Okay everyone says they want to get organized, but how do you actually begin? Everyone says I want to manage my expenses better, I want to know how much I make, I want to have a budget, I want to save a little money, I want to pay myself a salary, I want to pay my taxes throughout the year so I don’t have to scrape and scrounge every April 15th. In this blog, I’m going to walk you thru step by step how to get your studio and your finances under control.
First thing’s first, Artists, you should think about the type of entity you want for your studio. You’ve probably been operating as a sole proprietor under your own name. So you make some money and you spend some money and your expenses off set your income and you file a Schedule C on your 1040 tax return and you’re done. That’s fine if you’re just one person working inside your home and not making that much money off your art practice, but if you are beginning to operate a studio, i.e. hiring people to assist you, hiring people to pack your work, renting studio space, incurring lots of production costs or starting to make a living from your practice, you should seriously consider taking it to the next level.
The Next Level means separating your studio and personal finances and creating a legal barrier between your studio and personal life. And these two things go hand in hand.
Artists, I highly suggest you separate your studio practice from your personal finances. Once you do this, everything will be easier. It takes a little bit of time to get going with it, but once you do you’ll be happier and the business part of your life will feel more under your control.
First step is setting up an LLC (Limited Liability Corporation). LLCs are somewhat expensive. They cost about $800 per year to the State (this is what California charges). But it is worth it especially in order to limit the liability of your studio practice. If one of your freelance art handlers slices his hand on a box cutter while packing your work and he was training to be a painter or concert pianist and goes after you in a lawsuit for damages, your personal assets are at stake. So protect yourself by forming an LLC. If you don’t have the money to form an LLC, save up and form one when you can. In the meantime, create a DBA “Doing Business As.” This allows you to create an entity name for your studio to work under, accept payment, and allows you to register with the State for a minimal fee of around $25. Then you can set up a Business Checking Account. You can register a DBA online. You can set up an LLC and a DBA on Legal Zoom or the Company Corporation.
Second step is walking into a bank, preferably one that you already have your personal account with (so you can transfer money easily between accounts) and set up a Business Checking. Some banks will require a DBA or an official letter from the State naming the business entity. Call ahead and find out what they require before you spend the time going into the branch.
Third Step deposit all checks from your art practice into your business account, ie. checks from lecturing, teaching, art sales, reimbursement of travel expenses, grants, stipends, etc.
Fourth Step use your business checking debit card for all business expenses, ie. business meals, supplies, production costs, shipping, postage, utilities, telephone, etc.
Fifth Step set up all your personal and studio bills on auto-debit from their respective checking accounts. This way you don’t have to worry about writing checks all the time, incurring late fees and ruining your credit.
Sixth Step create calendar notifications 2 days before funds will leave your account for bills.
Seventh and Last Step set aside a little time during the week (personally, I set aside about 30 min on Sunday night) to look ahead at the upcoming week and see what will be going out of the account. Then transfer funds from your business checking to your personal checking online. Essentially you are paying yourself a weekly salary to cover your personal expenses. Once you get into the habit of doing this, it becomes very easy and painless.