What Is a Business Model and Why Your Artistic Business Needs One

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As a creative person who wants to earn a living, you might think that’s as easy as selling the fruits of your creativity. That’s true on some level, but it’s likely not enough to get you to a point where you can sustain yourself. Having a business model that you understand and can craft into a business plan will help you get more time in the studio doing what you love!

 

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When you look at the careers of successful artists, it might seem like they got there through sheer luck. Maybe they were at the right place at the right time. They found a patron or stumbled into a relationship with a dealer when out on the town. But that’s probably not the case. 

The truth is that more often than not, getting to the point where you’re earning a living off your art takes more than just divine intervention. It takes thoughtful planning. That’s where having a business model for your art comes in. Hours spent building your business model will give you many years in your studio.

 

What Is a Business Model?

A business model is a plan that describes how you intend to make money. Every business—no matter what size or type of business it is—needs to have a business model. A business plan, built around a business model, gives definition for what needs to be done, and prepares for when things don’t go as expected. A plan can also be used to attract resources, money and talent, to a firm. 

Business models can be simple or complex, but they do need to have some key ingredients if they’re going to be useful. While larger businesses often use very complicated business models, I find the Business Model Canvas to be the easiest and least cluttered way for an artist to conceptualize their business. 

In my experience, a business plan, which we will connect to the model, minimally needs:

Executive Summary:  A short description of what the business is, what it does, and who it does it for. 

Market Analysis:  An understanding of how an artist’s work, the products, fits into the market; i.e. is it fine art, public art, 

Marketing Plan:  A method for identifying and attracting audience and customers.

Sales Plan:  A process that identifies your sales goals (transactions), tactics, and challenges for closing sales.

Finances: A description of your sources and pricing, and the costs required to produce the goods or services. 

Team Players:  The critical people that make the business run. That certainly includes yourself, but it might include staff, partners, vendors, venues, etc.

For internal purposes it is valuable to have a plan of operations. These are the manuals for production and process for delivering services, as well as the means of maintain great company culture.

Of course, none of these items exist in a vacuum. You need to understand how they connect and influence each other.The business model canvas is a tool that outlines and connects the different aspects of a plan.

Value Proposition: What is the unique value that your work brings to your audience?

At the heart of any business is the value it is producing for the world. This will influence internal operations of production and external communication of marketing and sales. The executive summary of a full business plan will focus on the value proposition and concisely address other facets of the plan.

Customer Segments and Channels: Who are your customers and audience? Who will value what you are doing? How will you present the value of what you are doing with them? The marketing portion of a business plan will identify customers and define methods of connecting with them. 

Customer Relationships: How will you build a relationship with someone from meeting  for the first time to being a repeat audience member or customer? Sales is about building relationships, a sequence of exchanging value. The plan for sales will define the process the business uses to develop and grow meaningful relationships with its audience. 

Revenue Sources + Cost Structure: How will the business make money, what will it cost to generate the revenue. The financial piece of a business plan has many details and most relate to revenue and expenses. The plan may also define sources of outside cash like investors, patrons and traditional banks.

Key Partners + Key Activities + Key Resources: How does the business make its product or deliver its services? What special relationships, resources or skills are required? This is the operational plan for making a product or delivering a service. A note on partners, they are critical vendors and others necessary for your operations who also share in risk and reward. 

Do You Need a Business Model?

I hope that by the time you’ve gotten to this point, you realize the answer is a resounding YES! Putting them together can be challenging, particularly if you’ve never done one before. That’s where I come in! I’m happy to help you strategize your business model. Contact me to schedule a chat or join one of our Creative Coworking sessions. 

 

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

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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. 

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Best Legal Structures for an Art Business

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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.

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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. 

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

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