This month on the blog, we're talking about finances. To start, I thought I'd walk you through my monthly "Finance Friday" workflow—the financial tasks I batch in my business at the beginning of every month.
We've talked about batching on the blog before (see Best Time-Batching Strategies for Musicians)—it's the process of grouping like tasks together. This helps you stay focused and cuts down on the amount of time wasted switching back and forth between different kinds of tasks (e.g. teaching, administration, performance, writing, finance).
I've found this to be really helpful with managing my business finances.
Because here's the thing about running a small business: you wear a lot of hats.
On any given day, you're operating as a teacher, director, performer, creator, marketer, administrator, CEO, and yes, Director of Financial Operations. It's a lot. And if you don't consider yourself a "numbers" person, these important and necessary tasks can sometimes slip through the cracks.
Enter Finance Friday—a dedicated time to review your finances, pay bills, pay taxes, and keep everything in check.
Related post: 3 Ways to Organize Your Workweek
I find that the list of tasks outlined below takes me a couple of hours to work through, but that's it for the month (outside of basic tracking and reporting). This way, I don't have to check in multiple times a month or keep track of finance-related tasks and deadlines from week to week.
Here's a quick overview of my Finance Friday Workflow:
How to Set Up a Monthly Financial Workflow for Your Small Business
*Disclosure: We get commissions for purchases made through links in this post.
Step 1 - Calculate your total income and subtract overhead & expenses
I like to do my Finance Friday Workflow on the first Friday of the month because it allows me to look back on income from the previous month. I start by taking my total income for the month and subtracting overhead and expenses.
Overhead is the ongoing costs of running your business (e.g. software, website hosting, email marketing, equipment, the business portion of your internet).
Expenses are costs directly related to selling your goods or services (e.g. materials, printing costs, payment processing fees, production costs).
I hop into PayPal and Stripe and tally up payment processing fees from the previous month. I also review my bank and credit card statements to make sure I tracked all of my overhead and expenses correctly.
Step 2 - Divide your remaining income
Different people recommend different methods for allocating your income (read Mike Michalowicz's book, Profit First if you're looking for a good starting place). The important thing to remember is that as a small business, your income ≠ your salary.
Here's how to divide your total income:
Taxes
Once I have my income tallied and I've taken out overhead and expenses from the month, I take out money for taxes (25-30% for federal and state—use the worksheet in our free Tax Basics class to help you figure this out for your business).
We recommend putting this money in a separate savings account until it’s time to pay your taxes, either once per quarter or when you file your annual tax return. Read more about that under Step 4.
Related post: Tax Prep Guide for Musicians
Retirement, HSA & Long-Term Savings
Next, I take out money for retirement, HSA, and our long-term savings goals (this percentage may vary based on where you are in life and business, but all three of these things are important, so if you have the money to set aside, do it).
My Roth IRA and HSA accounts both have annual contribution limits, so I divide that number by 12 and that’s how much I contribute each month.
What is an HSA?
An HSA (health savings account) is a way to save money for medical and health-related expenses, pre-tax. If you pay taxes in the United States and are enrolled in a high-deductible health plan, you’re eligible to save up to $3,650 (in 2022) tax-free.
If you’re looking to open an HSA this year, I recommend Lively. It’s free for individuals and families with no balance minimums or fees. Plus, we like the option to link your account with an investment account at TD Ameritrade so you can invest a portion of your health savings. Get $25 when you sign up and contribute your first $1,000 >>
Owner’s Draw
Then, I transfer my set salary or "owner's draw" to our personal checking account (the recommendation for this is 20% of your total income, but it can be more if your overhead and expenses are low).
Business Profit
Finally, consider leaving some money in your business checking or savings account as business profit (I believe some experts recommend around 5%). This will help cover your overhead and expenses in slow months and it's a good way to plan and prepare for a large expense or purchase such as a new instrument, continuing education, or professional development.
Related post: How to Organize Your Finances As a Musicpreneur
Step 3 - Schedule credit card payments
Next in my workflow is scheduling credit card payments.
This is also a good time to review your most recent monthly statement (bank and credit card), ensure that charges are accurate and that you documented all of your expenses correctly (sometimes I forget to write these down during the month!).
We recommend having a separate credit card for your business so that charges are kept separate from your personal spending.
Tax Basics for Musicpreneurs
Step 4 - Make estimated tax payments (quarterly)
At the beginning of January, April, June, and September, I set aside a few minutes of my Friday Finance Workflow to schedule estimated tax payments. If you make a certain amount in self-employment income, you'll need to pay estimated taxes to the government each quarter.
Wondering if you fall into this category? Not sure how much to set aside for estimated taxes? Take our free Tax Basics for Musicpreneurs class! Inside, we have a free Estimated Tax Worksheet that will walk you through all the calculations.
Since I set aside tax money each month (not just in months when taxes are due), all I have to do is schedule the payments based on what's in my business savings account.
Of the 25% that I set aside each month (after expenses), I pay 20% to the federal government and 5% to New York State (check your state for more specifics).
Federal tax payments can be scheduled online through eftps.gov. State tax payments should be made through your state tax portal.
Step 5 - Total mileage from the previous month
I keep a tally of any business-related trips I take during the month: driving to teach, driving to rehearsal, driving to the print shop to pick up copies, etc. Remember, you can deduct any mileage driven for self-employment work when you file your annual tax return.
The IRS recommends keeping a written record of this—if you're really good about it, you'll write down the starting and ending mileage for each trip.
Pro Tip: Keep a pocket notebook in your glove compartment.
The app Hurdlr (originally built for Uber drivers) can help with this. It tracks all of your mileage and records them as separate trips. All you have to do is swipe to categorize them as business or personal.
Step 6 - Run back-ups
This isn't a financial task, per se, but it's an important part of being a business owner. Consider this your friendly monthly reminder to back up your computer files and back up photos and videos from your phone. Use a USB external drive or a secure cloud storage system.
I invested in iCloud last year and it's been great for large video files and documents I don't need to access all the time.
I hope this behind-the-scenes look at my Finance Friday Workflow is helpful to you as you plan your own finance routine.
Looking for more guidance and practical recommendations specific to self-employed musicians?
We talk about managing your small-business finances in greater detail in our self-paced course, The Musicpreneur Model—the first + only online course of its kind designed to teach you the business skills, strategies, and mindsets you need as a classical musician to build and *manage* a diversified portfolio career in music. Learn more here.
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