If you cringe at the thought of bookkeeping... if a lot of high-level accounting talk puts you to sleep...if you would rather pour greenware or teach a class
than labor over a ledger... then this chapter is for you!
The good news is that a few basic principles of record keeping apply to a small ceramics studio, and a whole lot of complicated accounting just isn't necessary.
Most of the information collecting you need to do
Require only common sense and a little discipline.

Any records you keep should be:
1. Accurate - So you know how much you spend and how much you earn.
2. Complete - So you don't have any "surprises" or, worse yet, penalties when tax time rolls around.
3. Separate - You must never allow your business money to get all mixed up with your personal money.
4. Simple - All unnecessary time you spend working out a sophisticated (and time-consuming) accounting system could be better spent in your studio, making money.

We will not pretend to offer here a course in basic accounting, but rather some general and practical guidelines you can use to get started. Well-meaning friends and relatives who consider themselves accounting experts may try to convince you that you need a sophisticated system. But remember, this is not a business with lots of employees, a large advertising budget, or a fancy accounts-receivable plan... at least it shouldn't be.

Accounts

Experienced and successful studio owners seem to agree that, at least in the early years of the business, a single-entry bookkeeping system is all you need. That simply means that you keep a record of the flow of income and expenses through a daily summary of cash receipts, a monthly summary of receipts, and a monthly record of expenditures. If you always pay by check, your checkbook makes a good record of expenditures.
Double-entry bookkeeping involves recording transactions in a journal and then posting monthly totals of transactions to appropriate ledger accounts. Income and expense accounts are closed each year; asset, liability, and net worth accounts are maintained on a permanent and continuing basis. Many successful studios have operated for years without once concerning themselves with double-entry bookkeeping. As long as you follow a few simple rules, the success of your business will be due to your abilities in areas other than accounting. And don't overlook the fact that you can hire a local bookkeeper for a small monthly fee.

Rule #1: Operate a cash business

Resist the temptation to run up a big bill with your distributor. Sometimes you may feel like a kid in a candy store when faced with all the new things the supplier has to offer, but remember: being on a solid cash footing will help you survive the slow times. Your income may peak at holiday time, but a large bill from the distributor must be paid even during the post-Christmas slump.
Also resist the temptation to be "too careful." Your customers expect you to have some new items to show them each month. Pick and choose selectively so you can display some of the new greenware designs and colors. As the old saying has it, "You have to spend money to make money."
The first customer to whom you give credit puts you in the accounts-receivable business, and a simple bookkeeping system will no longer serve your needs. Inability to track and collect past-due accounts is a major reason for small business failure, and the accounting procedures involved are too top-heavy for a home studio operation.
If you are thinking that you will lose customers by expecting cash payment, be aware that experience shows the opposite to be true. When a customer owes a lot of money at one studio, he or she is more likely to take future business (or future indebtedness!) to another studio, avoiding the one where the overdue account was incurred. Meanwhile, the first studio has only an uncollected debt to show for its good intentions. You can be accommodating with steady customers and let them lay away large items, but the merchandise should not leave the studio until it is paid for - no exceptions.
With a cash system, for you as well as your customers, you always know where you stand at the end of the day. You might want to establish a given amount of cash you like to keep around for making change (perhaps $30-$40); subtracting that amount from the total in the cash drawer will always give you a quick idea of how you're doing for the day. If you have to figure the amounts you owe the supplier and the amounts various customers owe you, the picture gets cloudy and it is easy to get in over your head.

Rule #2: Keep business and personal money separate

One of the first things you should do in setting up your business is to open a separate checking account and savings account for business money only. The checks can be imprinted with the name of your studio at a reasonable cost, and a number of styles are available from most banks. Some checkbooks especially suited for businesses are available, so ask the New Accounts department at your bank to show you their catalog. There are checkbooks with four perforated checks to a page, some with stubs, and some with large register pages for recording more information than the standard purse-size book allows... some even retain a carbonless copy of every check you write.
Your check register will be an important document and should be maintained completely and accurately. This record will provide needed information about your expenses for repairs, utilities, business purchases (the checks you wrote) and your income from sales (the deposits you made) at income-tax time.
It may seem obvious to some that personal money must not be mingled with business money, but others find themselves drawn into a pattern of thinking, "Well, it's all mine." Think of the business as a different person with rights and responsibilities of its own. If you give in to the urge to buy a new outfit with the day's studio receipts or greenware with the family vacation money, you will never know how the business is doing. You will not be able to make good decisions about expansion or purchasing, because the financial picture will be such a muddle.

Rule #3: Keep track of sales

There are many ways to keep track of the purchases your customers make, and you may devise a system that works best for you. With slight variations, this simple idea has worked for many: When Mrs. Smith (for example) begins a class or a project, she fills out a 3" x 5" card with her name, address, and phone. You file this card and then write her name on the spine of an inexpensive, numbered carbon-copy sales slip booklet. (You can buy these in bulk at discount stores.) You now have a receipt book just for Mrs. Smith in which you write each item and its cost - greenware, firings, paints, brushes, lessons, and sales tax - each time she visits your studio. You give her the white copy when she pays, and you retain the yellow copy, still attached, in the book. Keep all "active" books for a current week together; they can be easily reviewed at the end of the week and the sales tax totaled.

Most studios which use this system maintain a separate book for each steady customer and a couple of unlabeled ones for walk-ins. Some of the advantages of this method are:

1. You always have a record of a customer's greenware purchases to help in establishing
the cost of firing - sometimes weeks later.

2. If you record the color number with each paint purchase, you can later duplicate an article that turned out beautifully... even if no one remembers which paint was used.

3. If a customer "forgets" to pay for something, you have a numbered sequential record of his or her purchases, still attached, in a book. It is easier to be gracious and avoid unpleasantness when you have the proof in your hands - anyone can "forget."

4. When you draw a blank on a new customer's name, notice what she's working on; check the receipt books for someone who recently bought that item, then waltz over with a smile and call her by name. She'll be charmed that you remembered!

If you make a mistake on a sales receipt, draw a diagonal line through it and write VOID, but leave the yellow copy in the book. Do not make a practice of tearing out yellow copies or you will never be sure your sales records are complete. Start over with new records - and new receipt books - each January 1. There are other ways of keeping track of sales; this is just one example that several dealers recommend.

Rule #4: Keep track of purchases

Whenever possible, make purchases for your business by check. Keep the checkbook register up to date, and save the itemized receipt for each purchase in an organized file. Use the system you prefer - file by month, alphabetically, or by categories (supplies, repairs, utilities, etc.) - but save those receipts. It is doubly important to keep receipts if you make cash purchases, and it may be necessary to write down exactly what you purchased if the receipt is not itemized.
Whether you do your own income taxes or have them done by someone else, these receipts will provide the raw material you need to make the most of your allowable deductions. Think of them as money in your pocket.

Taxes

Since state and local laws differ so widely, you should check with your local authorities to find out what is expected of you. In most states you will be expected to collect sales tax on merchandise and send in monthly or quarterly payments to the state. You are actually serving as an agent for the state government in collecting taxes. By keeping good daily sales records, you can easily total up the sales tax you have collected in a given period. Some like to do this on a weekly basis, setting the money aside (from checking to savings) right then; the money is there when you need to make that payment to the state.
If you keep an accurate checkbook register, sales receipts, and records of all your purchases, you should be able to produce all the information needed for your federal income tax return. If you are an old hand at this, you will pat yourself on the back at tax time for being so organized. If you prefer to have your tax forms done professionally, remember that time is money. The less time it takes a tax preparer to sift through your raw material, the less it will cost you. Ask for an "organizer" form which you can fill out by going through your records with a calculator, adding and checking the items required; working from the completed organizer, your tax preparer can do your taxes in less time.
Situations and regulations vary, of course, but you will most likely need to know: state sales tax collected, receipts (income), purchases (expenses), and what you paid for utilities, repairs, auto expense, telephone, and insurance.
If your family does not have other sources of income, you may need to make income tax estimates and pay them quarterly. Ask your tax consultant if you are unsure about this.

Inventory

You can make a simple inventory form by listing all the items you stock on several sheets of lined paper and making photocopies of them. Leave a blank space at the end of each section (glazes, greenware, tools, etc.) for adding new items. With these forms, you can easily look over your shelves and mark the number of units beside each item name.
A feel for managing inventory seems to develop with experience, but the beginner can protect herself from costly mistakes. Keep well-organized shelves so you can tell at a glance when an item needs to be replaced, and maintain a "shopping list."
Buy what you can afford and what you need, but do not buy impulsively and wastefully. As with your personal grocery shopping, don't go to the supplier hungry and unaware of what you have on your shelves at home.
Since molds are a big investment and you are not sure how the items will sell, purchase greenware first and test the market; note how many you sell and invest in the mold if it proves popular.
At holiday time the pouring schedule can become hectic and you may find yourself frantically trying to keep your greenware shelves full, anticipating your customers' needs. One studio owner offers this suggestion: Using a photo album and clippings from mold catalogs, make a scrapbook of all your molds. (The clipping from the mold catalog shows a picture of the finished item.) Your customers can look through the scrapbook and place orders for special items to be poured. This saves you a lot of panicky pouring and second-guessing in trying to keep your shelves stocked.

Insurance

Insurance needs for a home business are best handled by an agent you know and trust; adaptations to your homeowner's policy can be explained by the person who knows what that policy already includes. Any business needs protection from fire and other damage, burglary, and personal liability. Be sure to ask about coverage for your kiln and its contents in case of an overfire. Usually a rider on your present policy will suffice.
Your area may dictate special needs such as earthquake, wind, or flood protection; see your agent, arrange for the best policy you can, and then put the policy in a safe-deposit box at the bank.
NOTE: Duncan Ceramics has extended its Product Liability Insurance Policy to provide coverage to all our Duncan Distributors and Dealers for personal injury and/or property damage claims arising from allegedly defective Duncan products. This insurance is provided at no cost to you and applies to all areas of your business in selling Duncan products, with the following exceptions: any express warranty (meaning a guarantee given by you directly to a customer either orally or in writing) which is not authorized by Duncan; and any sale for purposes not authorized by Duncan. Additionally, this insurance does not apply to any bodily injury or property damage caused by: any act of the Dealer which changes the condition of a Duncan product; any failure by the Dealer to maintain a Duncan product in salable condition; any failure on the Dealer's part to follow instructions from Duncan with respect to inspecting, adjusting, testing or servicing a Duncan product in connection with the sale of such products; any repacking of a Duncan product - unless it is unpacked solely for the purpose of inspection, demonstration, testing or substitution of parts under instruction from Duncan and then repacked in the original container; and any relabeling of a Duncan product after it is sold to the Dealer by a Duncan Distributor or used as an ingredient of any other substance. This insurance does not apply to any products received by a Dealer from any source other than a Duncan Distributor. This insurance does not apply to bodily injury or property damage which occurs as a result of a dangerous or defective condition on the Dealer's premises. You must carry your own premises liability insurance.

Checklist

Here are some general (and flexible) guidelines to help you remember what to do and when:

Daily
Add up the money taken in (cash drawer receipts).
Check bank balance (keep separate from personal).
File records of purchases (check or cash receipts).

Weekly
Add up sales tax (total from week's receipts).
Review inventory shelves; update shopping list.

Monthly Reconcile bank statement.
Record monthly payments (utilities, insurance, etc.).
Make state sales tax payment (may be paid quarterly).
Check inventory shopping list; buy what you can afford.

Quarterly
Send in local and state sales tax payments, if applicable.
Send in federal estimated income tax payment, if applicable.

Yearly
File local income tax forms, if applicable.
File state income tax forms.
File federal income tax forms.