If you want to expand your business, increase your sales and ultimately grow your profit margin, then you HAVE to track your expenses. I️ know, I️ know, this isn’t fun, but it is imperative to owning and operating a business.
Today I️ want to share six reasons why you need to track your business finances and my tools to help you to get started.
1. TO KNOW WHAT ITEMS ARE THE MOST PROFITABLE
If you don’t track your expenses you have no way of knowing which areas of your business are bringing in the most money. For example, are you making the most money in your state or from online sales out of state, from shows or from your website, from paintings or from commissioned drawings? By breaking these categories up and tracking your income you can get a clear idea of what is bringing in the most money and create more of that item.
2. TO KNOW WHERE YOU MONEY IS GOING OUT
Obviously just as important and tracking the money coming in is tracking the money going out. I️ found after my first two years of business that certain areas were crushing my bottom line. I️.e. I️ was spending tons of money on frames and not charging enough to make it worthwhile and some of my art supplies were too costly and I️ could consider switching brands. On another note, I️ noticed my studio space was my biggest cost, but I️ realized that is was necessary for my practice and I️ just had to make a certain amount each month to offset that price.
3. YOU KNOW HOW MUCH YOU ARE ACTUALLY MAKING
When you keep track of all of your income and all of your expenses you get a bottom line or how much you actually make at the end of the year. This tells you if you are profitable and how much this business is bringing in. You can actually divide this number by the number of hours you worked and get your hourly pay rate…this might tell you that you need to raise your prices or decrease your expenses, etc.
4. IT HOLDS YOU ACCOUNTABLE
Before I️ tracked my expenses, I️ would spend willy nilly on art supplies and did not really care if a paint tube dried out or a piece of paper crumpled. This was completely irresponsible and it cost me big time. By tracking my expenses I️ saw exactly how much I️ was spending on supplies and valued taking care of them and learned to also price my work appropriately to cover those costs.
5. IT MAY INFLUENCE ARTISTIC DECISIONS
Once you see your biggest income drivers you might consider creating more of those items or doing more of those things (ex: if flowers sell better or if shows drive more sales). You also might consider looking at which products have the biggest profit margin, or make you the most money for the lowest cost and create more of those.
6. YOU CAN DETERMINE WAYS TO GROW
Once you determine how much you are making on an annual basis you can consider new ways to grow. Do you want to do more shows, increase your marketing efforts, teach a course? Seeing where the money is coming in and out is the best way to influence new business decisions.
Ok, so I️ told you to track your finances but how do you do this? I️ personally use two things, Quickbooks and My Financial Tracker for Artists. Quickbooks is great once you have a grip on the jargon and how you want to do your accounting, but my tracker is great for just a basic understanding of money coming in and out and getting you started without the hassle. It also is built by an artist for artists so every category is 100% tailored to you.
Interested? Learn more here.