People want to give you money for your art? Congratulations!
Business is all about cash flow, and cash flow is just a game. A game with simple rules. A game you can win, with the ultimate prize: a life doing what you love.
Ask that helpful cousin with the business degree for advice and they'll gleefully prattle on about LLCs and deductions and accountants and the tax tactics of C versus S corporations. It's entirely accurate and completely unhelpful. Books about businesses like pet shops and burger franchises? Even less useful.
You need advice from a creator who pays the mortgage with his craft.
Cash Flow For Creators provides a map and a flashlight for building an artistic business from the ground up. Do you need a business bank account, and why? Should you incorporate, or make an LLC? How do you cope with accountants, regulations and deductions? Can you get your family on board? How do you pay taxes? What about keeping a business going, not just year after year but decade after decade? In the bewildering torrent of business rules, which matter to a creator—and which don't? Cash Flow for Creators has you covered, and tells you the secret no other business book will:
Business is easier than art.
Once someone explains the rules, and tells you how to win.
So you're finally making money at your writing, but you can't seem to hang onto that cash. Maybe it's because you don't understand how to manage cash flow. Most people get paid biweekly or monthly, but writers make a large amount of money and then nothing at all. Learning to manage that money is a skill, one most of us need to learn. Michael Lucas has negotiated a successful writing career for decades now, and he knows how essential cash flow is to freelancing. This book is one of the most important books you'll read all year. – Kristine Kathryn Rusch
"I would never in a million years have thought a non-fiction business book would make it to one of my Best lists, but this has been a year of What you think is irrelevant. Why this book? Because we've seen how vital it is for us creatives to line our ducks up; there's no safety net beneath the indie life unless it's one we–individually–weave for ourselves. This book is all about that."– Narazu, the best indie sci-fi, comics, and culture
"That's where CASH FLOW FOR CREATORS comes in. It's the most art-friendly business book you can imagine. Lucas pays his bills with his writing so this is where his focus is. He wants to teach you one thing: control your cash flow so you can make a living off your art."– Writing Slices
"Clearly organized, full of useful, practical information, possessing zero bullshit—just what I'd want to give every fledgeling creator who wants to NOT get in financial trouble."– Lilith Saintcrow, author of "The Quill and The Crow"
Chapter 1: Creators and Business
You're a creator. You love making a thing. You made the thing, and made more of the thing, and got better at making the thing, until something truly bizarre started happening. The thing became The Thing, and people gave you money for it.
Sometimes a lot of money.
And that…is when everything went horribly wrong.
Some of us dream of a day when we can make a living practicing our craft. We look at those who pay the rent by writing books or painting landscapes or hand-carving fountain pens that would make primordial penmaster Walter Sheaffer jealous, and we hunger for that life. Making a living as a creator means being among the best at what you do, so you plunge into study and practice with near monomaniacal focus.
Learn business? Why would you do that, when you could spend that time learning your art? Besides, you've met business people. They're boring compared to artistic sorts! And some of the most successful have dollar-store canned chowder for brains. How hard could it be?
Then money appears. And you discover that business is an entirely separate craft. Business is a tabletop role-playing game run by a lackadaisical Dungeon Master who occasionally downs too much caffeine and goes for Total Party Kill. Accepting money for your art shackles you to that game.
Some people realize this, get scared, and stop accepting money. Others don't worry about it until the government tax agents knock on the door and ask if they'll come quietly or would prefer to be dragged. A tragic few of the most skilled artists become so traumatized by business that they flat-out stop practicing their craft.
Some of us deal with the business head-on, and turn the art that brings us joy into our full-time job.
People congratulated me when I started paying the mortgage by writing books. Many folks asked if this was a real thing (yes, it is) and if writers could make money doing it (yes, you can). The question I got most often from my fellow creative sorts, though, surprised me.
"How do you do make a living as an artist?"
Yes, beginners asked. But so did people who were making money at their craft. People who had signed six-figure book contracts or routinely sold paintings for thousands of dollars. They had the skill. They had the market. They had absolutely no idea how to manage what they'd discovered, or how to take that next step.
Making a living with your craft is a long game. Start playing early.
Who Am I?
Who is this slick jerk offering to expose the dark secrets of business as a creative for the price of a cheap book? I'm a person with a long and storied history of failure, that's who.
Most businesses fail. The exact numbers vary depending on who you get your statistics from and what they're trying to sell you. Different groups claim that anywhere from twenty to ninety percent of new businesses fail in their first year. Even the optimistic folks that declare eighty percent of all businesses survive their first year admit that seventy percent fail by year ten.
I am no exception. I worked for a bunch of dot-com companies, got tangentially involved with the business side out of self-defense, and watched them fail. I live in Detroit, world capital of Failed Industry Titans and home to thousands of triumphant small businesses. Watching businesses fail is like reading a magazine's slush pile or judging a student art fair. You learn huge amounts about what not to do.
Further, I've run my own failed companies. I failed in publishing in the nineties and consulting in the naughties. Each failure taught me about my strengths and weaknesses. I am a good enough writer that I don't need to do anything but write books. I am a cruel joke of a salesperson. I am imagination-oriented. I am terrible at phone calls. In other words, I'm a tediously stereotypical creative. Any business I run must be oriented to my strengths and must avoid my weaknesses.
I've filed tax returns, dealt with accountants. But most importantly, I've found ways to think about business and money that suit my artistic temperament. My writing business has lasted since the last millennium, and has paid my bills for several years.
Today, I make my living writing books. By make a living, I mean I pay the mortgage and an assortment of utilities for my family. By writing books, I mean I choose topics that I find interesting and that I think might interest other people, write them, and offer them to the general public.
I don't write for private organizations. I don't consult. I don't podcast, even though my big bald head totally gives me the look of a cheerful supervillain and the thought of Lex Lucas Against The World intrigues me. I don't even charge a speaking fee. Should my dulcet rants suddenly be in demand at conferences I might start charging, but only to reduce how frequently I have to find pants and leave the house. I do have affiliate links on my web site; if you follow the links on my site to buy one of my books on Amazon or Kobo or Apple, I get a couple pennies extra. That last covers my gelato bill.
I make a living. Writing books. The books I want to write. No excuses, evasions, or elisions.
Could I make more by adding a few hours of consulting, or contracting with a company to produce their documentation, or signing on with a speakers' bureau? Sure!
But I don't want to.
I make enough to live the life I want, save for retirement, and have someone else mow the dang lawn.
Maybe you don't want to go that far. Perhaps you only want to cover expenses, or give yourself a cushion in case of emergency. That's absolutely, 100% valid. But taking money for what you create means you must learn business. More importantly, you must understand business. And that's what I'm bringing you. Other books will teach you about double-entry accounting and QuickBooks and ratio of sales to advertising expenditure taxation differentials in multinational whoosamajig please-send-help. I can help you understand what a creative business is, and what it isn't.
I am not an accountant. I am not a lawyer. You should not take anything I say as legal or taxation advice. I live in one city in one country, and you live…probably not here. I can talk about how to manage and interview accountants, but not about specific accounting methods. Find the right support people, like accountants and lawyers and so on. Take their advice. Whatever you do, be legal.
The closer your business is to mine, the better my advice will fit you. If you're starting a business that caters to creatives, such as a store or a web site, a book on retail business would help you more than this one. The business of selling beads or journals or paint, while much cooler and more vital than selling mere food and shelter, isn't that much different from any other retail. Reading this book can help you talk with your customers, though, and you should certainly maintain a stock of the paperback at each check-out counter. They're guaranteed steady sellers.
Do you want to make a living at your art and enjoy life? Or do you want to make a couple bucks on the weekend and enjoy life? Something in between? Any choice that ends in and enjoy life is perfectly legitimate. Knowing your goals lets you scale your business appropriately.
Goals are not the same thing as dreams. Goals are achievable things that you control. "I will create a new piece of art every week" is a goal. If the goal is reasonable, you can arrange your life to achieve that goal. "My new piece of art will sell for a million bucks" is a dream. It's a great dream. That dream warms your heart as you struggle with your craft up in your unheated artist's garret. With work, your dreams can become goals, and then reality.
Setting up your tiny weekend gig of art sales as an official business will make life easier for you. You have to pay taxes on that income, so you might as well get the advantages too.
Many of us who thought we were making extra money on weekends suddenly found ourselves ejected from the corporate world and plunged into our art as a full-time career. Having the business set up beforehand is a welcome parachute. Start as you mean to go on.
Most of all, set up a business in case you succeed. What if one of your novels or prints or games goes viral, and you're selling thousands of them a day? Random success can destroy people. Having a basic business structure in place beforehand can insulate you and your family from that peril.
Alternately, you can practice the thing you love just for the joy of it and refuse money. That's completely valid. Our culture puts an unholy emphasis on having a "hustle" and not enough on making the best of life, on enjoying what we do, on laughter and love and all the things that fuel our souls. If you keep improving at your craft, though, people will offer you money for it. If you get good enough, they'll keep offering you money. Enough money can tempt the most business-averse person. Set up your business beforehand.
What You Need
Talking business intimidates many creatives. The thought of trawling tax codes, coping with copyrights and trademarks, and quarreling with QuickBooks makes a whole bunch of us nauseous.
I'm not going to make you learn any of that here.
You do need to know how to use spreadsheets. You don't need pivot tables or multi-page references, but you should be able to list items, record the cost of each, and create a total.
Math? You must understand addition, subtraction, multiplication, and division. You have to know that parentheses mean (do this bit first).
I'm assuming that you have basic Internet and computer skills. You can use email and a web browser. You can use a scanner or camera to copy and record paperwork. You can either use a telephone or bribe someone else to make calls for you.
We live in an Internet age. You need a computer nerd who can be easily and inexpensively bribed to tell you how to register a domain name and set up a simple web site. You probably have one in your family. If not, talk to your friends. Computer nerds get incredibly sick of being asked for help, so treat them well. Bribe them, pay them, whatever it takes to make them think well of you and want to aid you. When your business gets big, pay them.
You must back up your business files regularly. A cloud-based backup is okay, provided that the cloud service makes no claim to owning any of the data it backs up. The cloud must be only a backup, though. Original files should remain local, with you, on your computer. Current accounting convention is to save everything to PDF, with copies locally and in the cloud. Cloud-based services have a distressing habit of disappearing overnight, without warning—or, worse, changing their terms of service so that they can sell your data to your competitors. The day your cloud provider disappears with all your records is the day the tax agency sends you an audit notice.
What I Won't Tell You
I'm not going to tell you how to create your art. Your art is not my art. (I will talk about how many professional artists improve their craft, but on a generic level.)
I'm not going to tell you how to sell your art. I have no knowledge of the inner workings of any trade except publishing, and that changes so quickly that any book I wrote would become obsolete before I could get it into print. Talk to multiple people in your industry.
I won't recommend specific software solutions. You need a spreadsheet program, but I'm completely indifferent to you using Excel or Numbers or LibreOffice or writing your own spreadsheet program. Your operating system, scanner software, web browser, or email client? If they work for you, they're fine.
I will say that if you use a cloud-based service for anything, carefully study the terms and conditions before using it. Some of those services claim ownership of your files, and not just to support the service you're buying. So long as the service works and doesn't hijack your art, it's acceptable.
Creative businesses accumulate helpful folks. I hire help all the time. I hire artists, and proofreaders, and too many different kinds of editors. I don't dare do my own taxes.
You need help too. Musicians might hire roadies and studio musicians and sound engineers. We all want to hire the personal assistant who can rub our feet and respond to a raised eyebrow by offering today's delectable dessert assortment.
Once you start making money, though, you'll attract the other sort of help. The sort that's no help at all.
Artists have a reputation for needing business help. Stories from popular culture reinforce this reputation. I don't know how many times I've heard the legend of how Hemingway's publisher bailed him out, or Poe's, or Steinbeck's. The same stories probably circulated about Chaucer. Uncountable urban legends of artists who can't business their way into ordering a meal at the local hamburger joint cement this reputation.
Maybe an artist's publisher or agency took care of the creator, once upon a time.
Those days are many decades gone.
People like agents, brokers, and managers might offer to take care of you. They're willing to handle all the messy details of dealing with the business, so you don't have to soil your pristine creative spirit with crass commercial matters. They'll use phrases like "dedicate yourself to your art" and "most people can't understand" and "don't waste your time when you should be creating." Their fees sound modest. They'll present you with easily digested reports and incomprehensible contracts.
I am not saying that all of these people are crooks.
I am saying that scumbags who want to steal from creators take exactly this approach.
It's not that everyone has nasty ulterior motives. Maybe a manager or agent is perfectly honest. But if you don't understand the basics of business, if you can't check your helper's work, you will never know if they're honest or not. The second-greatest financial criminals in history all seemed so trustworthy, until the very end. (The very greatest still seem trustworthy.)
A new saga of violated trust hits every artistic community every month, and every year or so some big-name creator's woes hit the national news. Sometimes predators steal not only money, they steal the intellectual property underlying the creator's craft. I don't want anyone victimized by such predators ever again. Understanding how business works in general, and your business in particular, will help you recognize chicanery and save you both money and heartbreak.
This isn't to warn you off hiring help. I hire artists, editors, accountants, and lawyers the same way I hire plumbers and electricians. I call them when I need them. I pay them a fee appropriate to their labor, and I pay it promptly. I thank them, offer them something to drink, and send them on their way. If my gut tells me they aren't right for me, I don't hire them again.
The difference is, I delegate parts of my business to them. I don't let them direct my business. All monies come directly to me, not to an intermediary like an "agent" or "representative." I (and my family) have the only access to financial accounts. I read and mark up all contracts, then ask a lawyer for help in understanding them.
The only way to protect yourself is to understand what's going on behind the scenes. That means soiling your pristine hands with filthy lucre.
Art, Craft, and Trade
We can all sit around over drinks and debate "But what is art? I mean, when you get right down to it?" It's a great game. If we're going to discuss making a living as a creative, though, we must agree what they mean long enough to have the conversation. Here's how I use these terms.
Craft is the nuts and bolts of how you do The Thing. For a writer, it's stuff like grammar and spelling and reading. For a glass artist, it's not mixing different COEs or—at the highest levels—how to mix different COEs. Painters need to understand that light and pigments blend colors very differently, how to prep and clean a canvas, and so on.
Art, as a verb, is how you express yourself through your craft. Stephen King and Danielle Steele both work with the same tools of the craft, but they create totally different books. Art illuminates an ideal.
As a noun, art is the finished product; the book, the painting, the song, the Thing.
Trade is the business of the finished art. Once you have mastered your craft, you need to master your trade. For writers, it's how to format a manuscript and how to sell your books. For an artist, it's how to get into galleries and garner commissions. Maybe it's how you use Redbubble, Etsy, and eBay. It's how you pay your taxes and siphon off money to pay the mortgage.
Professional artists must master craft, art, and trade.
The Art and Business Hats
The trickiest part about a creator learning their trade?
Never letting the trade into the creative process.
Thoughts like "this will never sell" or, worse, "this will sell millions!" are death to creativity. Create what brings you joy. As a writer I'll spin tales of financial chicanery and betrayal, probably generously leavened with stabbings and shootings and whatnot just to keep my blood flowing. But I can't let considerations of how my business is faring this week get anywhere near my keyboard. An artist should feel free to paint "The Wealthy Give Me All Their Dough" as satirical commentary or plain wish-fulfillment, but shouldn't do "My Dreadful Fiscal Losses This Year, Quarter-By-Quarter, This Is ALL POINTLESS AND I SUCK."
A creator with a stressful job must put aside their concerns to create. You can't fret about your stock portfolio and carve a masterpiece. When you step into your creative space, discard these business concerns in exactly the same way. I promise you that when you finish the day's drawing or writing or sculpting, those concerns will still be there, ready to be picked up. They won't even miss you.
Think of art and business as hats. When you put on the Art Hat, you are purely a creator. You are expressing your innermost self through your craft to create a piece of art. During that moment, you must utterly believe in yourself. Other people have the exact same craft you do. The only thing you own, all you can express, is your sincerity and personal truth. Without letting yourself do that, you have no art.
When you finish your work, take a moment to admire it. Tell yourself you did okay. Creative work is still work, so give yourself a chance to rest.
Then take off the Art Hat, and put on the Business Hat. You've expressed your personal truth, now it's time to trade that work.
Don't even think about the creation process while you're wearing the Business Hat. Don't consider the trade while you're wearing the Art Hat. They must be wholly separate.
Even long-time creators have trouble with this. I just had a discussion with a writer whose artistic side is demanding she write a certain novel. Her business mindset keeps shrieking, "You don't want to be known for this!" Truth is, her inner creator is going to write the book. The only question is, will she come along quietly or will her Muse drag her by the handcuffs?
Maybe she'll put on the Business Hat afterwards and say "No, this can't go into the trade." That's fine. Everybody occasionally creates unsaleable work. Maybe she'll give it for free to her most dedicated fans, or bury it in the trunk for her literary estate to discover.
My wife, She Who Must Be Obeyed, knitted me a Business Hat and an Art Hat. When I blur the two roles, I literally put on the proper hat and get to work.
"Creators and Business" Action Items
1)What are your goals? A goal is something you control. Making one new piece of art a week is a goal. Writing two books a year is a goal. Buying your own capybara ranch might be a goal, if you have the cash on hand and are ready to call realtors. Write it down: "My goal is…"
2)Perhaps you can't control if your dreams come true, but it's important to admit you have your dreams. What are your dreams for your art? Do you want it to pay the mortgage? Do you want some extra cash? Do you want wealth and fame? Are you looking for a tax break on your fabric habit? Earn heaps of money? Transform your capybara ranch into a capybara dude ranch? Write it down: "My dream is…"
3)Put your written goal somewhere it will regularly remind you to work towards the goal.
4)If you're the sort of person that will be encouraged by seeing your dream, put the dream right next to your goal. If seeing your dream regularly would discourage you, leave it in your notebook. (Admitting it was a dream, and beyond your control, was the important part.)
Chapter 2: Create a Business
Business people have their own language. Corporation. C corp, S corp. Trademark. Limited liability corporation. Initial Public Offering. Sole proprietorship. Copyright, cash flow. Partnership. Non-profit corporation. Trade secrets! Fiduciary! Temple of Mammon! It seems designed to overwhelm. Reading a book on business will explain all of these, but without much context that is useful to you as a creator.
In this chapter, we'll nail down what a business is, its role, and how cash flow figures into it.
What Is A Business?
A business is an artificial entity for processing money.
Yes, folks with a business degree will stand up here and pontificate about the different sorts of business, and how each has advantages and drawbacks, and how choosing exactly the right sort of business is so vital. They have very legitimate points…but none of that applies to you. Yet.
A business is a bucket to put money in. The business transforms the money into salaries, into fringe benefits, into minimally viable products or infuriated customers or who knows what. The important thing to understand is that a business is an artificial entity that serves your purposes.
This definition of a business applies to a whole bunch of things that we often don't think of as businesses. A household is a business, no matter if it's one person or a nuclear family or a sprawling commune. A family of two adults and a few kids might be born from undying love, but as a household it survives by bringing in money and directing that money to meet its needs. A family that manages money adequately can endure for decades. If it doesn't, well, financial problems implode families just like they do businesses.
Consider the different families you know, and how they run the business of their family. Maybe all the money gets thrown into one pot, and one person is responsible for reading bills and writing checks and balancing accounts. I know some families where each adult keeps their own books, and each person is responsible for certain bills: "I pay the mortgage, you get lights, water, and capybara food." Maybe one person makes and spends all the money, and the other is along for the financial ride.
Businesses have just as much variety, and business people have named each style of financial management. Once you understand that sole proprietorship is the same business model as Mom works and pays all the bills, it's not so hard. (Yes, Dad legitimately labors by hosing down the kids after school and feeding the capybaras and figuring out what's for dinner, but that doesn't show up on the household ledger except as an absence of housekeepers, chefs, nannies, and ranch hands.)
A business makes decisions in accordance with the business' best interests. The artificial entity borrows a human mind to think. A business' decisions are things like: should we invest in a new laptop for the artist this year? How much money can we afford to put into retirement accounts? Should we release the new thing this month or in the autumn? Yes, a human being makes those decisions, but it's not that different from a family. My best interest is in sleeping late on Saturday, but if a family member needs me to take them to an appointment, it's in the best interest of the family that I get up and go.
A business is very different than a family in that you shouldn't get attached to it.
Presumably you formed your family because you kind of like the other folks in it, or at least you're accustomed to having them hanging around. If you have a conflict between your business and your family, always put the family first. You need to take care of your business, but if the current business no longer suits your needs you can reconfigure it, redesign it, or discard it and start over. (The same is true of your art and your craft.) Businesses exist to serve people, not shackle them. Businesses are defined on paper. If you need a second or third business, you can spin them up by filling out forms and paying a fee. You make decisions as the business, but the business exists to serve your needs.
Why Have a Business?
Why can't people just give you money for the thing you love, without you going to the trouble of forming a business? You can do that. Your taxes will go up, but perhaps you really don't want to mess with paperwork.
If you're taking money for your craft, you're in business. Period. The only question is, will you admit it? Will you take advantage of it, or not?
No matter what, you must pay taxes on your income. Evading taxes is a crime. Many governments have upper limits on the amount of income they will ignore. Once you clear that threshold, you must report the income and pay taxes on it. Organizing your creative income as a business simplifies paying those taxes.
An important part of cash flow is knowing where your money comes from. If money appears in your bank account, is it from your creative work or your salary? Can you afford to quit your job and live off your art? If the money's all in one big heap, there's no way to tell. A business inherently tells you which is which, almost as a side effect.
Governments treat expenditures by certain types of business differently than those by individuals. Your business might be able to pay for tools and supplies tax-free. You can't.
The worst things that can happen to the unprepared creator are financial failure and stratospheric success. If you isolate the financial parts of your craft in a business, you'll perceive impending failure far earlier and have a better shot at correcting course. If your creation goes viral and torrents of money start pouring in, you must immediately contact your accountant and prepare for the deluge. I know more than one creator who went from a couple thousand a year to over a million, with no warning. That lightning strike will change your life. Isolating your creative finances from your personal finances vastly eases coping with success. If you're utterly unprepared, dealing with the aftermath of that lightning costs stress, time, and money. Also, the greatest success in the world eventually tapers off. If you isolated your business finances before the lightning hits, you'll recognize normal when it returns.
Fortunately, a business is an artificial entity defined by a piece of paper. You can change that paper.
Naming Your Business
Coming up with a name can be the most annoying part of creating a business. It often seems that the perfect names are already taken. Here's a little secret:
The name of your business doesn't matter.
If you have the perfect name, great! If your name is okay, that's fine.
You have very minor restrictions on your business name. Don't use the same name as a big corporation. Even if your name is McDonald, don't call your art business McDonald's Portraits. It'll draw the attention of the implacable Ronald McDonald, and you don't want to cross that clown—smile or no, he's got more lawyers than you do.
Most difficult, you need a business name that's available as an Internet domain name. People will look for your business name dot com, but if your country has their own top levels like .au or .co.uk you could use that instead.
If your Muse whispers a name in your ear, great! If not, use the name of the next street over. Or the name of your town with your type of business attached, as in Grimville Publishing or Sugar Valley Sculpture. Or your favorite breed of cow. Or the town with the world's biggest ball of string.
Maybe you can borrow something from a famous book or film. I named my main company Tilted Windmill Press because Don Quixote is something of a role model. When I needed a new company name and "Burke and Hare Press" came to me, the first thing I did was check to see if the domain name burkeandharepress.com was available. It was. I bought it. One of the most successful small publishing businesses I know of is named after the initials of the owning family's cats.
The name doesn't matter. Uniqueness and domain name availability does. I mean, what sort of name is "General Motors" for a car company? Who names their new computer company after a piece of fruit? You can even make up a word, so long as it's pronounceable and an Internet search doesn't show it's slang for something nasty.
When you decide which name to register with the government, get your computer geek to help you register the domain name. A dot-com domain name should run you about ten dollars a year. Unless you're an Internet-based business, you do not yet need email or web hosting or any other service. You only need to stick a flag in the Internet to declare "I claim this chunk of Web for Craft and Country." While you're registering domain names, grab your name dot com if it's available.
Once you have a name, you're ready to create a business.
Stages of a Business
Every business started off as a shmuck with a dream. A fast food franchise might not seem an exciting dream, but despite what the movies say, I dream of feeding and sheltering my family is eminently worthy. Our culture overflows with tales of businesses that started in the founder's garage and became multinational gigacorps. I grew up with tales of Henry Ford building the first auto in his backyard shed, and then having to knock out the shed wall so he could get it out. A century later, the Ford Motor Company is an automotive powerhouse despite that early failure of forward planning.
Globe-spanning firms didn't start as big corporations. They started as smaller businesses, and evolved in response to changes in environment. Your business will do the same.
I'm using United States language here. Different countries have other terms for these stages of organization, and manage their licensing and taxation differently. A few countries have unique systems that make sense for more traditional businesses but handicap the small creator. Seek guidance from a local professional creator.
Let's talk about those stages. No matter who you are, start by claiming a business name.
Every country has simple business form of "I'm a person running a tiny business under this name." In the United States this is a Doing Business As, or DBA. It's often also called "Operating As" or O/A. These are public declarations that you're doing business under an assumed name. "My name is Irette Smith, and I'm doing business as Amazing Arts Atlanta." Most DBAs are filed at a local level, such as a county or parish, and require a modest fee every few years to maintain. It's a toddler among artificial entities. Anyone can go to the county and find out that Amazing Arts Atlanta is you. Legally, it is you.
The chief advantage of a DBA is that it lets you get a bank account under the business name and take payments under that name.
When should you create a DBA? In the United States in 2020, I'd say when you approach four or five hundred dollars a year. That's enough that businesses will soon start sending paperwork with your name on it to tax agencies. Your business bank account prepares you for that moment. If you sold three handmade bracelets last year and made enough for a nice fried chicken dinner and dessert, you probably don't need a DBA yet. Having one earlier won't hurt you. Establishing that bank account early builds good habits and saves you the trouble of changing your bank account in Stripe or PayPal. But you don't need it yet.
Any financial benefits or problems with a DBA flow through the business straight to you. A DBA can't go bankrupt; you go bankrupt. The DBA can't commit tax fraud, that's all on you.
If you handle all your creative business money through the DBA bank account, converting the DBA to a different business structure is a mere matter of paperwork.
A Group of People
You'll often see unrelated people come together in partnerships. They don't need a big corporate structure yet, but they're going to jointly own a shop or factory. The people don't need a complicated corporation either, but they want to fairly divide the income and losses. Here in the United States, this is called a Limited Liability Company or LLC. It's great for a family business like a store or dry cleaner or restaurant. If a business is an artificial entity for processing money, the LLC is a great engine for dividing money between folks who do not otherwise share a tax return.
The LLC structure is not so useful for a creator. Your art business probably won't own property or hire staff. Any financial or tax issues and benefits flow through the LLC straight into the owners. The LLC's tax paperwork is part of your tax paperwork.
When should you convert your tiny DBA business to an LLC? That's a decision between you and your accountant. Small business accountants love LLCs, because they're so useful to so many non-creative small businesses. Ask questions like how will using an LLC reduce my taxes? How will this change benefit me? It's not that an LLC is bad, but for most creators it doesn't grant many advantages.
A corporation is an independent entity. Where LLCs and DBAs have strong ties to people, a corporation exists on its own. The corporation has officers that run it, and owners that reap the benefits, but those are not necessarily the same people. A corporation issues an annual report, files its own tax return, and issues tax forms to the owners so they can do their taxes.
A corporation has its own bank accounts. While that account will have a list of people permitted to access it, the bank account is not the property of any person. For a creator, one of a corporation's interesting characteristics is that it can own or license property, including the intellectual property you create.
When should you use a corporation, and what sort of corporation should you use? That's another discussion between you and your accountant. You need the right accountant, however, and a whole bunch of creativity. We'll discuss the possibilities with corporations in Chapter 5 but in general, in the USA, start investigating this somewhere around fifty thousand dollars a year.
The Reality of Business Stages
All this is fine, but really, what should you do now?
First, remember that your formal business organization—DBA, LLC, or corporation—is a tool that exists to serve you and your goals. You can change that tool as needed. Your country changes the law? Roll with it. Change your organization to fit.
As a beginner, start with a DBA. Get that bank account. Create the separate money bucket so you can start to manage cash flow in the next chapter.
Don't dismiss the idea of going bigger, however. If I look at the peak of my profession, I see dozens of writers who use corporations to optimize their lives. Artists do the same. If a creative business is a long-term game, needing a corporation is the highest level of the game. See Chapter 5 for some possibilities there.
Look at the top people practicing your art professionally. It's easiest to see in books, but catalogs and web sites for other types of creators can leak a surprising amount of business information. Dig into the fine print and you'll see statements like "Copyright 2018 Angry Avocado Rising Inc" or "produced under license from Zen Honey Badger." These artists are using corporations. Perhaps the most famous example is James Patterson, the biggest selling author in the world, who employs his own editors, cover designers, and more, and who uses publishers mostly as printers and distributors.
Business Bank Accounts
A business absolutely must have its own bank account. Any bills the business pays must be paid from the business account. Your personal bills cannot be paid by the business account. Violating this rule will make the tax agencies come after you for comingling of funds. It's a specific crime in some countries.
Here in the United States, most credit unions will let you open a business account for free, requiring only a minimum balance of five or ten dollars. Don't go to a commercial bank and request a business account; your business is not large enough to tolerate their fees. (When your business becomes large, there's no reason to tolerate bank fees.)
The bank account creates a money bucket for your creative business. The bucket is the center and focus of cash flow, as we'll see in the next chapter. Eventually, you'll pay all your creative expenses out of this account.
Once you have a bank account, immediately direct all creative income into that account. From this moment on, the outside world should have no idea that your personal bank account exists. If your business has an online component, tell any existing e-commerce platforms to dump payments into this business account. Pay the expenses for your art out of this account.
Business Income and Expenses
Businesses are artificial entities for processing money. You need to segregate your creative business income and expenses from your family's income expenses. Your money breaks up into four categories.
One category is your family's income from straight jobs. Salaries, hourly pay, and so on all goes to your family.
A second category is money spent to support your family. Rent, food, utilities, and season passes to the petting zoo go here.
The third category is income from your art. Royalties, commissions, and sales of your pieces go here.
Finally, there's money spent to support your art. Artists need paint and canvas and brushes and markers and all sorts of things. Writers need a computer, but depending on how we work we might also need editors or artists or researchers. We all need space to work. Many of us must attend conferences or classes. This is all stuff your business should pay for.
What's a business expense, and what's personal? I write books on technology and Internet engineering. That means my home office needs piles of Internet and a flotilla of computers that can only be described as "indecent." These are all business expenses. If an expense can be a legitimate business expense, assume it's so. Trade and craft conferences? Business expense. Business software, like word processors and spreadsheets? Business expense.
Lunch while you're working is personal, as you'd have to eat anyway. Street clothes are not a business expense, even if your employer's dress code demands everyone wear something, anything. This unfair world expects you to use your own money to purchase pants. Work uniforms and artists' smocks are business expenses, though.
The accountant's job isn't only to file your taxes. It's to keep you out of trouble with your taxes. Every business needs an accountant. Finding one is your first real problem.
I make this sound easy, don't I? "Just go find one, la de dah!" The truth is, accountants are everywhere. Your business is so small, almost any small business accountant can handle it. Ask your friends and family for recommendations. Check the Internet for reviews on local accountants.
You don't want a big industrial accountant that prepares tax returns en masse. You need an accountant that you can build a relationship with, who will understand your business. You might need to change accountants in some future year. An accountant suitable for your $2,000-a-year business isn't the right person for a million-dollar business.
When you find a small accountant that sounds right to you, call them. Ask them how much they'd charge for an initial one-hour consultation on your new business. The amount varies depending on where you live: Detroit rates are much lower than Silicon Valley!
Bookkeepers traditionally do day-to-day activities like recording receipts, but in some countries they can also do small business accounting. Learn the standards in your country. Maybe you'll wind up with a combination of bookkeeper and accountant. When I say "accountant" in this book, mentally substitute the right person for your country.
If at any time an accountant gives you a bad feeling: leave. Cancel. Say "thank you" and hang up. Find a new accountant. Life is too short to hire creeps. Accountants and other freelancers are accustomed to occasionally losing business. And if an accountant, or any other contractor, gets angry with you for changing? That's proof you made the right decision.
The Company Web Site
Now that you have a company, surely you need a web site. Right?
You do need a web site. It must be on your domain name. Don't try to get by with a social media page, like on Facebook. Facebook charges you to expose your site to your fans. Plus, less than half of Americans use Facebook daily. The percentage is lower in other countries. You want to sell your art to the entire world, not merely half of it.
A web designer might charge you big money to create a full-featured web site. When you're first starting, though, your web site only needs a few things. It needs to say "This is the site for artist So-and-So Whatever." It needs to tell people where to find your work. It needs to tell people how to reach you.
Anything else is extra.
You don't need a blog. If you have a blog anyway, you should link to it—or, better still, if it's relevant to your business, move it on your site. You don't need social media, though if you have accounts somewhere you should link to those as well. You don't need your own online shop. Maybe you'll need it one day, but you certainly don't start with it.
Keep your web site small and simple. Only add new features when you must. And don't let anybody sell you more than you need.
Meanwhile, go read about the cash flow game in the next chapter.
"Creating a Business" Action Items
1)Tell the other decision makers in your family that you're investigating setting up your art as a small business, and you'll probably be asking them some strange questions in the next little while.
2)Come up with a few different names for your company, as discussed in Naming Your Business.
3)Ask your computer geek to check which of these names are available as dot-com Internet names. (Absence of a web site is not a valid test; I own many Internet domains with no web site.)
4)Of the company names with a domain available, rank how much you like each.
5)Research how to register a DBA in your area, as covered in Doing Business As. In most places, the county or parish or city handles DBA registrations. Maybe you can even register it online.
6)Register a company name as a DBA. If someone else already registered your preferred name, work down your list until you find a free one. Save the receipt.
7)Bribe your local computer expert to get the domain name for you, as discussed in Naming Your Business. Remember, you don't need a web site yet. You only need to claim that piece of Web territory. Save the receipt.
8)As covered in Business Bank Accounts, look for a bank that offers no-fee accounts for small business. Try credit unions first. Ask your friends for recommendations.
9)Take your DBA paperwork to the bank. Verify that they won't charge you any fees to keep your account open, or to use your account. Open a bank account in the name of your DBA. Note where the initial money comes from; your pocket, or art sales? Your accountant may want to know.
10)Log into your new business account's Internet banking site.
11)Make a list of all the possible sources of income for your art: commissions, royalties, Patreon, Kickstarter, contracted orders, publishers, distributors, Third World tyrants and First World plutocrats besotted with your unique vision, and so on. Dream big here.
12)Make another list, of all the things you purchase regularly or have already purchased to create your art. Supplies, components, tools go on this list.
13)Make a third list, of all the things you could purchase that would make creating your art easier. Dream real big here. A personal assistant? Subscriptions to trade journals? Attending the very expensive conferences? A car where all four tires are still round?
14)None of these three lists are immediately complete. Keep them at hand for the next few days. When something you missed comes to mind, jot them down.
15)Talk to your family and friends about small business accountants, covered in Accountants earlier this chapter. You probably know one or know someone who knows one. Pick one.
16)Ask the accountant how much they charge for an initial consultation on a small business. If the amount seems reasonable for an hour of a professional's time, make an appointment. (If not, investigate other accountants. If they're all changing about the same amount, raise your estimate of how much a professional charges for their time.)
17)Take your three lists to the accountant. Tell them what you're doing. To advise you, they'll probably want to know where your money really comes from. (That Third World tyrant, while a possible income source, probably hasn't sent you any cash yet.) Go over your lists of expenses and potential expenses, and ask which are deductible in your country. Ask them any other questions you have.