For a downloadable or streaming audio podcast of this article, click here.
A bunch of years ago, when Julia Cameron first published her book The Artist’s Way, I, like most other artists I knew, went out and bought a copy, and started working my way through it. I loved it; I was doing my exercises, my morning pages, my artist dates. And then I came to Chapter 6, and hit the wall. It took me seven months to get through “Recovering a Sense of Abundance.” Why? It was a chapter on money.
In a previous column, I talked about putting a value on your work. Sometimes, as artists, that’s hard to do—there is tons of competition out there, first off, always someone who’s willing to sell their stuff at a lower price to get the sale. Also, there is a kind of attitude in the world that, because we as artists get intrinsic value from our work, we don’t need to be compensated financially. Plus, it’s boring. And administrative. And not creative. Add to that the whole romantic notion of “the starving artist” (Moulin Rouge, anyone?), and no wonder we are often a mess when it comes to matters of money.
But if you want to feel like a professional and have others perceive you as such, you need to take some control of your cash flow. This month’s column is dedicated to some tips about just that.
1. You are a small business. If you are selling CDs, paintings, or working as a Production Assistant on a movie, you are self-employed. What that means is, your income taxes and CPP (Canada Pension Plan) payments don’t come off your cheque. If you bill the client for $1000, they give you a cheque (hopefully!) for $1000. It’s your responsibility to pay the taxes on that income. However, as a small business, you also get certain tax breaks (yay!—more on that later).
2. Set yourself up a separate bank account for your business transactions. Go for a credit union as opposed to one of the bigger banks, they will charge you less fees. Funnel all your business expenses and income though that account.
3. Taxes. It’s a good idea to take 20-25% of everything you earn and put it in a separate account from your regular business account. This money is earmarked for income taxes at the end of the year.
4. GST (Goods and Services Tax—5%): In Canada, you can make up to $30,000 in one year from your self-employment without having to charge your clients GST. However, once you hit that mark, you have to start. You can get a GST number from the Canada Revenue Agency. Many small businesses like to charge GST, despite the fact that they may not be at the $30,000 mark yet, and despite the added administration work of figuring it out (you get to write off all the GST you spend on your business), because it gives them the impression of being bigger than they are. You know, fake it till you make $30,000.
5. Set up a System Part 1. You can buy a small business software package like Simply Accounting or Quickbooks, or you can just use an Excel spreadsheet to track your income each month. You need to know two things: how much you have billed in any month (meaning, you send the invoices, but are still waiting for payment, like they owe you credit) and how much actual income you had that month (when people actually paid you and you cashed the cheque. Again, yay!). This spreadsheet, which shows both your income and expenses each month, is called a Cash Flow Statement. The goal is to keep it in the black, although this doesn’t always happen!
6. Expenses: When you go to file your income tax return at the end of the year, you can write off any expenses that are related to the cost of your doing business. For example, as an actor, you can write off headshots, acting classes, postage for mailing submissions, office supplies, books/plays, Casting Workbook, and even a portion of your rent, telephone, internet and car expenses. The list is extensive. Talk to someone at your local union office, or CARFAC (Canadian Artists Representation) if you are a visual artist, and they will often have a comprehensive list.
7. Set up a System Part 2: Part 1 was about tracking income, Part 2 is about tracking expenses. It is imperative to save your receipts for anything you think might be a business expense. Write on the receipt what it is related to, if it’s not obvious. Then clean out your wallet once a week or so, and dump all the receipts into a shoebox or a container someplace accessable. Once a month, go through the receipts, and enter them into your spreadsheet. You may want to break the spreadsheet down into categories, like Transportation, Meals & Entertainment, Books, Marketing, Bank Fees, etc. If you have a lot of expenses, you may need to do this more often than once a month.
8. Hire a professional. If you are totally lost with this stuff, or you are in a place where it is getting to be too much for you to handle yourself, you might want to hire a professional. An accountant can actually save you money, because they may know of hidden deductions that you were unaware of. A professional organizer can help you to create a system for your paperwork and for your computer.
Okay, so I’ll be the first to admit that all this talk of Cash Flow Statements and taxes and accounting is not the sexiest or most exciting topic in the world. However, getting a handle on your finances and setting up systems to deal with money can actually take a great deal of stress off, because you know exactly where you are financially, all the time. And that allows you more time to be creative, and to make a living at what you love to do. How awesome is that?
Finally, I’d like to give a plug to the Prosperous Artists blog and podcast. Dean and Rosh are based out of Michigan, and they have fantastic tips for the business side of being an artist. Coincidentally, the topic of their most current podcast is also cash flow.
So, until next time, here’s to bums in seats everywhere…
Rebecca is a contributing columnist and founder of Titania Productions, a Vancouver Marketing and Public Relations Company.
Just an addendum… to #7, Setting up a System Part 2…
After you’ve entered your expenses into a spreadsheet, you need to file them away. You’ll need them at the end of the year to do your taxes, and, in fact, you have to keep them for 7 years in case you get audited.
An accordion file broken down into categories is really useful for this kind of thing.