Lesson 3: Access to Capital

What You’ll Learn: Creativity isn’t free. Nor should it be. Even if you count every penny and squeeze it to death before spending it, you still have hard costs, from supplies to marketing. This lesson will walk you through various options, and later on, we’ll take a look at how you can create revenue streams that will help fuel further growth and wealth.

Access to Capital

“I made my money the old-fashioned way. I was very nice to a wealthy relative right before he died.”

~ Malcolm Forbes       


Money makes the world go round. At least according to the song from Cabaret. Most creatives would agree. You have to spend some money to make money, even if it’s for brushes and canvas, a new computer program or a new welding torch. Nothing is worse than finding inspiration, only to find you can’t find the funds to bring it to life.

Banks aren’t much help. Most banks are multinational conglomerates these days and aren’t going to hand a small loan over to a creative, not even if they own a business. Most banks won’t fund a business loan that’s under $50,000, and that’s way more than most creatives need at a single point in time. As a business owner, you’re going to have to be pretty creative when it comes to finding alternative sources for funds, whether it’s short-term capital to invest in a new 3D printer machine or longer-term funding to finance growth and expansion.

Financial Basics

If you haven’t run a business before, you’ll have to bone up on some math skills. For some, this is a snap; for others, grabbing the wrong end of a hot glue gun would be more pleasant.

We’re not going to bore you here with too many of the particulars. We’ll go through some of the basics, and if you’re anxious to take a deeper dive, you can visit our Mastering Financials series.

There are a lot of perks of running your creative shop as a bonafide business. First, many of the costs you incur as you explore your creativity can be treated as part of the cost of doing business, meaning they can be deducted from your taxes.

There are two types of costs: Fixed and Variable.

Fixed costs are things that can’t easily be adjusted if you’re running short on cash. This includes insurance, rent, professional fees, equipment and supplies, sales and marketing, technology, utilities and taxes.

In contrast, variable costs have a bit more flexibility. These costs go up and down as output changes. This includes the cost of raw materials, packaging, delivery, contracting, commissions, credit card fees and other operational costs.

The Finance Trinity

There are three things you should become reasonably comfortable with in the day-to-day of running a business: Cash Flow, Profit & Loss Statements and Balance Sheets. Most bookkeeping sites and software churn these out automatically these days, so they are far more helpful than in the old days when they were done with a pencil and paper.

Cash Flow

For many creatives, there’s more money going out than coming in, especially in the beginning. Cash flow projections help you understand where all this money is at any particular point in time so you can make sure you have enough cash on hand to pay taxes or purchase a critical piece of equipment.

As a new business owner, there is a tendency to count the money that is promised or coming rather than what’s in the bank. This can be dangerous since there are inevitably deadbeats out there who either stiff you on a promised payment or renege on a sale. Starting to think about your income and expenses over a 12-month or even 24-month period will help you soften the shortfalls and spend the windfalls more wisely. It’s best to be very conservative in your income and spending projections. Unexpected surprises will arise, so question every expenditure before you make it and don’t count a single penny until it lands safely in your bank account.

More on Cash Flow can be found in our Mastering Financials tutorial.

Profit & Loss Statement (P&L)

Cash goes in, and cash goes out all the time in your business. If you were to see it on a sheet of paper, the formula would look a lot like this:

+ Sales
– Cost of Goods Sold
= Gross Profit
– Overhead
+ Other Income
= Net Profit

  • Sales (also called Income or Revenue)– is the total amount from selling your product or service during a specific time period.
  • Cost of Goods Sold– is the total expenditure for inventory items that customers buy, including the cost of purchasing the items, freight, manufacturing costs, modification costs and packaging. If you offer services, the Cost of Goods sold is the cost of providing the services, including labor, materials used and transportation.
  • Gross Profit– sales less the cost of goods sold.
  • Overhead– expenses associated with your ongoing business operation such as payroll, rent, insurance, interest, legal fees, utilities, etc.
  • Other Income– can be non-recurring sources, such as rebates or interest paid.
  • Net Profit– is gross profit minus overhead. Net Profit is what remains to pay for expansion, equipment, loan repayments, income taxes and owner’s draw (what you pay yourself).

Feel free to head over to Mastering Financials for a deeper dive into P&L.

Balance Sheet

Last but not least is the Balance Sheet. Think of it as a snapshot of how well your business is (or isn’t) doing at any point in time. In a single view, you can see all the assets, liabilities and equity you have in the company.

On the assets side are cash, accounts receivable, inventory, investments, land, buildings, equipment, etc. On the liabilities side is your debt or obligations that must be paid, taxes, business accounts due (for inventory, products, etc.) and any other costs you must pay out as part of running your business, such as payroll. Equity is the cash that came from you, not creditors. If you are a sole proprietorship, this would include your draws.

A balance sheet can tell you who has control of your cash, equipment and inventory. For instance, if you have creditors you are making payments to for equipment you’ve bought, they own part of your assets. This isn’t unusual. It’s pretty normal to use credit terms extended by others to reduce the ebb and flow of cash into and out of your business. It’s pretty hard to build a business – even a creative enterprise – without using someone else’s money (credit, extended repayment terms, etc.). Since lenders use balance sheets when you apply for credit, know that the more assets you own outright, the better the chance you will get a loan because you can use them as collateral for the loan.

Since balance sheets are a snapshot in time, you’ll want to close them at set intervals, such as quarterly or annually, so that you can use them to compare your performance and profitability from one period to the next.

Feel free to visit the Mastering Financials series to learn more about Balance Sheets.

A quick note about bookkeeping

This probably sounds a bit daunting to some, but it’s deceptively easy today. Online sites like GoDaddy’s Bookkeeping will keep track of everything for you. You can even connect all of your bank accounts and payment gateways into the system, so it tracks all of your finances. QuickBooks can do this, too, as can other online sites and computer programs. These tools will automatically generate all the reports you or your accountant need to file your taxes.