9 Tips to Help You Better Manage Sporadic Cash Flow in Your Art Business – RedDotBlog

Managing cash flow successfully is one of the greatest challenges for any small business. It is a particularly difficult issue for artists and galleries, where sales often spike and dip. Artwork doesn’t tend to sell in regular patterns, and because of the high value of many pieces of artwork, when sales do occur they often cause a real spike in an artist’s or gallery’s income.

This irregular cash flow can cause logistical (and emotional!) problems for those of us in the art business. I would like to share a few things I’ve learned over the years about managing cash flow in the hopes that my experience might help make you a better manager of your cash flow.

First, I think it is important to note that for many artists, and also for many galleries, one of the most crucial issues to solve first is to create cash flow by generating sales. None of what I’m going to share today is going to be particularly useful to you if your total annual sales don’t generate enough profit to cover your costs. No amount of clever management is going to solve your problems if there simply isn’t enough cash to meet your expenses. If your sales aren’t where they need to be, job #1 is to generate more sales. I’ve written extensively about how to generate more sales (see the archives of this blog or my books), but the main keys are to produce inventory and get out there and show your work as much as humanly possible (in galleries, shows, etc.). In other words, hustle!

Even if you aren’t generating the sales you would like at this point, it would be wise for you to begin thinking about how you will manage your money when sales do increase. Put your cash flow plan into practice now so that you are prepared and have good habits established for the day when you are selling more work.

As you develop a stream of sales it is critical that you implement a spending plan. You need to understand exactly what your monthly expenses are and when all of your bills are due. It’s a good idea to have an exact number in mind when you think about your total expenses. Saying, “I need to generate $2,500 per month in order to cover all of my expenses” will then give you something very concrete to work toward.

Try to set up routines that allow you to have consistent time to stay on top of your books and pay your bills.

While it’s important to stay on top of all of your expenses, it’s also important to recognize which of your expenses have the highest priority. This is particularly true during slow periods when there may not be enough cash to go around. At times like these it’s important to be able to look at your expenses and say, “I first need to buy supplies so that I may keep producing – I may be evicted from my studio, but I could paint in the basement if that happens. A studio doesn’t do me any good if I don’t have canvas and paint.”

Only you can figure out what your highest priorities are, but it’s important to prioritize your expenses before you run into a cash crunch, otherwise you will be tempted to pay your urgent bills before your important ones (and there’s a big difference between urgent and important).

Which leads to the next principle – learn that your suppliers and vendors may be willing to work with you when your sales slow down. Obviously, it’s best to stay on top of your bills and never get behind. When that’s not possible, however, you may need to talk to your vendors and suppliers and ask if they can give you some leeway in paying your bills. Sometimes a vendor with whom you have had a good relationship will extend you informal credit by allowing you to partially pay and partially defer your payment. During the financial crisis in 2007-8 we were fortunate to have vendors that were willing to work with us and allow us some breathing space when paying our bills. Remember, you’re no good to your vendors if you are out of business.

It’s also important to remember, however, that negotiating your bills should not be a regular tactic. Cause too many delays, and you go from being a valued customer to being a deadbeat.

Just as slow-downs can be a problem, a sudden windfall of sales can be a problem as well. When sales do come, they often come in clusters (not necessarily from the same sources but just by coincidence at the same time). Suddenly your bank account is awash in cash – a feast after a time of famine. If this comes after a slow period, you may feel tempted to quickly pay off your lingering bills and buy that new doodad you have been waiting on for so long. Before you know it, your bank account is right back where it started and you are scrambling again. Instead, I would encourage you to spend your money slowly and methodically. If you are saving up for a major expense, don’t suddenly dump all your money into a purchase. Instead, continue contributing to your savings at a regular pace. Having cash on hand gives you stability.

As an example, let’s say you would like to buy a new delivery van for hauling your art to shows, galleries and for client deliveries. You’ve shopped around and know you can find a used van that will suit your needs for about $7,000. When you suddenly make a $10,000 sale you are going to be sorely tempted to go out and buy the van. Instead, I would encourage you to save slowly and steadily. Try saving a regular monthly amount toward the purchase – say $700 a month. Now, when you make a big sale you have cash in your bank account to fund the monthly saving toward the van, but you also keep more cash on hand to stay on top of your expenses and deal with slow-downs in sales.

This approach to spending has been one of the most important things I have learned after having been in business for myself for 13 years.

This approach has an added benefit. There are many times when I decide I need some shiny new dumaflache desperately. I start saving toward the purchase and then, a few months in, decide that I actually don’t need whatever it was I thought was so critical when I saw it.

Even if I do end up deciding to make a purchase when I’ve saved enough, there is something very gratifying about having saved up for it instead of having rashly splurged on it.

If you are saving for a purchase, I encourage you to move the money for the purchase out of your general checking account and into a separate savings account where you will be less tempted to raid the funds during a slow period. I have also found that it is hard to save if I have to rely on myself to regularly move money into the savings account. Several years ago I discovered Capital One 360 – an online bank geared toward saving that allows you to easily, and automatically (if you wish), transfer money from your checking to savings account. You can set up weekly or monthly transfers that take the work out of saving. I like to break my saving deposits into weekly amounts so that they seem smaller.

Another advantage of this online bank is the fact that they allow you very easily to set up multiple savings accounts that you can transfer money into automatically. Whenever I have a new item I want to save toward I just start a new account and name it the same as the goal I’m saving toward.

This automatic saving is incredibly powerful. I promise you will save more money by doing small regular investments than you will by saying, “I’m going to save as much as I can, whenever I can.”

The flip side of saving is credit and debt. Just as saving can be an incredibly powerful tool to help you build your business, debt can have the same power to hinder your business. Don’t get me wrong, there are times when building a business that credit can be a powerful tool. Credit can be leveraged to help you buy expensive tools or set up your studio. Credit can help you ramp up your marketing or take on large projects you wouldn’t otherwise be able to undertake. I couldn’t have started my gallery without credit. While I’m not one of those who feel that credit and debt are completely evil and are to be avoided at all costs, I do recognize the crippling effect debt can have on a business.

While credit can allow you to do things you would be otherwise unable to accomplish, debt creates drag on your monthly cash flow and can eventually drag your business under if you are not careful. Even if it doesn’t it has other negative effects.

For a time I had a commercial line of credit with my bank. When I got the line of credit, the bank sold it to me as a great way to stabilize cash flow. When sales were slow, they said, I could draw on the line of credit to make up the shortfall. Though it seemed like a great idea at the time, I quickly discovered something interesting. Suddenly, it seemed like I was constantly having slow times that required me to draw on the line of credit, and when sales picked up, they never picked up quite enough for me to pay down as much as I had used from the line. Before long I had built up quite a debt and maxed out the line. Now, not only could I not use the line during slow times, I had a monthly payment that added to my monthly overhead. I looked at the situation and realized my folly. I decided I was going to pay down the line and never use it again. I redoubled my efforts, tightened the belt, and started paying off the line of credit. It took several years to completely pay it off, but once I did there was a sense weight having been lifted off the business.

If sales slow down in the gallery now, I just work harder and increase them. I’ve realized that there’s just no way out of the work – I can either work harder now and get ahead, or, with debt, I can wait to work harder until the debt mounts and then have to work even harder because of the interest that is accumulating.

My bank is always trying to get me to take another line of credit, and it’s very satisfying to tell them, “No thanks, I don’t need it.”

Credit cards offer an even more dangerous path to debt because they are so easy to use.

Again, I absolutely understand that there are times when credit is useful and can help businesses grow, but I try to find other ways to finance our growth.

Another important factor to keep in mind is the very human tendency to relax when things are going well. When you have good sales the sense of urgency you felt when you were starving for sales diminishes. As the sales roll in, you start focusing on dealing with the logistics and paperwork that surrounds them. If you aren’t careful, you can very easily neglect your production and sales pipelines, setting yourself up for a future drop in sales. Try to equalize your production and sales efforts just as you’ve equalized your spending.

Finally, I encourage you to find a charity and devote a fixed percentage of your sales to the charity. Giving back to the community will make you feel more connected, keep you from becoming too self-centered, and has, I’ve found, a positive impact on your cash flow.

I was recently in the act of writing out a check for a non-profit that I donate to regularly when the phone rang. Out of nowhere, seemingly, we made one of the largest art sales we’ve had in the gallery this year. Coincidence? Perhaps. I’m one of the least superstitious people I know, but I’ll take all the karma (or blessings, or coincidence) I can get!

What have you learned in managing your art business cash flow? Do you disagree with anything I’ve said in this post? What are your biggest cash flow challenges? Share your experiences and thoughts in the comments below.

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