As a creative entrepreneur, managing your finances may seem overwhelming. From figuring out cash flow to setting aside money for taxes, many creatives struggle to balance the business side without sacrificing their creative energy.
In this Q&A with Chicago based bookkeeper Cathy Mallers of Bookkeeping Bistro, we tackle some of the most common questions creatives have about managing their money, based on our Money Made Easy Virtual Summit that took place March 2024.
Table of Contents
- How do I get serious about the numbers without killing my creative vibe and getting overwhelmed?
- What if I’m scared to deal with my money? How do I start?
- How do I position myself to meet my money goals?
- How do I handle cash flow?
- How do I increase my cash flow?
- How much should I set aside for taxes?
- What’s the difference between a bookkeeper and an accountant, and when do I need one?
- What tools can I use if I can’t afford a bookkeeper or accountant yet?
- What are your thoughts on using DIY services like TurboTax as a freelancer?
- What should I have prepared for tax season?
- How do I handle bad debts if a client doesn’t pay me?
- What can I write off for my business?
- What should I do if I get a tax notice?
- Do I need multiple bank accounts?
Q: How do I get serious about the numbers without killing my creative vibe and getting overwhelmed?
A: First, try to change how you view numbers. Cathy emphasizes that numbers are neutral—they don’t carry any emotion, but we often attach fear or anxiety to them. Think of numbers like any other tool you use in your creative process. For example, when you’re working on a project, you know how many materials, brushes, or supplies you’ll need. Numbers are just another resource that helps you make informed decisions. Cathy recommends creating a “date night” with your money to build a relationship with it. Spend time regularly checking your finances to understand the flow of money in your business.
Cathy also advises against giving too much power to the fear of numbers. Instead, recognize that you are in control of your finances. Numbers provide valuable data, and the more you understand them, the better equipped you are to make decisions. You don’t have to let the fear of numbers overwhelm you; instead, approach it like any other challenge—one that you are capable of mastering.
Q: What if I’m scared to deal with my money? How do I start?
A: If you’re feeling intimidated, Cathy suggests starting by making the process less serious and more fun. One creative suggestion she offers is to take cash, throw it on your bed, and roll around in it—yes, really! This may sound silly, but it helps break the emotional tension that can surround money. The idea is to associate positive feelings with money, rather than fear or anxiety. Imagine having all the money you need and allow yourself to enjoy the feeling of abundance.
Cathy also recommends creating a story around your finances. If you don’t like the current “story” that your finances are telling, you have the power to turn the page and create a new one. This can help shift your mindset from fear to empowerment.
Q: How do I position myself to meet my money goals?
A: It all starts with having clear and realistic goals. Cathy breaks it down into manageable steps:
- Set a baseline goal – Determine how much you need to cover your expenses.
- Set a stretch goal – For example, if your baseline goal is to make $10,000 this month, aim for $15,000 as a stretch goal.
- Segment your clients or services – Focus on clients who are most likely to pay you. Cathy suggests identifying your “A,” “B,” and “C” clients based on how much they’re willing to spend. For example, if you want to make $10,000, an “A” client might pay you $5,000, while a combination of “B” and “C” clients could make up the remaining $5,000.
Cathy also advises breaking down your goals into smaller, more achievable steps. Instead of being overwhelmed by the big picture, focus on securing one $150 client this week, and then another $350 client next week. Breaking your financial goals into bite-sized pieces helps you stay on track without feeling overwhelmed.
Q: How do I handle cash flow?
A: Cash flow is the movement of money in and out of your business, and managing it effectively is crucial for financial stability. Cathy emphasizes that cash flow isn’t just about the total amount you make, but also about timing. For example, you might want to avoid paying all your bills at the beginning or end of the month. Instead, consider scheduling payments for the middle of the month, when your cash flow is more stable.
Cathy also likens cash flow to managing Grandma’s envelopes—where each envelope contains money allocated for a specific purpose. By managing how much money you bring in and where it goes, you can ensure that you’re never left short when it’s time to pay an important expense.
Q: How do I increase my cash flow?
A: Increasing cash flow requires generating more revenue, not just cutting back on expenses. Cathy warns that you won’t create significant cash flow by skipping your daily Starbucks or finding cheaper alternatives for running your business. Instead, she recommends focusing on ways to bring in more money.
- Raise your rates – If you’ve had the same clients for years, it’s likely time to raise your rates to reflect the value you’re providing.
- Segment your services – Offer multiple products or services at different price points. For example, you could have lower-priced options like $29 or $47 products that lead to bigger-ticket services down the line.
Cathy also points out that taking small steps to improve your cash flow over time is key. Don’t worry about having a perfect plan right away. Focus on making gradual improvements that build your confidence and financial stability.
Q: How much should I set aside for taxes?
A: A general rule is to set aside 25-30% of your income for taxes, especially if you are self-employed. Cathy explains that there are numerous factors—like whether you’re married, own property, or have other tax write-offs—that can affect the exact percentage.
She also stresses the importance of separating your personal and business finances. Keep all your business income in one bank account and your personal money in another. This not only makes it easier to track your expenses, but it also protects your personal finances in case of an audit.
Q: What’s the difference between a bookkeeper and an accountant, and when do I need one?
A: Bookkeepers focus on the day-to-day financial details, like tracking expenses, reconciling bank statements, and categorizing transactions. Accountants, on the other hand, look at the bigger picture and provide advice on tax planning and financial strategy.
In the early stages of your business, you may be able to manage your own bookkeeping with tools like spreadsheets or QuickBooks. However, as your business grows, hiring a bookkeeper can save you time and help you stay organized. An accountant becomes crucial when you’re ready to file taxes or need more strategic financial advice.
Q: What tools can I use if I can’t afford a bookkeeper or accountant yet?
A: Cathy recommends using QuickBooks if you’re comfortable with it, but if you find it too “accounting-heavy,” Xero is a good alternative that’s more affordable for beginners. Wave is another option for invoicing and collecting payments, though Cathy notes it’s less robust when it comes to generating detailed financial reports.
In your first year, a simple spreadsheet can help you track income and expenses. However, Cathy advises upgrading to accounting software as soon as you can to generate financial reports that will be critical as your business grows.
Q: What are your thoughts on using DIY services like TurboTax as a freelancer?
A: DIY services like TurboTax can be useful for freelancers in the early stages of their business. TurboTax is owned by Intuit, which also owns QuickBooks, so the two platforms communicate well with each other. However, Cathy warns that as your business grows and your taxes become more complex, you may miss out on potential deductions if you continue to DIY.
Once you’re dealing with business expenses, multiple income streams, or are self-employed, it’s worth consulting a tax professional to ensure you’re not leaving money on the table.
Q: What should I have prepared for tax season?
A: Your accountant will typically provide you with a checklist of what you need for tax season. For freelancers, this could include W2s (if applicable), 1099 forms, profit and loss statements, and balance sheets. Make sure you’ve reconciled your accounts and have all your bank statements for December and January ready to go.
Cathy also notes that if you received any forgiveness on loans or other debts (such as an EIDL loan), you should have the necessary documents ready to report that as well.
Q: How do I handle bad debts if a client doesn’t pay me?
A: Cathy suggests sending unpaid invoices to collections. While some business owners hesitate to go this route, it’s often the best way to recover money owed to you. Collections can sometimes encourage clients to pay up, even months after the initial invoice. If all else fails, you can write off the bad debt, but pursuing payment through collections is always worth a try.
Q: What can I write off for my business?
A: Many business expenses are deductible, but Cathy warns that it’s important to make sure the expense is directly related to your business. For example, you can write off business meals, travel, office supplies, and marketing costs. However, personal clothing is generally not deductible unless it’s branded or specifically tied to your business operations.
Q: What should I do if I get a tax notice?
A: First, don’t panic. Cathy advises reading the notice carefully and taking action immediately. If you don’t understand what the notice is asking, consult a tax professional. Ignoring the notice can lead to bigger problems down the line, so it’s crucial to address it as soon as possible. If the situation feels overwhelming, a professional can help you navigate it and ensure you’re taking the appropriate steps.
Q: Do I need multiple bank accounts?
A: Yes. Cathy stresses the importance of keeping your personal and business finances separate by using different bank accounts. This not only makes it easier to track your expenses, but it also provides legal protection in the event of an audit or other financial scrutiny.
Conclusion
Managing your finances as a creative entrepreneur doesn’t have to be an overwhelming experience. The key takeaway from this Q&A is that building a positive relationship with your money, just like you do with your creative projects, is essential. By reframing your mindset, you can treat your financial management as a tool to support your creativity rather than hinder it.
Start with small, manageable steps like organizing your finances, setting clear goals, and tracking your cash flow. Tools like spreadsheets, QuickBooks, or Xero can help you stay organized as you grow, while working with a bookkeeper or accountant ensures you’re maximizing your deductions and planning for the future. As Cathy suggests, your money should work for you—not the other way around.
Whether you’re just starting out or scaling your business, the insights provided in this Q&A offer practical ways to take control of your financial health. Set aside money for taxes, increase your revenue streams, and most importantly, don’t let the fear of numbers hold you back. By embracing the financial side of your business, you can create a foundation that supports your creative growth and long-term success.
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