CREATIVE ACCOUNTING INFORMATION
What industries are covered?
We specialise in the following creative industries: film, TV, creative arts, digital, advertising agencies, exhibition design, branding agencies, website design
what financial information do I need to know?
Financial information comes in many forms. For compliance (legal) reasons, you need to produce a set of financial statements (usually the Profit & Loss Account, the Balance Sheet, the Cashflow statement and various notes to the accounts) at the year end, but there are many reports that you can create that will give you additional information for running your business.
should I work for free?
There are many benefits to working a job for free - building your reputation, being seen as someone who will help out, opportunities for further (paid) work - but always remember that you need to live and survive so make sure that the benefit you create outweighs the lack of income. This kind of decision is what accountants call a Cost/Benefit Analysis.
how do i calculate my charge-out rate?
Start with how much you would like to earn over a year (before deductions for tax). Then work out how many working hours you have available. You may decide to only work part-time, say 20 hours per week, or you may decide to work full-time.
If you decide on-full time, work out how many hours that equates to for a year, remembering to deduct public holiday hours, annual holiday hours and sick day hours.
Then deduct other hours that you won't be working on chargeable work (i.e. admin time, meetings, client meetings, development time, and time used for free jobs).
When you have your total number of working hours, divide your required annual pay by the number of hours and that will give you the hourly rate that you need to charge.
In reality, the industry may dictate a usual hourly rate - either more or less than your calculation. If it's more, great! But if it is less, you may need to adjust your working hours or your expected annual wage to fit.
how do I work out an on-cost rate?
You may want to add an on-cost to external expenses if you have overheads to pay for in addition to your own wages when budgeting or quoting for a project or production.
The simplest way to calculate an on-cost is to add up all your overhead expenses, work out your total expected external expenses, and then divide the overheads by the external expenses value. That will give you a percentage value (multiply by 100 to get the %) that you add to each external cost as you budget for a project or production.
How do I get clients to pay on time?
A client who does not pay on time can upset your entire cashflow. Here are two ways of addressing them.
1 - The Legal Route
Ensure that you have contracts agreed and signed that clearly show the payment terms (e.g. 7 days after date of invoice). Then make sure that you include the same payment terms clearly on your invoice. If the payment deadline passes, follow up quickly, send reminders and get on the phone to them if necessary. The ultimate response is to refer the client to a debt collector or hand over the invoice to a debt factoring company (they buy the debt and give you a percentage of the value, they will then try to get the full value from your client for themselves.)
2 - The Income Forecasting route
Knowing how your client pays their bills, and planning your cashflow taking that into account, will save you a lot of stress. Ask the client before you do work with them what their policies are. You may need to reach certain milestones, or have work approved before it will be paid for. Money from public entities, especially, can come with specific requirements. So make sure you follow their rules.
For example, if they require a Purchase Order Number to be quoted on your invoice, then make sure you include the Purchase Order Number. If they require you to send it to a certain email address, then make sure you send it to that email address, and if it needs to be submitted before a certain cut-off date, then make sure you submit it before the cut-off date.
Many large organisations will pay on the 20th of the month following the date of your invoice regardless of the date you agree to in a contract with a departmental contact, or that you specify on your invoice.
Being prepared to receive payment when they will pay you, and budget accordingly.
which is the best accounting software to use?
Choosing the right accounting software for you depends on your current circumstances and how you see your future.
If you are a freelancer or sole-trader, a simple spreadsheet may be enough to give you the information that you need to understand your financial position.
If you run a limited liability company, you may need something more sophisticated, but choose wisely.
The most popular option may not be best for you. It may contain too much functionality (in which case you are paying for more than you need), or it may not contain enough functionality (and you will end up paying for costly add-ons or use up valuable time using work-arounds).
Do you own research, or ask an independent finance person. Be aware that some bookkeepers and accountants are software resellers (i.e. they make money from signing you up) and that particular software may be best for them, rather than for you.
how do i do budgeting?
Like a lot of things in accounting, budgeting and how to budget can take many forms. Here are some examples:
1 - Zero-based budgeting from bottom up
Start with a completely blank budget and build it up from the bottom. Work out all the costs that will need to be covered. Add in overheads and add in wages. When you have a total, add an amount for profit. The grand total of expenses represents how much you need to earn, i.e. your sales value.
2 - Budgeting from the top down
Start with your known income and work backwards. Include the external costs first, then include your own time/rate, then work out what's left for overheads and an element of profit.
3 - Using a previous budget
Probably the most used budgeting process is to take a previous budget and adjust it for known differences. This can happen for annual company budgets or for individual project/production budgets.
4 - Using a previous budget and adding a fixed percentage increase
Similar to #3, take a previous budget and increase each budget line by a fixed percentage. This works for some individual project/production budgets but for a company budget there'll be specific changes that do not fit the fixed percentage and will skew results.
what do I do if i'm going over budget?
The first thing to do is to be certain that you are going over-budget. Get your financial results up-to-date and run your reports.
The next step is to identify where and why you are heading over budget - is it additional expenses, less income, or unexpected expenditure? is it the result of poor budgetary management or is there a leak somewhere?
Once you have bought something or committed to buy something it's very difficult to reverse that, so don't dwell too much on what went wrong, rather focus on what can be done to fix it.
Can you complete the rest of the project/production/financial year with fewer resources or cheaper purchases?
Are there ways to stabilise your income? or to make more money?
For a project, is it the result of scope creep (where the client asks for more and more things outside of the original plan)? can you refer it back to the client and ask for more funds?
If it is the result of money leakage, put a stop to the leak as quickly as you can. If it is fraud, follow the correct processes for stopping and rectifying fraudulent practices.
Whichever circumstance you find yourself in, don't ignore the signs of going over budget, it can only get worse if you turn a blind eye.
See our presentation
"Sleep well before the end of the financial year"
to Women In Film and TV in March 2019
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