Having some simple financial management tools can help you achieve greater control over your creative practice. The tools outlined here will help you to reflect on the money you currently have, how you are using your money, and how you could leverage your money in different ways.
The budget or spending plan will assist you in managing your money. A budget is designed to estimate what you may spend over a period of time. To keep things simple start out with a monthly budget. Based on your income and expenses, you can estimate what you may receive and what you may spend in the next month. Although you may not be spot on your first month, your estimates should become more accurate as time goes on.
There are a number of ways to organize your budget. Putting together a basic document designating one column as the category, and the next, the amount budgeted for that category is a good way to start. Be sure to keep your categories fairly broad so that using this tool doesn’t become a burden. You may start with the categories you listed previously. Another way to think about your expense categories is to consider your reasons for the expense (in other words, is it for research and planning, development and creation or marketing and distribution?). If you are feeling tech-savvy, you might try using a program such as QuickBooks or Expensify to set up the budget. There are also many free options available including some great apps for your computer, tablet or smartphone.
Once you have created and finalized your budget, you can either keep it as a reference or use it as a working document. You may want to keep a tally of your actual expenses in a separate file and compare it against your budget. Alternately, you may update your budget as you spend more money in one category and less in another. Either way you should keep a copy of the original budget you developed for yourself. Use it as a building block and measurement tool for determining how close you came to your original goal.
Assets – Liabilities = Equity
A balance sheet, also known as a statement of position, allows you to see your current financial state in a very simple way. More or less, this sheet is a snapshot of your cash and other assets taken at asingle point in time. This sheet first lists all of your current assets in total, including both the tangible (cash, supplies, structures, land, physical artworks, etc.) and intangible (copyrights, patents, brand name, contracts for commissions not yet realized, etc.). From that total you can subtract your liabilities or the debt that you owe on those assets. By doing this you will see your equity, or how much you and/or any investors truly own of your current business assets.
A cash flow statement is designed to allow you to see the amount of cash coming in from your work and the cash being expended. Unlike the balance sheet, this statement takes a look at your financial transactionsover a period of time. It records your operating activities (profit from product/service sale, costs of shipping your work, etc.), your investment activities (mortgage payment, purchasing equipment or materials, etc.) and finance activities.
A cash flow statement calculates your ability to cover immediate expenses. With craft and visual arts businesses you may have incredible assets and equipment but payment for a finished work may come all at once. Likewise, a performing venue or recording studio may have cash tied up in rental space while its revenue stream is dependent on ticket sales, album sales or artist contracts. A cash flow statement can help you visualize, schedule and manage for this unsteady flow of finances no matter your discipline. In addition, potential lenders or investors may be very interested in reviewing this statement.
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