Every business needs a budget – your art or creative business is no different. A budget for your business is sometimes called a cash flow budget or cash flow projection. The concept is simple, you itemize your anticipated expenses by month and subtract them from the funds which come into your business like sales or cash injections.
If you have money left over at the end of the month you can apply these funds to future monthly expenses. If you have a deficit at the end of the month you will need to come up with additional funds or possibly defer some expenses to a later date. Budgeting for your art business is really no different than having a budget for your home.
Reasons you need a budget
- It will help you plan the growth of your art business and manage your finances.
- You will be able to see when you will need funds from sales or cash injections to keep your business going.
- If you are seeking financing such as a bank loan, a cash flow projection will be required of you.
- With a cash flow budget you should be able to minimize financial “surprises”.
- It will force you to look at where you funds are coming from and where you are spending these funds.
Cash coming into your art business
Cash can come into your business from several sources. Some examples of the ways cash comes into your business are:
- Cash from sales made.
- Cash from customers who owe your money – these are called accounts receivable.
- Cash you put into the business – sometimes called an owners cash injection.
- Cash from personal or bank loans.
- Cash from investments or bank accounts in the form of interest or dividends.
Cash going out of your art business
Cash goes out of your art business every time you make a purchase or spend money. Many of these expenses are easy to forecast such as monthly rent on your studio or insurance payments. Other expenses may occur less frequently or on a one time basis. Some examples of some of the ways cash goes out of your business are:
- Monthly rent
- Sales, Advertising and Marketing Expenses
- Salaries and employment taxes
- Materials and supplies used in creating your art
- Planned expenses such as booth rental in an art fair
The bottom line
When you start your art business you have some amount of cash available. When you make sales or have other cash injections you add to your cash balance. As you make expenditures for your business you reduce your cash balance. Whatever is left over at the end of the month becomes the beginning cash balance for the next month and so on..
Software to help you prepare your Cash Flow Budget
I have created a Microsoft Excel spreadsheet to help you prepare your cash flow budget. Start by entering your real or planned expenses and then work on the area where you list the sources of cash. As you enter items on the spreadsheet you will instantly see how they affect your cash balances. The spreadsheet can be found here: Creatives and Business Cash Flow Budget . You can make changes to the spreadsheet such as changing the name of the items to something that makes more sense to you. The data entry areas are not shaded. Be careful not to change the shaded areas as these contain the formulas. If you don’t feel comfortable with Excel you should be able to find someone to help you. Check your work to make sure the calculations are correct.