within the law. You can also deduct business expenses from your taxable income under an LLC.

LLCs can be considered single member, meaning you’re the only owner, or multi-member, meaning you have partners. Like a sole-proprietorship, income is only taxed at the individual member level as personal income for each member, regardless of the number of partners involved. Income under an LLC is treated as personal income, and as such, you are required to also pay a self-employment tax that goes towards things like social security, Medicare, etc. 

LLC’s cost money to register and maintain depending on the state in which they reside. Filing taxes is also slightly more complicated than sole-proprietorship.

 

S Corporation 

S corporations (S corps for short) are significantly different than the previous two structures in that they are a tax classification rather than a business structure. To receive this classification, you need to register as an LLC first. 

Once you obtain S-Corp status, business income is treated separately from your personal income. That is, anything the business earns is taxed as a business, while you will pay taxes on your personal income separately. Owners of S corps who operate or run their business pay themselves a salary as an employee even if they are the only person in the business.

Like LLCs, S corps shield personal assets from liability in case of business debt or lawsuit. Additionally, S corps can hire employees, deduct business expenses, and they enjoy all the benefits of an LLC and greater liability protection for the owners of the company.

Generally speaking, and very much a back of the envelope calculation, it’s a good idea to switch over to an S corp if your take home income from your business is greater than $100,000. This will help lower your personal tax rate, any additional income beyond your salary is taxed at the corporate rate which is lower than higher level personal income tax rates. Yes, that last sentence was complicated, but if your business is at this point it is probably a good idea to hire an accountant and possibly a lawyer to ensure you are making the most prudent business decisions.

S-Corps have registration fees as well as annual maintenance fees (depending on the state of residence, and expectations for corporate governance like meetings of shareholders and board members. Filing taxes is more complicated as more forms must be filled out to appease government agencies. 

 

Choosing the right business structure is crucial to your success. It’s a good idea to consult with an accountant or tax lawyer before you file any paperwork with federal or state governments. 

CTA

Join a future coworking session where we often engage in topics like business structure, finances, and taxes.

SCHEDULE A MEETING TO TALK WITH SCOTT

Art Business Marketing: Goals and Measurement

/in , ,

Art Business Marketing is not a mystery. Growing your audience in ways that are true to you can be easy and enjoyable. Let us show you how.

This post is Part 2 of a multi-part series. Subscribe to our Business of Art newsletter to receive notification when additional posts are published. 

 

In the first part of this series, we discussed the basic parts your marketing plan needs to have. In this, and a few future posts, we will go into more detail about what goes into each part of art business marketing and how to put them all together. Think about it like drawing a roadmap with a clear destination, a pathway to get there, and measurable milestones that you can track to determine if the plan is succeeding. 

In this part, we’re going to talk about goals, the clear destination, and measurement, the milestones along the way. If you haven’t already, I highly recommend you go back and read Part 1 before reading this.

Let’s dive in! 

Goals

As we mentioned in Part 1, goals need to be specific and measurable. This is where you want to think about the big picture of what you want to accomplish. 

Some examples of goals could be:

  • Increase sales by 10 percent.
  • Hold 2 gallery openings in a year. 
  • Secure 3 commissions. 
  • Earn $50,000 total revenue. 

Spend some time thinking critically about what you specifically want to accomplish. For example, let’s say you want to sell commissions. Who do you want to sell them to? Do they need to be a certain type? A certain dollar amount? A certain size?

A key part of developing goals is making them realistic. If you’re just starting out and you’ve never sold a single piece in your life, then going from $0 to $100,000 is very unrealistic. Instead, focus on what you honestly believe you can achieve. 

Although these goals may not look like marketing goals, they will significantly influence how you approach your art business marketing. These specific destinations will help you define the audience and customers that you will need to engage during the year. To reach these goals you will need to think about: what galleries you want to show your work in, who will commission you, and who are the customers that will buy your work to generate your revenue. These details are important to your roadmap (marketing plan) for success.

 

Measurement 

 

Your goals will determine what you need to measure. In our map example it is helpful to measure the miles you have traveled towards your destination, it is probably much less helpful to keep track of the number of cows you pass.

For example, if your goal is increasing sales by 10 percent over the previous year, it’s easy to measure whether you’re on track to meet that goal or not. If last year you generate $20,000 of revenue in your art business, this year you want to increase thatto $22,000. Another way to see that is about $200 extra of revenue generation each month. This might mean one more customer or 4 more print sales.

The trick here is to make sure you’re measuring things that are actually important to meeting your goals. We call these “metrics.” So if your goal is to increase sales, you may not find it useful to measure and track things like social media engagement—unless they correlate to closing sales.

An easy way to do this is to document your process. You can choose any tool/place to do this. For instance you could set up a spreadsheet where you can add monthly stats such as sales figures, website traffic, social media followers, etc. At first, it might seem like busy work. And you may start by tracking things that only seem tangentially relevant to your goals. But over time, patterns will start to emerge. Over time, the more data you track, the more you’ll be able to judge whether they contribute to your success. Using social media followers as an example, you might find that whenever your Instagram follower count grows by 5 percent, you get more sales. 

Keep in mind that metrics are finicky. What works today might not work tomorrow. That’s one reason why it’s a good idea to review your marketing plan—and any results you achieved—on a regular basis, which initially may be quarterly but as your business grows you may find it helpful to check where you are at more frequently. 

 

Need help putting this all together? I’m here to help! Check out my Coworking with Creatives workshops or contact me to discuss how I can help you market your art. 

 

SCHEDULE A MEETING TO TALK WITH SCOTT