Decide on your rationale behind your creative practice- why are you doing what you are doing? Does this feel authentic to you? I recommend you ask this question to all the opportunities that come your way. The answers will help guide and inform the decisions you make for your creative practice now and in the future. And remember, nothing is forever; being flexible can be your best friend. We recommend viewing a talk by Simon Sinek on the ‘Why’ you do what you do.
How much do you have to back up your investment into your business? Setting up a business does take time and money, whether you are in a position to start saving from your current salary or can take on a part time job to support you whilst you set up. Below is a case study on creating an annual living budget.
Work out the time you can spend on your business. Factor in your personal commitments as well as your professional ones and remember to allow for holiday and sick days – which as a sole trader you do not get paid for.
Jo has a part time job in a national museum. This means Jo has access to resources in the professional area of interest and has a regular salary. This job is Wednesday to Friday and pro rata this is £18,200 per annum, not a great deal, but helps. Jo is on a contract and made use of the pension plan and spends 126 days in the museum per annum. The rest of the time Jo has decided to focus on the business. Jo has a shared studio space and does the admin from home. With holidays and days off, Jo has worked out that there are probably 180 days for the business.
From the business Jo wants to earn fees/commission of £10,000 per annum, however there are many costs involved in the business (e.g. studio overheads, materials, marketing and shipping) and beware that sales early on may not be high, which means that profits could be low, certainly in the early stages.
What does this mean? Tax wise, Jo’s income from employment is already above the basic tax free allowance (currently 12,500) per annum. Jo’s net profits (fees less expenses on the business) will be taxed at a basic rate of 20%. Jo could save money by investing some of the business profit in a pension scheme, however.
Jo should be satisfied that the desired outcome from the business is realistic?
At this point we recommend many things: review the pricing structure of the products; review the cost of producing the products and review where the products are being sold.
This is not something you can avoid. If you are starting to sell your products, work and/or services, register with HMRC to gain the benefits (yes there are benefits) to being self employed. If you are looking into other options: Limited Company or Partnerships (where the income ambition we consider should be somewhat greater than the amounts discussed in this resources’ case study). View our other resources online or visit ‘Set up a Business’ on .go.uk
You should be able to understand and manage where your money is going to and coming from. If you are just setting up, there are people you can chat to:
- your local bank manager.
- worth researching into HMRC.
- your local business chamber of commerce or Federation of Small Businesses (both have annual member fees).
- some accounting companies offer free initial consultation.
Accounting tools and budgets
We recommend you start with Excel or an off the shelf accounting package for small businesses (for a fee) and work out your average spend per month and from this per year. These calculations will help you work out what ideally you need to earn per year and where you can make cuts in your budget. Remember, you will need to pay tax, base this on 20% mark up from your gross spend per annum. Below is a case study on a yearly budget.
For tips on how to use Excel, visit Microsoft how to guides.