Creatives who have their own business often want to focus on creating, not on financial details. Figuring out what to keep track of and how to keep track of it, not to mention how much money I had to make to sustain a comfortable lifestyle, was one of my biggest challenges when I launched my own biz.
That’s why it makes sense to have Lydia Powell, who helps creatives with bookkeeping, as a guest today. Lydia’s work is interesting on two levels. For one, she serves people like us, so I smell the opportunity to learn! And secondly, she had the guts to start her own business, and those are the types of stories we like to hear here.
This interview is also a nice precursor to what will be my next eguide: a financial guide for freelancers and entrepreneurs, which I’m in the midst of writing with my accountant dad. Watch for that in the new year!
Shall we get started?
Alexis: How'd you decide to start your own bookkeeping business? What was the first step you took to make it happen?
Lydia: When faced with the potential relocation of my job, my husband and I had some difficult decisions to make. We cast about, testing out the dream of living abroad. When we decided that wasn’t exactly what we wanted, we briefly reconsidered pursuing relocation with my job or making a major relocation to a different area of the United States.
In the end, we decided that our roots were deep and our dreams could flourish right where we were. When we decided to remain in central Kentucky, I decided to start my own freelance bookkeeping company. Not only can I take full advantage of my education and career experience, I’m also passionate about helping other small businesses succeed. I’m of the mind that we should enjoy what we do and do it well. I enjoy the organization and analysis aspects of finance, and I want to help business owners get out from behind their computer screens, struggling with their books and back to what they enjoy and do well!
I know that finances are serious business. There is a special level of trust involved in the relationship between a financial professional and their client. My first step in starting my business was to research professional certifications and memberships in professional societies. These certifications and memberships carry with them codes of ethics and demonstrate a level of professionalism that can help clients feel more comfortable in making the initial step to a business relationship.
How do you find clients?
I've set up a business website, started a business blog and am working to engage potential clients on Twitter and Facebook. Additionally, I'm leveraging my current network of colleagues by being active on LinkedIn.
In the future, I plan to join my local Chamber of Commerce and partner with CPAs in the area for local clients. Since I'm also interested in working with virtual clients, I plan to engage my target client market in places where they gather — online forums and social media.
What's one mistake writers and creatives tend to make with their finances?
Good record-keeping is the key to all business finances. For creatives, this seems particularly difficult because there often isn't a tangible product to track the revenue or income from as there is for a retail store or manufacturer. Creatives also tend to focus on their process and method to create work. That focus can sometimes be so intense that the more mundane details like tracking receipts for art supplies falls by the wayside.
Everyone has nightmares of being audited by the IRS, right? Your biggest defense in case that should happen is having proper documentation and records to back up the numbers on your tax return.
At the minimum, I recommend that all businesses, even one-person shops, maintain a separate business banking account. Keep your business transactions in that account and keep your personal finances totally separate. This will help keep the line between business and personal marked with a bold black pen! It also makes tax time easier since there's no need to weed through all the clutter to figure out which items relate to your business.
Also, keep some sort of record of the income you receive and the business expenses you pay and balance that business banking account each month. Now, this doesn't have to be a fancy record – I get that not everyone loves spreadsheets as much as I do! A notebook dedicated to your business finances is a great place to start.
However, outsourcing those functions to a bookkeeper will not only help you concentrate on operating your business/creating your genius, a bookkeeper can also serve as a real business partner — providing you with the reports and analysis to take your business to the next level.
How do you make your services affordable for freelancers or one-(wo)man shops?
For every client, I begin with an initial consultation to discuss the services that are required. Clients can choose from a variety of service levels and service frequencies. Then, an upfront pricing structure is decided on. With this upfront pricing, I don't have to keep track of my billable hours and the client doesn't end up with a surprising bill after the work is done.
While I do charge in line with my experience and education, I am passionate about helping other businesses succeed and work to make sure my services are competitive and affordable. My services are such that paying to have good records can not only offer peace of mind, but also potentially reduce end-of-year tax preparation fees by the client's CPA since the CPA is not spending valuable time cleaning up financial records.
Do you have any advice for when readers should start thinking about making the switch from a hobby to a business?
The earlier the better, I think. If you start keeping those financial records early, you're going to be way ahead of the game when it comes time to start setting prices and planning out your business. When you're armed with information about how much fabric, thread and notions cost along with how much time you spend making that custom quilt, you're ready to set a fair value on your product. You're equipped with the information necessary to start your business off on the right foot!
Can you recommend some easy-to-understand resources for new business owners?
Let's face it: the rules surrounding businesses and tax laws aren't written for normal people to understand. I'm not always sure that the politicians who write the laws even understand them!
Here are some of my favorite online resources:
Thanks for this useful information, Lydia!
Anyone have questions? And even better, anyone have ideas for how Lydia can take her business to the next level? Is there a service you’d love to see her offer?
4 Replies to “Q&A: Lydia Powell on Bookkeeping for Creatives”
Why restrict your financial advice to US startups. What about the UK. I know a UK accountant who could provide similar financial advice for over here.
Let me know if this is helpful and I’ll put you in touch!
Hope you had a Happy Christmas
As a writer, I’ve spent a lot this year on conferences, but haven’t had income. I always wonder about taking those expenses in years like this or just letting it go. Next year, I will have income, but fewer expenses.
Stacy, I addressed that question a bit in a recent blog post (about bloggers, specifically, but it applies to anyone).
Basically, the deduction of losses generally comes down to the hobby expense vs. the business expense rule. It sounds like, just from your blog’s “About” page that you should be able to meet the determinations to qualify as a business. One of the key questions is this: “An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year…”
Of course, talk to your tax preparer to get clear guidance for your situation. Best of luck in 2013 on turning those conference learnings into income!
This is such great, important information!
I started my business in Sweden this past May (I was an expat then, just moved back to the States this fall). When I started, I knew I had to keep good records, which I did with the help of Excel. I started a business bank account a few months later for clients to pay into, but I paid for everything out of my normal bank account. Obviously, rules are different between Sweden and the United States, but compliance issues aside, my life would be so much easier to sort through right now if I had kept everything confined within one account.
I’m currently trying to figure out how to handle the legal transition of my company from Sweden to the United States, but I will definitely keep Lydia in mind for the future. Lydia, if you specialize in helping creatives, you should definitely go after the huge market of American writers abroad. There are so many of them, and I know that when it came to tax time for me, I had no clue what to do with my earnings from American companies and how to handle my deductions. You could just go down the list of contributors at Matador Network as a starting point.
Thanks for the great post!