Artists' Financial Management: Streamline Accounting

Written by Daisie Team

Published on 18 July 2023 7 min read

Being an artist isn't just about creating beautiful works of art. It also involves managing finances and accounting for artists. Having a clear understanding of your financial situation makes it easier to focus on what you do best—creating art. Let's start by setting up a budget, the cornerstone of any financial plan.

Set Up a Budget

Creating a budget isn't about restricting your spending; it's about understanding where your money goes. It's about striking a balance between your income and expenses, and ensuring you're not spending more than you're making. Let's dive into the process.

Identify Income Sources

As an artist, your income might come from various sources: selling artwork, teaching classes, or maybe even a part-time job. Here's how you can get started:

Lay out all your income sources: Include everything from art sales, commissions, royalties, to teaching gigs. Every penny counts.
Track the income: Keep a record of the money you earn each month. This will help you understand your earning patterns.

List Expenses

Next, it's time to understand where your money goes. Do you spend more on art supplies or rent? Knowing your expenses helps you make informed decisions about your spending. Here's how you can do it:

Categorize your expenses: Divide your expenses into categories like art supplies, studio rent, marketing, personal expenses, etc.
Keep receipts: Save receipts for every purchase. This will help with tax deductions and also help you understand your spending habits.

Calculate Net Income

Now that you know your income and expenses, it's time to calculate your net income. This is the money you have left after paying all your bills. Here's how you do it:

Subtract expenses from income: This will give you your net income. A positive number means you're earning more than you're spending—a good sign!
Review regularly: Your income and expenses might change over time. Review your net income monthly or quarterly to stay on top of your financial situation.

Setting up a budget is the first step in managing finances and accounting for artists. It gives you a clear picture of your financial health and helps you make informed decisions about your spending and saving. So, let's get started on your budget now!

Track Financial Progress

Just like how you'd keep track of the progress on a piece of artwork, it's equally important to monitor your financial journey. Tracking your financial progress not only helps you stay on top of your budget but also helps you adjust and align your financial goals as needed. Let's see how to do this.

Monitor Income and Expenses

Keeping an eye on your income and expenses is like watching your art come to life. It's a way of seeing where you stand financially. Here's how:

Use a budgeting tool: A budgeting tool can help you keep track of your income and expenses. It can be as simple as a spreadsheet or a dedicated budgeting app.
Review regularly: Make it a habit to review your income and expenses regularly. This way, you can spot any changes or trends in your finances.

Evaluate Financial Goals

What do you want to achieve with your art? Maybe it's to hold a solo exhibition or to sell a certain number of pieces each year. Just like these artistic goals, you also need financial goals. Here's how you can set and evaluate them:

Set clear financial goals: These could be paying off a loan, saving for a new studio, or even retiring at a certain age.
Review and adjust: Like everything else in life, your goals might change. Regularly review and adjust them as needed.

Adjust Budget as Needed

Life is unpredictable, and so is the life of an artist. Your income might fluctuate based on the sales of your artwork, and your expenses might vary too. That's why it's essential to adjust your budget as needed. Here's how:

Stay flexible: Understand that your budget is not set in stone. It's a tool meant to adapt to your changing circumstances.
Make adjustments: If you notice you're consistently overspending in a certain category or your income has increased, adjust your budget accordingly.

Remember, tracking financial progress is a key aspect of managing finances and accounting for artists. It helps you stay in control of your finances and adjust your budget and goals as needed. So, why not start tracking your progress today?

Plan for Taxes

As an artist, you might be more interested in the vibrant colors on your palette than the dull numbers on tax forms. But, just like mixing the right hues for your masterpiece, managing taxes properly can save you from future headaches. Let's see how we can do that, shall we?

Estimate Tax Liability

One of the first things you should do is estimate your tax liability. It's like sketching out a rough outline before filling in the details. Here's how:

Understand your tax bracket: Your tax liability depends on your income level. Check the current tax brackets to get a rough idea of how much you might owe.
Consider deductions and credits: As an artist, you might be eligible for certain deductions like studio rent or art supplies. These can lower your taxable income and your tax liability.

Set Aside Funds for Taxes

Now that you have a rough idea of your tax liability, it's time to start setting aside funds for it. It's like setting aside the right colors you need for a painting. Here's how you can do this:

Open a separate account: Consider opening a separate bank account specifically for taxes. It can help you avoid spending the money unintentionally.
Set aside money regularly: Make it a habit to set aside a portion of your income for taxes every time you get paid. This way, you won’t be caught off guard when tax season comes around.

Seek Tax Advice

Managing taxes can be complex, especially when you're juggling it with managing finances and accounting for artists. Sometimes, it's better to seek professional help. Here's why:

Complex tax laws: Tax laws can be hard to understand. A tax professional can help you navigate them.
Maximize deductions: A tax professional can help you identify all the deductions you're eligible for, potentially saving you money.

Planning for taxes might not be as exciting as creating art, but it's a necessary part of your financial management. And remember, just like a well-executed artwork, effective tax planning requires time, effort, and sometimes, a little help from the pros.

Manage Cash Flow

Think of cash flow as the lifeblood of your artistic career. Just like how you need a steady hand to create beautiful art, you also need a steady flow of cash to keep your career afloat. So, let's dive into the details!

Analyze Cash Flow Patterns

It's vital to understand your cash flow patterns — when and where your money comes and goes — much like knowing when to add the right stroke in your artwork. Here's how you can do it:

Create a cash flow statement: This is a document that records your income (inflows) and expenses (outflows) over a period of time. It's like a snapshot of your financial health.
Identify patterns: Do you have months where sales are high, followed by months where sales are low? These patterns can help you prepare for lean times.

Maintain Adequate Cash Reserves

Having an adequate cash reserve is like having extra paint tubes in your studio — you never know when you might need them. Here's why it's important:

Unexpected expenses: Life is full of surprises. If your art supplies suddenly run out or your studio needs urgent repairs, cash reserves can help you handle these unexpected expenses.
Slow sales periods: If sales are slow, cash reserves can help cover your expenses until business picks up again.

Optimize Cash Flow

Now that you understand your cash flow and have a cash reserve, it's time to optimize it. It's like fine-tuning your artwork for a gallery show. Here's how:

Reduce expenses: Look for areas where you can cut costs, such as negotiating lower rent for your studio or buying art supplies in bulk.
Increase income: Explore different ways to increase your income, such as selling prints of your artwork or teaching art classes.

Just like creating a masterpiece, managing cash flow takes practice and patience. But with time and effort, you can master the art of managing finances and accounting for artists.

Prepare for Retirement

While the thought of retirement might seem miles away, it's never too early to start preparing. Just like how you need to prepare your canvas before you start painting, you also need to prepare for your financial future. Ready for the first stroke?

Evaluate Retirement Goals

Start by asking yourself, "What do I want my retirement to look like?" Are you dreaming of a quiet countryside home or an urban studio where you can continue creating art? Here's how you can plan:

Estimate your retirement needs: Consider your current lifestyle, expected expenses, and the age you plan to retire. This will give you an idea of how much money you'll need.
Set retirement goals: Once you have an estimate, set clear, achievable goals. Think of it as a sketch for your future painting.

Invest in Retirement Accounts

Next, look at retirement accounts as an investment in your future. They are like the quality paints that give longevity to your artwork. Here's what you need to know:

Understand your options: There are different types of retirement accounts, such as a 401(k) or an Individual Retirement Account (IRA). Each has its pros and cons.
Start investing: The earlier you start, the more time your money has to grow. Even small contributions can add up over time.

Plan for Long Term Care

Lastly, don't forget to plan for long-term care. It's like the protective varnish that preserves your artwork. Here's why it matters:

Consider insurance: Long-term care insurance can help cover the cost of care if you're unable to take care of yourself.
Explore other options: You could also consider saving money in a health savings account or investing in a life insurance policy that offers long-term care benefits.

Remember, planning for retirement is a long-term project. And just like any piece of art, it requires thought, care, and a lot of patience. But by managing finances and accounting for artists properly, you can enjoy your golden years without financial worry.

If you want to take control of your finances as an artist, don't miss the workshop 'A Freelance Artist's Guide At Making Finances Make Sense' by Kelsee Thomas. This workshop offers practical advice and strategies to help you streamline your accounting and manage your finances effectively, allowing you to focus on your creative pursuits with greater confidence.