Creative professionals – from freelance writers and designers to artists and agencies – face unique financial challenges that require a solid understanding of basic accounting principles.
In this post, we’ll explore the key financial management techniques that every creative professional needs to know, which will help you stay more financially organised.
Managing cashflow in creative industries
One of the biggest challenges facing creative professionals is cashflow management. Unlike salaried workers who receive a steady paycheck, freelancers often face unpredictable incomes based on project competition. The same is true for agencies.
Cashflow is the flow of money in and out of a business. Maintaining a positive cashflow – more money is coming in than leaving at any given moment – is essential. With it, the business can purchase expenses required for projects, build a cash reserve for lean periods, and ultimately turn a profit.
Effective cashflow management ultimately starts with knowing how much money you need to run the business, taking into account fixed costs like utilities and software subscriptions and variable costs like materials. You can then forecast your costs against your predicted income and adjust your spending or prices if needed.
To keep cashflow steady, it’s incredibly important to invoice clients as soon as possible and follow up on overdue payments. Consider deposits, early payment discounts and late payment fees to help you achieve this. As unpredictable and input-reliant as the creative sector is, being paid on time should be a focus of your cashflow strategy.
Project-based accounting
As most creative professionals work on a per-project basis, it’s important to implement project-based accounting, which measures the revenue, cost and profitability of individual projects. This isn’t the high-level accounting you do at the end of the financial year, but micro-level and focused accounting based on each of your projects.
By tracking your income and expenses project by project, you gain a level of insight that would be lost if you only looked at your yearly finances, which will help you:
- identify profitable projects
- adjust pricing strategies
- spot inefficiencies early
- improve cashflow management
- refine budgets
- evaluate project timelines.
To track your expenses effectively, you can use bookkeeping software to help you manage your costs so nothing is unaccounted for. Many accounting tools also integrate with bank accounts and credit cards, making it easier to categorise and track expenses in real-time. Stay on top of your bookkeeping so you don’t have to rush through a backlog of invoices and receipts, which is one way to make mistakes!
Tax planning for creatives
Tax planning can easily be overlooked in any sector, but is an essential part of running a sustainable business. Freelancers, designers and artists need to be proactive and implement a strategy to save them significant money on their tax bills.
Businesses can deduct their day-to-day expenses from their pre-tax profit, lowering their tax bill. Make sure to claim every one you can on your self-assessment tax return (self-employed) or corporation tax return (companies) to reduce your tax bill. You can claim capital allowances for larger investments.
There are eight corporation tax reliefs and two corporation tax expenditure credits to companies in the creative sector. Check the government website to see whether you qualify.
Make sure to set aside some money for your taxes throughout the year – business taxes aren’t deducted automatically from your income, so it can be a shock the first few times when a large bill comes through from HMRC.
Consider working with an accountant or tax professional. They’ll be able to help you put together a detailed tax strategy that ensures you’re paying only what you owe and not a penny more.
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