Keeping Organized in Your Art Business

Last week we talked about the importance of organizing your business processes, and hopefully you’ve gotten all that under control by now.  Wouldn’t it be great if you could fix your small business that easily?  Just make an adjustment or two and all your organizational challenges go away.  Unfortunately, it doesn’t work that way, so we should be content to do the best we can, and appreciate small changes when they come along.

Today I want to build on last week’s progress to talk about some ideas about organizing and keeping up with all the crazy paperwork a small business can require.  I had a friend who ran a flower shop years ago, who placed all of her purchase receipts, and sales receipts in a metal trash can at the top of the stairs in the store.  When I asked her about it, she explained that the government required her to keep records, but with no specific requirements.  She had all the receipts in the can, but with no internal organization at all.  Her theory was that, if the IRS decided to audit her business, they would have to sort through an entire trashcan’s content of paper.  It was never clear to me if she thought that might make them give up and leave her alone, but I can’t imagine that would have worked.   

Though she may have been technically legal in the way she kept records, she had almost zero understanding of how her business was functioning, other than a hunch.  My guess is that her hunches were pretty good, but I could never survive with that degree of disorder in business.  No only would the lack of order creep me out, but I want to know all sorts of things about my business, how it’s performing, and how much money is going in and out.  

I mentioned last week that I hire an accountant to do my bookkeeping and taxes, but even the accountant doesn’t record data to the degree that I want, so I keep a separate spreadsheet and filing system apart from what my accountants produce, so that I can get specific answers to questions Bogdan and I have about the business.  If you’re interested in seeing that spreadsheet, I have a signup sheet on my website, johnbishopfineart.com, just look for the tab called “giveaway”.  Drop me your name and email, and I’ll forward you a template of the spreadsheet I’ve created over the years.  While I’m not suggesting that my system is better than yours, but I know I wish I would have had a guide like it when I was starting out.  

Whatever system you use, it’s important that you keep detailed records, and can retrieve those records for your accountants, or if you were to be audited by the IRS.  My accountants suggest that I only hold on to my paper records for three years, but I know the IRS suggests something like 5 or 7 years.  You might want to check with your bookkeeper to see what they recommend.  Apparently, if you have the physical records, the IRS can request as much as you’ve got.  So there is some rationale for not keeping records you’re not required to keep.

I organize my records into three main categories: Expenses, Business Documents, and Customers.  Each one of those groups has its own file cabinet drawer.  I keep the business documents forever, just because they’re permanent records of running the business legally.  The expenses I track by categories, and I keep those receipts in a file folder all year.  At the end of the year, I transfer the paper receipts into a plastic box that I store for three years.  

When it comes to the customer files, I purge them annually too, but there is an added step I take with them. I assign a customer number to each, and whenever I have a job with anyone, I create a project number for that job.  That way, in my spreadsheet, I can track all the jobs I’ve done with any particular customer, and/or I can track any income or costs associated with that particular job.  Does that make sense?  So if I get a job with Mary Smith to do a commission photo of her home, I can code anything to do with that job, including my gasoline, printing expenses, framing, etc… to that particular job, and file it in her particular folder.  Then I just paper clip or staple all the receipts, invoices, etc. that have to do with that specific project together, inside Mary’s folder.  

Of course, I enter all of this in the spreadsheet as well, so I always know where I have filed receipts, and so that I can do my numbers without needing to go to the files.  The spreadsheet allows me to track all my expenses, income, deposits, invoices, profit, and Sales Tax obligations instantly.  I keep the spreadsheet on my Google Drive, so I have access to the information anytime, and anywhere I may be.  The system works well for us, though it has taken several years to figure out the kind of reporting I need to stay organized.  

Ok, too boring, I get it.  But it is so important that you have a system in place to organize your recordkeeping… and hopefully you’ll decide not just to throw it all in a garbage can until New Year’s Day.

Good luck.