Being a creative entrepreneur involves making decisions, sometimes risky decisions. Wise decision making requires having good information to guide you. And one of the best sources for good information is your money. Evaluating your expenditures, your cash flow, your equity, your balance sheet, all these sources can deliver valuable and necessary insights that inform business decisions. But in order to “hear” what your money has to say, you have to maintain an ongoing conversation with these numbers. One way to keep this conversation going is to do your own bookkeeping. This simple business discipline will enable you to keep your hand on the pulse of vital financial information. Creatives may feel disinclined, or daunted by the thought of mastering a system like Quickbooks. But don’t underestimate yourself—you can learn these skills, and if you do they will pay dividends.
Are you ready to take the struggle out of finding new clients?
When I began my first company I ran my financial records through various spreadsheets and a couple home made FileMaker databases. I had my own way of organizing my invoicing, receivables, and to track my expenses. It worked for a while, but when I had to provide my accountant with the information he needed to prepare my tax return, things got ugly. Eventually I had to bite the bullet and move my finances into a real accounting system, and so I came face to face with Quickbooks. As a creative, it was excruciating to have to start thinking like a bookkeeper.
I’ll be honest. It did take me quite some time to learn that system and adapt to using it. I spent far too many hours with Quickbooks support trying to untangle mistakes I’d made along the way. But once I mastered Quickbooks, not only did it keep my finances organized, it provided me with quickly customizable profit and loss reports, balance sheets, and other views of my financial data which revealed insights about my business that I never saw before.
You see, there are many products on the market that allow creatives to track time and send invoices. Some even track expenses. But unless your bookkeeping software follows basic accounting structures that maintain the debit and credit relationships across all account types, they can’t deliver the kinds of dynamic reports you need to listen effectively to your money. At the end of the day you have to spend time sending invoices, receiving payments, and paying your bills. But you’d be so much better off if all those efforts were contributing to a resource that gave back critical financial insights.
And so investing the time to learn and use a real accounting system like Quickbooks or Xero is entirely worth the effort. And while there is a learning curve, keep in mind that as a creative entrepreneur you’ll ultimately only need a small subset of all that these accounting systems offer. Most creative entrepreneurs don’t have inventory, or property to depreciate, or other more complex business models to manage. So for you, learning these systems will involve locating and mastering just the few features you’ll need from among the vast capabilities you don’t need. Once you get your footing, it’s really not that hard at all to categorize credit card transactions, balance bank account registers, create invoices, and receive payments.
If you can just master those aspects you’ll start building up a data source that will offer up insights into where you’re over spending, where your highest margins are, and most important, whether or not all your efforts are resulting in a profitable business. On that last point, you can know absolutely whether or not you are making a profit by simply running a monthly balance sheet report and comparing the “total equity” line from month to month. If that number is steadily increasing you are earning a profit, if it stays about the same you’re operating a break even business, and if it’s going down it’s only a matter of time before you’re out of business.
Your money can tell you so much, and it never lies or flatters. It might be hard to hear sometimes, but it always tells you the truth.
Creative entrepreneurs tend not to be numbers people. And so the idea of doing your own books may sound scary. But if you take this challenge, you’ll open up information that will help you make much sounder business decisions and radically improve your likelihood of success.
Until next week: don’t let the business of creativity overwhelm your creative business.