Setting Yourself Up In Business 101

Congratulations! You’re building a career from your creative talents…without wanting to dampen your enthusiasm too quickly, setting yourself up in business in the *right* way as soon as possible, will minimise any headaches and complications along the way. Here’s our 101 guide to setting yourself up as a professional business owner (yes, that’s you!)…

Decide Your Business Structure

Sole Proprietor/Self Employed

This is the simplest form in which to do business if you’re a single illustrator, just starting out and/or your income isn’t yet enough to support you. As a self-employed professional, you’ll be solely responsible for ensuring administrative tasks are completed, such as:

• Calculating & paying the relevant taxes, depending upon your state/country
• Paying National Insurance, Social Security/Welfare fees
• Filing your tax returns

Incorporation

This is a suitable option if your earnings have reached a level where it makes sense to try and minimise your tax obligations and leverage the tax benefits that incorporation brings.

There are additional associated costs with incorporating - such as the process of incorporating itself, submitting annual reports etc. - which is why it only makes sense to do this if your earnings are at a level in which the benefits outweigh the additional costs. The process for incorporation is relatively simple (in the UK/US) although the costs and requirements differ in the US, depending upon which state you incorporate in.

Structure Your Business Finances

This is probably one of the most hated topics for most creative entrepreneurs - and yet, it can also be the simplest to get right. If you sort this out from the beginning, you’ll save yourself time and money in the long run - especially if you decide to hire an accountant. The following aspects of finances and money should be considered:

Proposals, Estimates & Invoicing

As a working illustrator, you are highly likely to need to submit proposals, estimates and invoices at some point in your career. You can do this manually “on the fly” if you prefer, or you can be smarter about it and use templates, tools and even integrated systems to help you manage this and look (and be) more professional with clients.

Tools like Freshbooks and Xero (multi-currency) enable you to quickly create professional-looking estimates and invoices, log them, chase up payments and even give your clients an online interface with which to pay their invoices. They also help you quickly summarise and reconcile your income (and outgoings if you track invoices you receive here too) at the end of each month/quarter/year.

If you decide not to use an online service, then you should at least consider the following:

• Set up a template document for your proposals, estimates & invoices so you don’t have to re-create the wheel every time you need to send one off.
• Brand your templates and documents with your logo/professional brand for a consistently professional image.
• Use a coherent numbering system and make sure you keep an organised record/file of the documents you send out so you can reference and find them easily for your submissions & returns.

Receiving Money (receivables)

It is good practice to have a separate bank account for your business income and expenses - and keep it entirely separate from your personal finances. As a business owner, you are (hopefully!) going to be receiving money - you need to determine how you want to receive this and then set up the necessary systems and accounts to receive this. If your clients are primarily local, then you may decide to accept cheque, cash and direct bank transfers which is relatively simple.

If you’ll be working with international clients, then you’ll need to factor in transfer costs and alternative payment options, such as Paypal. While many people dislike Paypal, unfortunately there isn’t currently a decent alternative, so it’s worth setting up a Paypal account (make sure it’s a business or premier one) in preparation. You can link it to a bank account to easily transfer money you receive but this process can take a while so it’s good to do sooner rather than later.

Paying Expenses (payables)

Alongside receiving money, you’re also likely to need to pay expenses - and once again, you should keep this entirely separate from your personal finances.

You also want to ensure you get and keep receipts for every business-related purchase you buy so you can claim these as tax deductions - this is where an accountant can cover their own costs, by saving you their fee in the taxes you need to pay. If you’re unsure of what can be deducted, keep the receipt anyway and double-check with an accountant before preparing and submitting your returns.

Hiring An Accountant

It can be difficult, if you’re just starting out and income is low, to consider hiring an accountant as an investment - or as something that’s necessary but if you’re smart about it, an accountant can easily cover their own costs with the money they help you save on deductions.

If you are just starting out and you don’t earn enough income yet to warrant hiring an accountant, then make sure you at least keep your own accurate records to make your life easier. You should keep a basic spreadsheet that tracks:

• Income earned - ideally related/tied to invoice #
• Expenses paid - make sure you keep the receipt
• Monthly profit & loss - your income minus your expenses every month

Not only is this good practice for the future, it also gives you a useful snapshot of the financial health of your business and will make your life as a business owner infinitely less stressful, as soon as you get a handle on your financial transactions and overview.

Create Your Key Business Documents

This is something that many small business owners don’t bother to do - and then find that their business admin takes them twice as long as it needs to. By setting up and creating key business documents for your business, you can shortcut the time it takes to do the repetitive, ongoing tasks you always need to do and focus your time on the more exciting creative aspects.

The following business documents and templates are useful to create:

• Your fee list - this may not be something you share directly with clients and prospects but it will save you a huge amount of time if you have a list of your fees and fee structure. You may have an hourly rate, a per job fee, a per project fee which is compiled based upon an estimate of hours or tasks involved…it doesn’t matter, as long as you know how you charge out a job and it works for you.
• Your terms & conditions - even if you don’t share these with clients (although you should), you at least have your own list of the terms under which you operate. Items can include your your list of fees, your turnaround times, your # of concepts policy, your fees for any changes in a brief and more.
• Draft contract - you should ideally have some sort of contract which you require clients to sign, prior to starting a project. If you don’t have this, then you should at least have some terms & conditions which you can send them/send them a link to ensure both parties know the terms of the project.
• Templates for estimates and invoices - as above, if you’re not going to use an online/desktop tool for this, it will save you time if you create a basic branded template which you can use every time you need to create an estimate or invoice.

If you have all of the above in place, you’ll be more organised than the majority of small business owners currently operating - which is a simple, actionable way to set yourself apart and on the road to long term, profitable success.

Now you’ve done that, how about creating a professional-looking brand for your illustration business? Check out Branding 101 for Illustrators.