Arts & Numbers: A Financial Guide for Artists, Writers, Performers, and Other Members of the Creative Class

Copyright © 2013 by Elaine Grogan Luttrull. All rights reserved.

No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without express written permission from the publisher.

Author photograph copyright © Kim Long

Arts & Numbers: A Financial Guide for Artists, Writers, Performers, and Other Members of the Creative Class

Ebook edition 1.0 May 2013

Print ISBN: 978-1-932841-75-6

Ebook ISBN: 978-1-57284-717-0

Library of Congress Control Number: 2013010801

The advice contained herein is not intended to be a substitute for consultation with a certified professional who has a complete understanding of your situation.

B2 is an imprint of Agate Publishing. Agate books are available in bulk at discount prices. For more information, go to agatepublishing.com.

For my father, who taught me the secrets to success; my mother, who made sure I enjoyed the ride; and my brother, who mastered it all

CONTENTS

Introduction

Hi. It’s Lovely to Meet You

Have a Seat. Let’s Get Acquainted

Thanks for Picking Up This Book

Chapter 1: The Creative Class

Abby’s Secret

Numerical Illiteracy

Creative Professionals: We Are the 0.7 Percent

What Is the Industry Outlook for the Arts?

The Creative Professional Spectrum

One More Thought

Chapter 2: Risky Rewards

Noah’s Dilemma

Nonlinear Path

Noah’s Relief

Chapter 3: Goal Setting

Caroline’s Reluctance

Visualization

Quantifying Goals

Public Accountability

Tracking Progress

Abby’s Goal

Caroline’s Goal

Noah’s Goal

Chapter 4: Disciplined Saving

Elizabeth and Caroline—the Odd Couple

Different Choices

Compounding Interest

Investing

Controllable Factors

Caroline’s Realization

Chapter 5: Practical Budgeting

Abby’s Resolve

Budgeting Basics

Budgeting Steps

Abby’s Festival Budget

Chapter 6: What-If Analysis

Caroline’s Budget

What Is a What-If Analysis?

Caroline’s What-Ifs

Chapter 7: Budget Variances

Caroline’s Disappointment

Comparing Actual versus Budget

Monitoring Variances

Caroline’s Monthly Updates

Caroline’s Budget Variances

Abby’s Budget Variances

Chapter 8: Personal Financial Statements

Personal Profit and Loss Statement

Personal Balance Sheet

Caroline’s Financial Statements

The Connection between Financial Statements and Goals

Practice, Rinse, Repeat

Chapter 9: Cash Challenges

Logan’s Cash

Cash Flow

Real Solution 1: Using Cash Reserves

The Tangibility of Cash

Real Solution 2: Anticipate the Timing of a Cash Shortage

Logan’s Cash Flow Model

Logan’s Envelopes

Chapter 10: Make More Money

Evelyn Struggles

Bridge Sources of Income

Evelyn Takes Control

Masochistic Volunteering

Evelyn’s Future Steps

Chapter 11: Understanding Taxes

Derek’s Tax Appointment

Assorted Sources of Income

In Good Company

Tax Basics

Recordkeeping for Tax Purposes

Derek the Professional

Chapter 12: Financial Management Systems

Alison’s Technology Wish

Finding the Right Financial Management System

Outsourcing

Inventory Systems

Alison’s Solution

Chapter 13: The Business Plan

Ellen’s Elevator Pitch and Business Plan

Business Plan Components

Noah’s Happily Ever After

Epilogue

Appendix: Budgeting

Other Costs

Space Costs

Equipment Costs

Technology Costs

Personnel Costs

Office Costs

Travel Costs

Acknowledgments

Notes

Additional References

Introduction

As you begin your numeric pursuits, or at least begin thinking about numeric pursuits, you may experience frustrations. Numbers and finance often give rise to long strings of expletives, shouted and muttered with equal enthusiasm. They may be in the forefront of your mind even now. If, for example, an unsuspecting certified financial planner or credit counselor asks you to complete a financial questionnaire—a standard form they use to ascertain your financial savvy, goals, and habits—you may feel like cursing with enthusiasm. So let’s modify that financial questionnaire to honestly acknowledge our true feelings about finance. It might look something like this:

Favorite expletive: ________________

Favorite expletive related to finances: ________________

Favorite expletive when budgeting: ________________

Favorite expletive when paying taxes: ________________

Feel better? Now that’s out of the way, so let’s head in a slightly different direction. Feel free to relax and conjure images of blue skies, fluffy clouds, green pastures, and sunshine. Numbers and finance really aren’t that bad.

Hi. It’s Lovely to Meet You

This is not the most important book you’ll ever read. This book won’t make you millions, help you find true love, or inspire you to lose 20 pounds. But it does end happily.

It ends with a basic understanding of numbers and finance in the context of your creative career. It ends with artistic empowerment and financial stability. If you have a solid financial plan, if you have a small reserve of funds, and if your financial situation is under control, then you have full artistic liberty. You can say no to a gig you deem unworthy of your time and effort, and you can produce work for the audience you’d like to reach (rather than the one likely to buy your material). In other words, you can pursue your craft on your own terms and not between waiting tables or amid hopping from couch to couch.

That is artistic empowerment: the ability to accept or decline a project for purely creative, rather than financial, reasons. Nothing is more important than your craft.

Lots of tasks and tools can support a creative career, from marketing services on social media to displaying portfolios on a well-designed website to managing a professional brand. Even if you’re not a tech person or an ad person, you can ultimately develop a basic appreciation for these tools and figure out how to use them to your advantage. You make them complement—not replace—your artistic point of view.

Why not do that with numbers, too? You should. You can.

Have a Seat. Let’s Get Acquainted

You and I have a lot in common. I am a serial entrepreneur, and I’ve been freelancing in one form or another since I began teaching art classes at age nine to the other children in my neighborhood.

Exposure to art and creative expression is vital to a child’s development. It is as important as reading and math, and it contributes to developing problem-solving skills, an appreciation for hard work, and empathy. My childhood was full of art. I won second place in an art contest when I was seven, and since then, every home I’ve inhabited has displayed at least one work of art I created.

I love to dance and still join the occasional formal class, although any delusions of grandeur vanished when my ballet instructor gently suggested I try Pilates instead. My brother is the greatest musician I know, although I’ve been privileged to meet other incredibly gifted individuals. I know enough from years of piano and flute lessons to be musically dangerous, but beyond muscle-memory renditions of Moonlight Sonata, I’m not a pianist.

I have bundled my incredibly creative childhood and adulthood into a career as an accountant. Despite my numbers-oriented profession, I am part of what I and others call the creative class—a creative accounting entrepreneur, specifically. In 2009 I formed a consulting company called Minerva Financial Arts to help artists and other creative entrepreneurs bridge the gap between business and the arts. Minerva is Roman mythology’s goddess of arts, commerce, wisdom, and a long list of other disciplines. She knew, as I do, that business and artistic pursuits are not mutually exclusive. My clients include tiny, newly formed arts organizations that need help with simple tax filings as well as larger, more established groups that have complex and technical finance questions.

Today I spend much of my time teaching college classes, seminars, and boot camp–like conferences on financial topics for artists and arts organizations. I have been touched by the incredible stories and adventures of those I’ve met in these sessions, which remind me that the world is full of talented people—artists, entrepreneurs, and members of the creative class—with interesting and well-rounded careers.

Mine has followed a meandering path and unpredictable detours through mountains, valleys, and plains. I can’t wait to hear about yours.

Thanks for Picking Up This Book

I hope you enjoy Arts & Numbers and share it with peers, friends, colleagues, and family. I hope some of the stories resonate with your experiences. And I hope this book sparks your own creativity.

Whether you read it cover to cover or flip through certain parts is entirely up to you. You may keep it on your nightstand or bookshelf as a reference, or you may devour it in one sitting as part of a fit of productive procrastination. You may read a sentence as you fall asleep and dream of cities built from numbers. You may read it on the train and then leave it for the next person to find and enjoy.

My wish is not that you will discover a dormant love for accounting and finance after reading the book. Your contributions to the world are too important to subordinate to another role forever. I simply hope this book complements your creative career and convinces you that a basic appreciation of numbers makes you a better, more sustainable artist—just as an appreciation of art makes financiers or business types more compassionate, empathetic people.

Each chapter covers a financial topic of interest to a creative entrepreneur through fictional scenarios and financial advice. The advice is my own, and it is meant to be a starting point to building your financial foundation. It should not be taken as a substitute for consulting a professional accountant or attorney who has knowledge of your specific situation. The fictional scenarios are just that—fictional. They are loosely based on cases I’ve observed and shared with friends and colleagues, but any direct resemblance to actual situations is coincidental.

Some parts of Arts & Numbers may inspire the use of expletives, but I hope that impulse is short lived. Other parts may inspire the feeling of financial empowerment and conquest; I hope those parts are long lived.

No matter how you found this book, how you leave it, or what it awakens in you, thank you.

Chapter 1

The Creative Class

Still harboring dreams of a starving-artist existence? Let them go. Starving artists have been marginalized and replaced by entrepreneurial artists and creative entrepreneurs. These are creative professionals who are willing and able to fight tirelessly for artistic empowerment and financial stability.

Two main tools distinguish entrepreneurial artists from starving artists: numerical literacy and portfolio careers, both of which are discussed in this chapter. Skim the statistics herein if you must, but don’t miss these main points:

Numerical illiteracy is as socially unacceptable as actual illiteracy.

Creative entrepreneurs should build a portfolio career full of what I call starring roles, supporting cast jobs, and production assistance gigs, rather than following a singular pursuit.

Abby’s Secret

Abby sits on a park bench, watching a building across the street. She arrived too early at this address—the venue for a fund-raising event—because she had no idea how long the train trip would take.

People in business attire rush to and from the building. Parents and nannies corral children as they traverse the sidewalk. Maintenance men exchange informal handshakes in greeting—gestures that seem out of place in this formal, professional setting.

The scene is a microcosm of her world, and Abby cannot help but wonder about her part in the mix. Although she has had significant success in her career as a painter, she is not used to the recognition that comes with this level of success. Her paintings are featured at a prominent gallery, which necessitated her attendance at the fund-raising event. Now she waits anxiously to enter a party in which she fears she doesn’t belong.

The party, as it turns out, is full of interesting people from all sectors of the art world: patrons, sponsors, hobbyists, enthusiasts, and even professional artists. Abby spots a well-known art critic, and then she runs into a friend of a friend who is attending on behalf of a local politician. As they talk by a window, a tall man in a dark suit joins them. He introduces himself as an art connoisseur and professes himself a fan of Abby’s work. As she describes to him a new technique she has been experimenting with, he mentions a magazine article he just read about it.

Did you see it? he asks, curious about her opinion on the writer’s assessment of the technique.

No, Abby answers flatly and dismissively. I can’t read.

A stunned silence falls over their conversation, leaving the connoisseur’s mouth agape. The waiters carrying hors d’oeuvres pause and stare, and the art critic drops an olive from his drink. The hush seems to extend across the packed room.

I’m sorry, what? the connoisseur says. What do you mean you can’t read?¹

Numerical Illiteracy

The reaction of the party guests to Abby’s statement is expected. We pride ourselves as educated individuals with at least basic literacy skills, which allow us to expand our minds. We read to learn about things with which we aren’t familiar, to stay informed about our particular surroundings and the larger world, and to navigate daily life. We communicate through the written word, whatever form it may take. Because we don’t come across much illiteracy in the professional setting, a confession like Abby’s is shocking to hear.

This scene, of course, never happened. And it probably wouldn’t. Even if Abby cannot read, she is not likely to proudly declare it. She may say that she has not read the article in question, or she may ask the connoisseur to tell her about it.

But imagine if the scene unfolded just a bit differently. Imagine that the connoisseur says instead that he is interested in commissioning a public artwork and asks Abby to estimate the level of investment such a project might require.

Oh, I don’t do numbers, Abby replies lightheartedly, dismissing the question.

I don’t need an exact number, the connoisseur assures her. Just a ballpark. What did the installation at the gallery cost, for example?

Really, she insists. I have no idea. Numbers aren’t my thing.

As Abby proudly asserts her numerical illiteracy, no one notices. There is no stunned silence, dropped jaw, or rude stare. Someone may even nod sympathetically.

The reason for this reaction is that it has become socially acceptable to be numerically illiterate, even while actual illiteracy appalls. What’s worse is that numerical illiteracy seems almost to boost the esteem of artists. They can’t be bothered with numbers because they are too creative.

Creative Professionals: We Are the 0.7 Percent

According to the National Endowment for the Arts (NEA) Research Note #105, in 2009 there were 2.1 million artists in the United States. Another 264,000 of US residents were nights and weekends artists—those who worked in paid artist jobs but whose primary source of income was another pursuit.²

In general, the artist population comprises people who are entrepreneurial, educated, and gainfully employed. This group is 3.5 times more likely than the general population to be self-employed. Fifty-nine percent of all artists surveyed from 2005–2009 received at least a bachelor’s degree (compared with only 32 percent of workers in the general population). The median annual artist wage was $43,230, while the median wage of the entire US labor force was $39,280. Although the artist wage exceeded the labor force wage by about $4,000 per year or 10 percent, it was considerably lower than the median wage of business professionals. The mean annual wage of those in management occupations in May 2011 was $107,410, while the mean annual wage of artistic occupations was $53,850.³

Median Wage of Artist Population, 2005–2009