Business skills don't always come naturally to creative people. But they're a necessary evil if you want to be successful and profitable.
The good news is, you don't need an MBA to get this side of things nailed – there are some straightforward ways to sharpen your business acumen, whether you're a freelancer (opens in new tab) or just setting up shop (opens in new tab) as a small studio.
Read on to discover 10 ways to be more business-savvy as a designer...
01. Control your cashflow
Balancing the books isn't top of anyone's wish list when there's designing to be done, but it's essential to the success of your business. What comes in and goes out needs to be managed carefully.
Every month, review your cashflow (opens in new tab) and forecast for both the next three months and the next six. Make a list of all the invoices that need to be sent in those two time periods, and ensure you're hitting your monthly and quarterly cashflow targets.
02. Stay on top of invoicing
If you're working on a fixed-cost basis, ask for a percentage upfront – ideally, invoice for half the agreed fee before you start. This may not always be possible, but it's additional security, especially on long jobs for slow-paying clients.
Send your final invoice right after finishing the job. Keep in mind that a client needs time to make payment funds available – it doesn't hurt to send the invoice before payment is due. After all, the sooner it’s sent, the sooner you can chase if it's unpaid.
Finance tools for freelancers (opens in new tab), such as Solo (opens in new tab) or FreeAgent (opens in new tab), can help you stay on top of multiple projects at once, and you can even send invoices from within the software. Remember: if you don't invoice, you don't get paid.
03. Know your contracts
It isn't always easy to protect your rights, but a few key legal principles can help you use your work to its full potential, while avoiding exploitation.
Sending out your own T&Cs ensures that the terms under which you work are in your own interests. Make sure you have a 'retention of title' clause in there – this means no rights are transferred until you've received full payment.
Include a 'cancellation and rejection fee' clause, too – or check the client's policy. It's reasonable to ask for 25 per cent on signing the contract, 50 per cent at roughs with no rights transferring, and 100 per cent at final artwork.
If you don't provide your own T&Cs, remember that legally you'll be deemed to have accepted whatever terms the client usually operates under.
04. Understand copyright and IP law
Copyright (opens in new tab) is the right to copy or reproduce a given work. For a work to be afforded copyright, it has to be original – but it only protects finished work, not ideas.
The creator is the first owner of copyright from the moment they make their mark, until 70 years after their death. But copyright can be bought, sold and bequeathed, and is separate from the original work. You can own one without the other.
Freelancers usually own the copyright in their work. If you're on the payroll or work at a client's premises, the client owns the copyright unless otherwise agreed.
In the US, however, clients own the copyright of freelance commissions in any contract using the words 'work for hire'. Try to avoid such contracts if you can.
Trademarks are legally registered symbols or words that distinguish your goods and services from your competitors', and prevent them using anything too similar. Generic descriptions of your business don't count – it's more about defining your brand.
Patents are more concerned with ideas, or specifically how something works. They are usually applied to products or software, and grant exclusive rights to the 'invention' for a limited time, in exchange for publicly disclosing it. You must apply for a patent, and pay a fee.
05. Ensure you're insured
It's often a good idea to take out insurance against things like property damage, employer's liability, public and product liability, and commercial legal protection – it's worth doing some research to see what applies to you.
A 'warranties and indemnities' clause in a contract guarantees that your work is original, and all necessary permissions have been sorted. The client doesn't want to be financially liable for a copyright legal battle with a third party, after all.
Check the wording of these clauses, and don't agree to indemnify against 'claims' or 'alleged breaches'. You should only indemnify against a 'breach'. A client faced with a claim may choose to settle out of court and look to you for payment, whether an infringement has occurred or not, and you won't have the chance to defend yourself.
It cuts both ways: if a client provides you with visuals or reference materials to use in a project, make sure they're indemnifying you in the same way.
06. Claim your due royalties
Royalties can be a great source of repeat income off the back of a project that uses your designs on sellable products – such as clothing, prints (opens in new tab), books or music.
The usual royalty fee is five to 10 per cent of the retail price. If the client is on a tight budget and unable to offer much of a royalty, request an escalator clause where the royalty increases after a certain number of units are sold.
Make sure there's a reversion clause, too – this ensure the rights transfer back to you if the item goes out of print.
Check you have the rights to inspect the accounts. If you think you're not being paid properly, you can instruct an accountant to investigate. This is very important for lengthy license periods as royalties can be a substantial form of income.
07. Read up on employee rights
If you're recruiting staff, you need to be up-to-scratch with employment law. This is a complex area, and specific legal requirements vary depending on the country in which your studio is based, so it's a good idea to consult a lawyer or HR specialist to help in drawing up your policies.
Working hours need to be reasonable (in the UK, a maximum average of 48 hours per week, although employees can opt out), and most countries require a decent holiday allowance (in the UK, a minimum of 5.6 weeks per year, including public holidays – although there is no statutory minimum in the US) and sick pay.
Flexible working is increasingly popular, and employees have the right to request it. You can choose whether to accept it or not, although you have a legal duty to accept reasonable flexible working requests from certain employees, such as those with children up to 16 years old, or with particular disabilities.
You also have legal obligations regarding maternity and paternity leave – in the UK, all pregnant employees are entitled to statutory or enhanced maternity pay, while in the US, at least 12 weeks of leave is mandatory.
08. Deal with employee difficulties
You also need clear policies in place to deal with any grievances that may arise. Make sure staff are aware of what's required of them, and what is and isn't acceptable. Good performance management means disciplinary action should usually be avoidable.
If you need to let a member of staff go, there are strict guidelines to follow. You need a legitimate reason to fire someone – 'not performing well' is not enough – and making an employee redundant has a different set of requirements. Understand the law concerning unfair or constructive dismissal, document everything, and communicate the process thoroughly to the employee concerned at all stages.
Sick leave is another key thing to consider. Set out a comprehensive absence policy, make sure your team has access to it, and monitor all sick leave – not just long-term absence. Make sure you know who is absent, when and why.
This will help if you need to address any frequent absentees and can also flag up problems in your business: after all, you have a duty of care to ensure workload is acceptable and the environment is healthy.
09. Get to grips with tax
Nobody likes dealing with tax, but whether you're a freelancer or a small business owner, you can't (legally) avoid doing so. Depending on your profit margin, the amount you ultimately pay can be small, or very significant.
Save a proportion of your profit every month (around 20-25 per cent ideally) so you can pay these bills when they come in. It may be tempting to use this money to prop up poor cashflow, which can be fine temporarily, if you replace it as soon as you can. If it becomes normal practice you could face a lot of stress when a hefty bill from the tax man arrives and you've got no money to pay it with.
In many countries there are two types of tax that will affect creative businesses: income tax, and corporation tax. Sole traders and partnerships are charged income tax on their profits, after things like equipment costs, rent, phone and other office expenses have been deducted (read our tax return tips for freelancers (opens in new tab) for more about this).
Know what you're entitled to claim for, and make sure you do so as it all has a direct effect on your taxable profit. An accountant can be invaluable here, and will often more than offset their own (tax deductible) fee.
10. Know when to register for VAT
Limited companies are charged corporate tax on profits, and the employees of that company are then charged income tax on their income. As with sole traders and partnerships, limited companies are only taxed on their profits.
In the UK, if your business turns over £85,000 or more in a financial year – regardless of profit margin – you'll also have to register for VAT (opens in new tab). If you think you might hit that target during the year, you can voluntarily register beforehand.
If you're VAT-registered, you have to charge your customers for VAT (currently 20 per cent in the UK) on top of your services. You can also claim VAT back for business-related purchases. This is all then paid on to the government every quarter.
Bear in mind there's no VAT earning threshold if neither you nor your business is based in the UK, but you are supplying goods and services to the country – you must register as soon as you do so.