One thing I noticed when I started out as an illustrator is that there are lots of resources for the “fun” parts of the business – how to put together a portfolio, how to make promotional postcards, how to market to clients. However, being an illustrator isn’t just about drawing pictures. To be a successful freelancer, you must have a basic understanding of how to set up and run a business. This means book keeping, invoicing, paying taxes, keeping track of expenses, etc. I am sure that every artist has different tools and techniques for keeping their business in order. I’m going to share a basic business roadmap for beginners who are ready to jump into this industry. So, before you ever send your first promotional postcard to prospective clients….
Setting Up Shop
- Name Your Business – Even if it is just “Your Name Illustration”, have a name.
- Get a Website – This website should be “Name of Your Business.com”
- Get an EIN – An Employer Identification Number is a number issued by they IRS which basically acts as a Social Security Number for your business. Every time you work with a client, you will be required to provide that client with either your SSN or your EIN for tax purposes. Having an EIN does several important things for you. 1) It keeps you from having to give out your SSN to every client you work for. 2) It helps keep your business and personal monies separate. 3) You will use it when you do the business income/expenses portion of your taxes. You can apply online for an EIN through the IRS’s website.
- Incorporate your business – Many artists operate as Sole Proprietorships, which do not require incorporation or an EIN (Although you can still have an EIN if you are a Sole Proprietorship). However, you also have the option of incorporating as a single member LLC or an S Corp. You should investigate the tax laws for your state for these options. An accountant who specializes in small businesses can help with this decisions. You can incorporate your business by visiting your state’s Secretary of State webpage.
- Set up a business checking account – In my experience, it is important to keep your personal and business finances separate. Many banks offer a free or low-fee basic business checking option for small businesses.
Setting Up Records
OK, so now you have a business set up, and it probably cost you a little bit of money. As a business owner, you must have a method for keeping track of your costs as well as your invoices. There are programs such as Quickbooks which can help you do this. However, I just use Microsoft Excel. I have 2 spreadsheets per year. One is called “20XX Expenses” and the other is called “20XX Invoices”. On the “Expenses” spreadsheet I have columns for Date, Item, Vendor, Purpose, Cost and Payment Method. On the “Invoices” sheet, I have columns for Invoice Date, Invoice Number, Client, Project Description, Completion Date, Invoice Amount, Invoice Paid Date, and Estimated Taxes. So, every time I spend money for the business (gas to go to a conference, books of stamps, paint supplies, etc), I enter the date from the receipt into a row of my “Expenses” spreadsheet. Every time a project is completed, I enter the data into the “Invoices” spreadsheet. This is a basic, inexpensive way to keep track of the money going into and out of your business. There are also programs you can purchase that can do this more efficiently, some of which can sync with your tax preparation software to make life easier during tax season.
Setting Up Invoices
When a project is competed or a billing benchmark is reached, you should send your client an invoice. This can be mailed, or sent as a PDF to the client’s email. It is a good idea to create a template document that you can use over and over again to send to your clients. Your invoice document should include:
- The name and address of your business. This will be what you want the client to make the check out to. So, since you want to deposit this into your business checking, whatever name/entity you are using on your business checking account should be what you use on your invoice.
- Name and address of the client
- Description of the project (Example – 16 full color illustrations for Name Of Book)
- Invoice Number – So that you can easily keep track of which invoice is which
- Invoice Date
- Invoice Due Date – Usually 30 days after the invoice date
- Amount of Money Due to be Paid
Your invoice template can be set up using programs such as Microsoft Publisher or Microsoft Word.
OK, now that you have your basic business set up, it’s time to start looking for clients and managing projects…..
Financial Flow of a Project
- Marketing: It’s time to send out postcards, buy ad space in an annual directory, hire some guy to fly over New York with a banner promoting your artwork….however you decide to market your services. Pay for these marketing avenues with funds from your business account, and be sure to log those costs in your Expenses spreadsheet.
- Contract: Yay! The marketing worked! A client has sent you a contract, which will include the fee for the project, billing benchmarks, and may also include a place for you to list your SSN or EIN for tax purposes. Give the client your EIN on the contract and any applicable tax forms they may need for you to fill out. Make sure you retain a signed copy of the contract for your own records.
- Invoice the Client: You’ve reached a billing benchmark! This may vary from project to project. Some small projects may be billed once for the full fee after final art is delivered. For many projects, 50% of the fee is due to the artist upon approval of sketches and the remainder due upon completion of final art. For large budget projects that span many months, there may be 3 billing benchmarks: signing of the contract, delivery of the sketches, and delivery of final art. These will be detailed in your contract. When you reach a benchmark, send your client an invoice, and note the amount due, the date and other applicable information in you Invoices spreadsheet.
- Receive your Money: When you receive your payment for the client, update your records in your Invoices spreadsheet to show the invoice as paid. Then deposit the check in your business checking.
- Taxes: It’s exciting to open the mailbox and find a check for that project that you worked so hard on, but remember, not all of that money is yours. You will have to keep a certain amount aside for Uncle Sam’s taxes as well as money to keep in your business to fund your business expenses (that guy in the airplane wants to be paid, too). To know how much money to set aside, you must know what income tax bracket you fall into. You must know what your yearly household income is, and can look up your tax bracket online. Whatever bracket you fall into, there is a corresponding percentage that must be put aside from every paycheck for taxes. So, if you fall into the 25% tax bracket, and your project earned you $100.00, you must keep $25.00 of that paycheck aside for taxes, plus a little extra for your future business expenses. So you may decide to keep $30.00 (30%) in your business checking for these purposes. Your business taxes can be paid quarterly by using that year’s 1040-ES forms, which can be downloaded from the IRS. If you pay estimated taxes quarterly, be sure to log this information in your Expenses spreadsheet so that you can reference this when you file your taxes for the year.
- Pay Yourself: After you have figured out how much money have to remain in your business checking for taxes and expenses, you can pay yourself. Have your business write you a check (or transfer the funds, or whatever) for what is leftover after taxes and expenses. This is your personal money, and can go into your personal financial accounts to pay for a big ice cream sundae to celebrate a successfully completed project.
There is a lot more to running a business than what is listed here. Self employed business owners must know what appropriate fees to charge to clients, be familiar with what day-to-day costs can be logged as home office expenses when filing taxes, and in general be excellent record-keepers. However, I hope that this walk-through helps those who are ready to set up shop in this industry do so a little more easily and with a few less bumps in the road to business ownership. Thanks for reading!
About the author
- JENNIFER ZIVOINContributor
Jennifer Zivoin has always loved art and storytelling, so becoming a children's book illustrator was a natural career path. Most of her illustrations are painted digitally, though she draws inspiration from traditional media. In addition to artwork, Jennifer enjoys reading, cooking, and ballroom dancing - especially tango! She lives in Indiana with her husband and daughter.