You started your creative business because you were following your passion. Surprisingly enough, that passion wasn’t expense management. But, in order to build a long-term, sustainable career doing what you love, good accounting is vital.
Here are our top three tips for managing expenses so you can stay compliant and stay profitable as you grow your creative business:
Know why it matters
Before we get into the how, we need to discuss the why.
Tracking expenses, and accounting in general, can feel like a chore: you know you need to get it done, but it’s tedious and time-consuming. And when you see keeping records of your incomes and expenses as just another task you need to check off, you’re less likely to be diligent about it.
But what if managing expenses meant more money in your pocket?
That’s got your attention, right?
By diligently tracking all your expenses, you’ll inevitably find more things you can write off. The more organized you are, the more deductions you’ll find and the more you’ll reduce your tax liability. In other words, less money to the IRS and more to you, your business, and your community.
Don’t leave money on the table. Put in the effort to track your expenses and keep what’s rightfully yours.
Pick the right system
Now it’s time for the how.
Picking the right accounting system to track your expenses can make the task less time-consuming, less stressful, and more accurate. You’ll first need to decide if you want to use the good old-fashioned spreadsheet or a more modern, cloud-based accounting system.
Spreadsheets are often free, widely accessible, and familiar to most of us. As long as they’re able to track the names, dates, amounts, and categories of your expenses and incomes, they can, in theory, get the job done.
However, the big downside to spreadsheets is they don’t work unless you do. If you’re not opening up your expense spreadsheet every single day to update it, nothing will happen. If, like many business owners, you prefer to catch up with your expenses every few weeks, you’ll have a big pile of work to get through, and are much more likely to make a mistake while getting through it all.
That’s just one of the many reasons we prefer cloud accounting systems. With a cloud-based system, you can:
Protect against accidental data loss, versus if all your information was stored on a single computer
Access and update your data anytime from anywhere
Have automated feeds from your banks and credit cards so your data is being updated even when you aren’t doing it manually
Reduce human error in your books
Out of all the cloud accounting systems out there, we love and use Xero with all our clients at Revel. It’s a highly collaborative and intuitive accounting system with a broad ecosystem of integrated apps to help you run your business. Though you will have to pay a monthly fee, we believe it’s well worth the cost and will deliver huge amounts of value.
Now that you know why tracking expenses is important and how you’ll be doing it, it’s time to work out what exactly you’ll be tracking.
Follow the golden rule of writing things off
So, what is a business expense?
If you’re asking that question, you’re not alone. Many business owners struggle to differentiate what constitutes a deductible business expense and what could get them in trouble with the IRS if they put it on their tax returns.
The reality is, there is no exhaustive list out there of everything that could ever be written off as a business expense. It depends on you, your business, your industry, and your unique business needs. But there is one golden rule of writing things off that every business owner can follow:
Ask yourself the question: “Did I have to spend the money I spent, in order to make the money I made?”
If the answer is yes, then it’s a business expense. If the answer’s no, it’s better to put that purchase on your personal credit card.
Even with the golden rule of writing things off in your back pocket, managing your expenses can be tricky. That’s why we delve even deeper into deductions in our masterclass-style course, Minding Your Business: The Creative Business Bootcamp. On top of debunking some of the most common deduction myths business owners believe, we break down all the key steps of starting and scaling your dream creative business, including why so many other CPAs are giving creative business owners bad advice and costing them money.
Ready to start minding your business?