Arty Business Ep. 11: Money

HELLO Patrons and friends, and welcome to another edition of the ARTY BUSINESS series, where I share some of the things I've learned in the process of building my own Arty Business. 

That's right, Arty Business is BACK, mostly because I thought of this new subject to add to it! The Arty Business well hasn't quite yet run dry! Since it's April (which, in the U.S., means it's tax season), I thought it would be a perfect time to talk about money! Or more specifically, how I manage my money from my freelance illustration business career. 

You all probably know me by now. You might guess I'm not a math person, and you'd be guessing right. I am embarrassingly not. I still count on my fingers to do simple arithmetic. I'm intuitive, I like to eyeball and round up and feel things out. If someone says "It's easy to figure out how much to charge! Just add this to that, then divide by this and multiply by..." My brain just sputters out and skips to something else. I'm not trying to be cute, or childish, it's just the truth for me.

And money is, on the surface, just pure math. And to manage it can seem like structure, rules, schedules, and even facing the possibility of failure. All of which can often be a big turn off to lots of kinds of people, but I think especially to us intuitive artsy sunflowers.

But it’s also possible to change our perception of money as artists, from a burdensome task to maintain, to a tool and skill that’s as necessary as paper and paint. Money becomes a coupon for time: more time to make art, get inspired, make new, bigger things. It’s a lot less annoying and scary that way.

So that’s where I’m coming from with this article! I don’t have any formal business education, I’m bad at math and am hit or miss organizationally. All I can speak for is how I currently and formerly managed  the money made from my art career. Take what advice you need and leave what you don’t. Let this be a jumping off point for your own research if it seems like I only half know what I’m doing (cause it’s true!) 

But no matter what, if you’ve never even thought about money management or have been putting it off, just know that you’ve got this. It’s a skill, there’s room for mistakes and for learning and asking questions and trying things. Make it yours. Make it work for you. And the better you get at it, the more free you'll feel to focus on your art.

So let’s get into it! Let’s take a look at how I manage my freelance art money!

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+ Separate Bank Account! 

My literal number one tip for managing your business money is:

 *** Open a separate account specifically for your business. ****

A Business Bank Account, I'll call it BBA. Put in "seed money": as much as you think you need for starting out expenses. In 2018 I opened a Wells Fargo business account and put in $2000 of my own money. (Wells Fargo because there was a branch in my neighborhood and I knew the name so it wasn't intimidating. And $2000 for no particular reason, which came in handy as seed money when my laptop broke the next week and I had to spend my first expenses on my iPad!)

I think opening a separate BBA is essential so that your personal and business money is totally separate, and you can see exactly how much money you're making and where you're spending it. Open a BBA and ONLY use this for ALL business expenses and deposits: taxes, materials, software fees, Etsy and Client payments, etc.

It's bookkeeping/business at the absolute most basic. You know if you're making more money than you spend (on your business) if the amount in your BBA keeps going up. If your BBA keeps dropping to $0 then you're funding your business, not the other way around, and you need to raise your prices and/or lessen your expenses. If you're using your personal bank account  you could be consistently losing money on your art business and not even notice, which would make art more of a hobby than a business. (Which is fine of course!)

I went with Wells Fargo because I liked that I'd be able to talk to someone in person in my neighborhood, but if I were to open an account now I would probably go with an online bank to keep fees lower and to have a higher yield savings account for Ragonia. 

+ Get Licensed! 

In order to open my BBA, I had to make a Real Deal business, so I filed some paperwork! I created a single-member Limited Liability Company called Ragonia Art LLC, by filing Articles of Organization and paying a small fee (around $100-$200) on the WA Secretary of State website. 

The other option for freelancers is a sole proprietorship, which seems to be the more straightforward option, and I probably would have gone with that when I started out if I had known more. Quickbooks has a great article here explaining more about the two.

I also every year file for a business license with the City of Seattle, which is often required for events like conventions and craft fairs, and which I need to report my business activity to and pay sales tax.

The legal requirements for licenses and business will vary depending on your state and country, so I recommend doing some reading to see what's required for you. 

I had a coworker who said they'd never heard of an illustrator doing all this to start working. I was really glad I did because it encouraged me to:

• Reach for bigger opportunities with one less barrier (Convention application or BBA requires a business license #? No problem, here it is.)
• Start factoring in the cost of taxes and expenses earlier, so I could start charging what I really needed earlier.
• Take myself as an artist and my career more seriously, and to feel more confident and legit when approaching clients, vendors, and markets.

+ Pay Yourself! 

So I was officially and technically and legally my own boss, but it took me a while to work up to the point of paying myself like it. For the first year, 2018, my income was essentially nothing, and after two months of living on my savings I took a part time job as a barista to pay my bills. 

In 2019 I paid myself randomly. If I had a few good months of Etsy sales, markets, etc., I'd pay myself an arbitrary chunk, and then not again for a few months. Basically just guessing to pay myself enough to survive.

In 2020 I budgeted out my personal expenses (rent, food, internet, emergency savings, ya know) and began paying  myself exactly that once a month. A very barebones budget. Everything else was to reinvest in Ragonia.

By the end of 2020 I increased how much I pay myself: I chose the same salary I made as an assistant kitchen manager, divide it by 12, and pay myself that per month. By doing that, I raised my bar for how much I have to make with my art, to make sure my career can cover the things I need to do in my life long term. Like save for retirement, or to buy an apartment someday instead of renting, or to be able to travel. Basically I'm factoring in paying myself a living wage as the most essential business expense, and prioritizing that. It sounds obvious, but doing it this way really makes a difference in how I think about my prices and the jobs I do. It keeps me from that "feast and famine" feeling of freelancing, because I always "give" myself a specific amount, not more or less.

(To be more specific about how I "pay myself": I connected my separate bank accounts, and once a month I transfer my paycheck amount from my BBA to my personal account. It's kind of fun, it really does feel like pay day.)

+ Tracking expenses! 

I didn't track my expenses my first year, just used my BBA statements to know if I was making more than I was spending (I was, but just barely.) My second year I manually recorded everything in a Google Sheets spreadsheet, which worked fine at first but took forever by the Fall.

Since 2020 I've used Quickbooks Self-Employed (QB) to track my expenses and income. It pulls in my statements from my business account and my Etsy and helps you keep track of and estimate your taxes. Once a month I manually go through and sort my payments into categories, and add notes or clarifications to any confusing ones. It's great to do it regularly because I: 1) have to in preparation for Estimated Quarterly Taxes (EQT), and 2) forget what small payments are if I wait too long to sort or add notes.

QB is awesome cause they estimate your taxes before they're due, provide helpful graphs to visualize your income and expenses over time, and connect quickly to Turbo Tax in the spring. If you're smart with Excel or Sheets you could probably do the exact same thing for free, but I am... not, and I accept that. :)

One note if you use QB in the same way I do: If both your BBA and Etsy accounts are connected to QB, your regular payment from Etsy to your BBA and every payment from a customer to Etsy will be listed as income. So it will register in your QB account as double income. To counteract this I mark each payment from Etsy to my BBA as a duplicate payment. If you're connecting multiple accounts just make sure your income and expenses aren't being marked twice, mark the duplicates. 

+ Receipts! 

Ugh this is probably bad, but I just keep all my digital receipts in a folder on my email, and all my physical receipts in a physical folder. QB has a great way to track receipts and I just... don't use it. (Shame!) People who photograph and label perfectly every receipt, one day I shall likely...hopefully join you, and for now I gaze upon you in longing and awe.

+ Google Sheets! 

In addition to my QB account, I use Google Sheets to organize some of my sales and client data for planning. The main thing I do is input my income per client, per quarter. Etsy, Patreon, Square (if I have a market), Paypal... Wherever I get paid from. I pull up my BBA statement per month and input any income items, and then input that data into a graph to help breakdown the sources of my income.  It also helps me to double check my information in QB and to prep for my sales tax payments.

+ Talk to people!

I talked to as many people as I could about whether they did their own taxes or had an accountant. There was a pretty solid mix but a good number of established artists seemed to do it themselves, so I've been going that route so far. 

I had  a friend recommend to me a local business coach who offered consultations on doing your own taxes, and I'm so happy I met with her early on. During our hour meeting she talked me through all the deadlines, requirements, and steps needed to file my own taxes, and I've been using the knowledge ever since. 

The meeting made me feel so much more confident in doing my taxes myself. I highly recommend you seek out a class, workshop, or consultant to give you a simple walkthrough of your local requirements and help you feel confident as well. You might be able to find free classes at a library or college, or even a similar blog online, but if not it's likely a $100-$300 investment that will help for years. So worth it.

+ Save! 

When you work for an employer, generally your employer does this: They deduct that percentage from your taxes and pay it for you. Now YOU'RE your employer, and you must do it. And you really must.

Oh my god you guys please do this for yourself:

*** Save 25-30% of ANY income you get from your art business for TAXES. ***

Make a separate account in your BBA and put that 30% in there, every time, and do! not! touch! it! Pretend it was never there, because it really wasn't: it's going to sales tax, state tax, income tax. This keeps you from spending this money that was slated to go to taxes, and having to pay out of your pocket every quarter, cause that HURTS.

+ Adjust your expectations! 

I literally do this trick in my mind any time I get paid: If a client deposits $4k, I don't even let myself think "Oh, sweet $4k!" I'm not kidding, I make myself change my thoughts to "Oh, sweet $3k!" I live in a society, I've benefitted from roads, parks, public school... I do my part to support it, and I'm proud to do it. And I remember that when I set the money aside.

The more you do this, the more you understand the true costs of getting paid to make art, the more you'll charge what you need to, and say no to the jobs that can't pay that.

+ Keep a Schedule! 

Where I live there are a lot of different tax chores I have to do to keep my business running, so to keep them all straight I keep everything nicely organized and scheduled in my planner. The one time I paid my quarterly taxes late was the one time I didn't have my planner to schedule it, in early January. Use the calendar method that you like best, but keep it clear and somewhere you absolutely won't forget.

+ Hourly rate! 

I could and should probably make a whole article on pricing, but I'll try to quickly touch on it. I have never yet worked as an illustrator on an hourly basis, but if you're having a hard time making enough money as an artist it may be because you're charging too little for your time, and could benefit from breaking it down.

At it's most simple, you can calculate your hourly rate like this:

Hourly Rate = Yearly Income (After Tax) ÷ Number of Working Hours per Year

Or, if you're just starting out and want to calculate by the month:

Hourly Rate = Desired Monthly Income (After Tax) ÷ Hours per Month

Of course that can only be the absolute minimum, there's all kinds of other factors to consider to make a livable wage. For two awesome better breakdowns of how to calculate a living wage for freelancers, check out this article and this article. 

+ Flat fees! 

I have always charged a flat fee, and only use the hourly rate for my own calculations. I don't tell the client my hourly rate, just the flat fee. Truly the most basic breakdown of how to calculate a MINIMUM flat fee:

Flat Fee = Your Hourly Rate x Hours Needed for Project + Cost of materials

Adjusting your flat fee based on client.... involvement. (Source)

+ Additional Considerations! 

When I'm preparing a quote for a client I have a number of other considerations that will raise or lower my flat fee:

• The turnaround time. If a client needs something within a week I charge a rush fee of 25-30%. If a client needs something in two days, even higher. 
• Number of revisions requested. More revisions, higher price. 
• Usage. A piece that the client will use for three days cost less than a piece the client will use for a year to forever. A private commission will cost less than something the client will make money from. If the customer is going to making money from your art and you aren't making royalties, your rate should be higher.
• Rights. More exclusive rights, higher price.
• Client Scale. Big companies have a lot of money, local companies have a medium amount, individual customers and non-profits typically have the least to offer. You can charge according to the scale of the client.
• How busy you are. I'm busiest in the fall and winter, that's also when a lot of clients seem to reach out, so I charge more. If they can't afford it, then I'm busy anyway and it's fine. It's amazing how much less I resent a project (and myself) during busy times if I'm getting paid well.
• Difficulty/Bad Customers. If it's a really weird, difficult project, or the potential client seems frustrating or rude and you don't really want to work with them, charge way more. No kidding. If they say no, great, and if they say yes, it's a little easier.
• Admin. Estimate how much time you'll spend on emailing, meetings, and admin for that specific project, and include that in your flat fee. It's work too, and sometimes it takes almost as long as the art. 

+ Invoicing!

 My invoice is made on Photoshop. For business clients I fill out an invoice for their project and email it to them as a PDF. It was basically a stock invoice design that I customized with my logo, information, and color scheme. 

Invoices don't have to be anything fancy though. You could just as easily download a free template for Word or Docs, customize it for your business, and email away. There's also invoicing programs and whatnot, but I can't speak to them.

+ Getting Paid! 

It depends on the scale of the flat fee.

• For projects paying $900+ I'm typically paid via direct deposit to my BBA, but some clients mail a check. 
• For projects $200-$900 I usually ask for a mailed check, unless they offer direct deposit.
• For projects/sales $100-$200 I'll work with Paypal, but I try to avoid it. 
• Anything less than $100 is probably merch and I do that all through my Etsy shop online or with the Square app in person.

"Just ask your client for their budget!" ...Yep. (Source)

+ Negotiating!

Most clients won't tell you their budget, because they want you to charge as small of a percentage of the budget as possible. It's a really fun game that feels really good and cool.

Just tell them your flat fee, and know that you can always negotiate. If they request a smaller budget, see if you can adjust the scope of the project to fit within their budget. But remember, it's negotiating, not haggling. Your charging what you charge for a reason, don't drop your rate just because they ask for it. Make it worth it for you.

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• QuickBooks Self-Employed + TurboTax - The paid program I use for bookkeeping.
• Google Sheets - The free program I use for... more bookkeeping.
• Betterment - The robo-investor I use for my retirement savings.
• Passion Planner - The brand of planner I use.
• Graphic Artists Guild Handbook: Pricing & Ethical Guidelines - The most commonly used handbook for pricing guidelines. They put out an updated edition every couple years.
• "Pricing your work as an artist/crafter" - Great blog post by Folly Lolly.
• "How to Calculate your Freelance Hourly Rate" - Excellent article by Jennifer Bourn.
• "Single Member LLCs vs. sole-proprietorships" - Article by QuickBooks
• Nerdwallet - A financial review site that I use to help decide which bank, credit card, robo-investor, etc. to use.
• The Financial Diet - A personal finance blog and YouTube. Great for if you're new to personal finance and feel like personal finance is only for you if you're rich or a "finance person".
• Jenny Girl Friday - A Seattle area financial educator and consultant for freelance and small-business.

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Woof, buddies, obviously there's a lot to talk about when it comes to Money Management as a freelance artist! I definitely didn't touch on everything, but that's probably for the best!

If there's anything you'd like me to elaborate further on in a future post, any questions I didn't answer or topics I skipped, please let me know in the comments. Your responses help me know what to share with you in the future, and I really appreciate them. I'm also so curious to hear:

• How do you feel about art money management, does it scare you or do you feel like you've got a good handle on it? 
• What is the best action you've taken for your business money management? What's your favorite tool or program? 
• And what are you hoping to do more of in the future?

I hope this article made you feel more empowered to tackle your money management goals, whether it's taking some of the actions I do or to do it 100x better! Boom! Managed!!

Thanks for being here, and thanks for being you. See you later!