Accounting 101: Accounting Basics for Artists

You know what? You don’t have to fear to look at the numbers in your art business. Having the know-how of the accounting basics for artists is a great tool for you to understand your business better and to create a better art business plan.

And we have a super exciting topic for you today. I know you’ve all been waiting for Accounting 101 – LOL! Why not embrace the numbers instead of hating them? Well, that’s a little bit of sarcasm there. 

I know some of us don’t like numbers or accounting. But as we’re going to look into this topic in a way that can be freeing when you put a little time and energy into it.

Accounting Basics for your Business as an Artist

If you’re a business owner, you are building a business, I don’t want it to take you by surprise. From the very beginning, you should be setting aside a percentage of the sales that you make for taxes. I mean, that’s a non-negotiable thing. It’s a lot less stressful. 

In the process, we realized we needed to hire someone to help us. It wasn’t as expensive as I thought to hire an accountant. A good tax accountant is going to help you find things that maybe you didn’t see in terms of a deduction, the tax breaks. As a small business owner, we previously used Turbo Tax for years.

As more and more streams of our business began happening. It became very obvious that we were going to need somebody with more expertise and a better bookkeeping system. Then, we ended up starting out with QuickBooks, and we had a bookkeeper that helped us get set up and taught us how to do it. 

It wasn’t as hard as I thought, but it still wasn’t enjoyable. We’re using an online system called Xero, it’s xero.com. And it is probably a little bit more expensive and robust than what most of you will need. But it’s been really helpful for us. Once we have everything inputted into their system, we can see all our numbers and it’s something that has really helped us move forward in our business.

You can control the numbers

In the world of business, as you grow, you are going to learn some things the hard way. There’s simply no substitute for that. There are going to be moments where you may have something happen. And you have to persevere through it.

I want to be very honest, that we’ve had some ups and downs for sure, related to money. And I think part of that caused even more of that dread is I used to hate the numbers and the accounting. I think part of it is because it just seemed so stressful for me. 

But, the silver lining is that through all these experiences, I was forced to learn more about accounting and bookkeeping. And now a much better handle and an idea of what needs to be done. I’m able to pick up on, if there is a mistake, or if something is happening. So I’ve learned a lot. But it was very hard. I’m not going to sugarcoat that.

When you’re more organized when you are really paying attention to the numbers and the accounting. Then, you hire people that know what they’re doing. It actually brings a lot more peace that allows you to sleep better. 

It’s not helpful to stress over things we can’t control. But your numbers can be controlled and understood. And the more you have a grasp on your numbers and you put people around you, surround yourself with some professionals that can really be of help, you’re going to eliminate so much unneeded heartache.

Basic Accounting 101

A couple of my business friends, helped me to see that numbers don’t have to be so scary. And that they can actually be one of our biggest assets to growing a business. 

One of my friends recommended a book called, Accounting for the Numberphobic.

When I started reading that book, I realized I actually knew more than I thought I knew. It was such a confirmation that I know these things and now I just need to apply it to our business.

These are basic accounting terms that everyone should know that doesn’t have to be complicated and hard. There are just a few things that you really need to know:

1. Revenue

Revenue is all of the money that comes in. So, if you have an Etsy shop, it is all of the money that’s coming in, whether it’s the sale that you made, the shipping that they paid, all of that would be considered revenue. 

2. Expenses

Then you need to look at your expenses. So your operating expenses will be all of the money that’s going out. And this is where I think sometimes artists don’t really keep track of everything. Because you have a lot of supplies that you’ve been using, your paper, paints, and brushes. Some of those things you have to buy on a continuous basis. And also your shipping supplies. 

When I really got down to the nuts and bolts of what I was spending for my products on Etsy, I could figure out my profitability. I was kind of surprised. I was like, Oh, yeah, there’s more money going into this product than I was really thinking about. So you really need to think about all of your expenses. 

3. Profit

Your profit is just simply your revenue, all the money coming in, minus your expenses, all the money going out. It’s really can be as simple as that. 

REVENUE – EXPENSES = PROFIT

4. Profit and Loss

Now your P&L is what a lot of people will talk about in the accounting world. P&L is your Profit and Loss Statement, or some people call it an income report. 

In our bookkeeping software, Xero, our accountants have set it up so that we see the income first. And then we take away or subtract the cost of goods sold. The Cost of Goods would be like when we sell workbooks, the Brush Lettering workbooks, it would be the cost of buying the workbooks for our inventory. The shipping supplies and all of those things are also the cost of goods. Then you subtract your operating expenses. Finally, you’ll have your net income. 

INCOME – COST OF GOODS – OPERATING EXPENSES = NET INCOME

If this feeling is overwhelming to you, there are tons of resources out there that you can get. But that’s what you need to know – the basics. You can put together a simple spreadsheet. Or you can use online or bookkeeping tools to track your revenue, your expenses, and your profit. In that way, you’ll know the basic numbers that you need to know in your business.

Why embrace those numbers instead of hating them

When you know the basics of accounting for your business, you’ll be able to track your revenues, expenses and net income. You’ll be able to see if your business is growing and when it is time to invest back into the business. And be able to increase your profit. The bottom line of the success and the health of a business is how much profit you’re bringing in, right? 

So it’s really essential that you know your basic numbers. What is your revenue, expenses, profit? I just want to encourage you today, if you’re not making a profit, you can change that. 

So let’s just talk a little bit about that. 

Let’s say you have a product that you’re selling on Etsy. When you are honest, and you take into account all of the different things that you’ve used to create that product. Your profit margins are very small. Well, you can look at, can you purchase your supplies in bulk? Get it for a cheaper price? Are you able to get certain things that it’s the same product with similar quality but might decrease the cost?

The other thing is, what products can you create that would then be more profitable? So get your wheels turning and start coming up with ideas. What kind of products can you create that will be profitable? And that could help grow your business. 

If you’re not making a profit, and you’re losing money, I highly suggest you pull that product. You need to change something. You’ll basically be going into debt every time you’re selling something. That’s why it’s important to know your numbers. 

I have an Etsy profit calculator for you in my Etsy Shop Makeover Course. In that calculator, you can put all of your products. You just enter a few numbers, and then it will tell you your percent of the profit from every product. 

This was very eye-opening for me. It showed me right away what my highest profit margin products were, and which ones I was really not making much profit on. It can really help you make decisions on what products to sell in your shop.

Freeing yourself from those numbers

I think it’s very easy for some of us to want to just put our heads underneath the pillow. Maybe things will be different. But unfortunately, that’s not the way it works. Having that understanding of your numbers brings you freedom.

If you need to backpedal a bit, shift your directions, remove a product from Etsy, maybe add something specific, pour more energy into something that is obviously profitable, do it. There could be a number of things that you can change because you know the numbers. And again, it brings freedom. 

It’s freeing having this knowledge. We need to have that knowledge and then take appropriate action from there. 

When you have good people around you, it takes the stress off of you as well. Because these are people and God bless them. God has given certain people the amazing gift of being an accountant. Oh, my goodness, Thank You, Lord. 

It’s that some people love numbers and plugging things in. Subtracting and all of those formulas. We’re privileged to hire people like that. Yes, we spend a little money to do it. But it also takes the stress off because we don’t enjoy this stuff.

I know this is not a sexy topic that a lot of you really enjoy. But this is necessary. And I know that when you get to a place where you have peaceful, calm waters, regarding your finances, it’s going to take so much stress off. I have felt the relief and I want you to feel that as well. 

I hope that you enjoyed this blog post. You can share your thoughts and comments below. I want to hear from you!

Conclusion

I know this is not a sexy topic that a lot of you really enjoy. But this is necessary. And I know that when you get to a place where you have peaceful, calm waters, regarding your finances, it’s going to take so much stress off. I have felt the relief and I want you to feel that as well. 

I hope that you enjoyed this blog post. You can share your thoughts and comments below. I want to hear from you!

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