You are an artist. You may be an actor, a painter, or a
writer, but you are an artist. And of course, you are
running a business. Or is it a hobby? The biggest
question of all is – do you know the difference? Think
about what makes a business a business. Think of how a
big company runs things. They have a business bank
account and business credit cards, they keep records of
all business expenses, they keep records of all sales,
they pay all their expenses from their business bank
account, and they know when they have made money (a
profit) and how much. And you would certainly never
see the CEO going out and buying printer supplies from
his or her personal bank account.
You need to ask yourself, do you run your business like
this. If the answer is no, then you are not running a
business. If the answer is no, then what you are doing is
merely engaging in a hobby, and it may be an expensive
one. You might be saying, “But I’m no accountant, I’m
an actor.” True. However, as painful as it may be, you
can learn to keep proper track of your business finances
and keep them separate from your personal finances.
In the last newsletter, we discussed your financial
starting point. You need to know from where you are
starting to know where you are going. Hopefully by now
you are well on your way to knowing what your earnings
and expenses are. The offer we made in the last issue
still stands. Just e-mail info@abundancebound.com and
put Chart of Expenses in the subject line. We will send
you an Excel chart that allows you to track your monthly
income and provides an extremely detailed list of
possible expenses to help you remember all of the
different ways you are currently spending your money.
The absolute most important thing to do for your
business is to separate all your personal income and
expenses from your business income and expenses. As
we mentioned above, you would not see the CEO of a big
company go out and buy printing supplies from his or her
personal account and you should not do this either. This
means you need to have a business bank account. If you
do not, then all your income and expenses are mixed
together and it is far harder to keep track of everything.
You can easily start a DBA (Doing Business As) which
will allow you to qualify for a business account (for more
information visit www.legalzoom.com).
So, you have a personal account and a business account.
Now you place your personal earnings (your day job such
as waiting tables, tutoring, etc.) in your personal
account and you put your business earnings (acting jobs,
work sold to a publisher or at an art exhibition, etc.) in
your business bank account. Likewise, you would pay
for all of your personal expenses (rent, groceries,
clothes, vacations, etc.) out of your personal account
and you would pay for all of your business expenses
(acting or art classes, head shots, mileage to/from
auditions, etc.) from your business account.
This is very straightforward. The thing is it is simple,
but not necessarily easy. First, it depends on how
organized a person you are and it depends on your
desire to do these things. The point is they can and
must be done if you are to run your business as a
business. Right now, you may want to say, “STOP! I
don’t make enough money from my business to pay for
all of my business expenses.” If this is the case, simply
make a loan from your personal account to your
business account and make sure you record that loan.
When the business becomes profitable, it can then repay
the loan. Be sure that it does.
You should also have a separate business credit card
(even if the card is in your personal name). You should
only be charging personal items to your personal credit
card (and hopefully you are paying off the balance every
month) and business expenses should only be charged to
the card that you have designated as your business
credit card. This way, if you are carrying a balance on
your business credit card, then the interest will be tax
deductible. This is not possible if there is even one
personal expense on the card.
Now, what about those expenses that cross the line –
sometimes they are personal and sometimes they are
business. These are things such as mileage on your car
or household expenses if you work from home. For
these expenses you must keep very clear records of
when and how much of your expenses are personal vs.
business. Keep a small book in your car to record
business mileage. Make sure you keep all your
household bills (mortgage/rent, phone, utilities, etc.)
filed away so that you can use them to determine what
portion you can write off as a business expense.
There are three reasons why it is important to treat your
business like a business and follow the suggestions
above. These are:
1. If your business is not run as such, you will never be
successful. And if you do not treat your business as a
business, you will never make a business income.
2. If you do not keep appropriate records, records that
clearly indicate you are running a business, then if you
are audited, the IRS may classify your business as a
hobby. This could mean loss of tax deductions and you
may even have to pay penalties. This is not what you
need when you are trying to make your business
profitable.
3. You will be able to track the progress of your business
easily. You will be able to look back a year from now
and say, “Wow! My income went up by that much?” Or,
“Yes! I finally turned a profit this year!”
You can do this. Have faith in yourself and your
business. It will grow and you will be successful. Just
remember to keep the personal separate from the
business and keep clear records of the two. Then you
can watch your business grow and never look back.
