Courtney Milan said:
I definitely agree with this for anyone who uses this for strictly accounting reasons. It...honestly wouldn't make that much difference for me, because I have positive cash flow as well as a financial profit.
One of the things that I talk about on the second day of the interview (not yet posted, apparently) is that the primary use that I make of this is not accounting in the profit/loss sense, but making myself accountable (if that distinction makes any sense).
I actually think the primary purpose of the P&L for me is not to figure out profits/losses (if that makes any sense) but to keep tabs on expenses and control them. Including a prorated share of expenses is thus EXTREMELY important for my purposes, because it makes me think very hard before spending money on things that can't be directly attributable to a specific book. Those are the expenses that can vary the most--and that I think deserve the greatest scrutiny.
Do I need to buy a new desktop computer? Do I need to go to that conference, or take that workshop? Do I have to spend that much money on a research trip?
If you write down an expense, it matters. If you write down an expense and make yourself see it in connection with income, you might make many, many different choices. In that sense, it functions kind of like a food diary. It raises awareness of spending.
Looking at various overhead costs like this should be done after rolling up your segmented P&L (each book being its own segment). If a book shows a profit against its own expenses (those expenses incurred to develop *that* book, that would not have been incurred had the book not been written) then that book is a positive contributor to your overall business.
That said, it's wise to be conscious of what expenses you're incurring outside of the development of books so that there are no surprises in the future. My suggestion to all authors (established, and new) would be to treat your publishing business like a *business*.
Prepare a business plan: forecast what you can conservatively expect to earn for the coming 12 months, and then budget what you can conservatively expect to spend in that same time period (the newer you are, the more "cushion" you should build into these income and expense numbers). In the budgeting process you can layout how much you are comfortable spending on various tasks (formatting, editing, covers, research, etc) so that you have a general guideline going forward.
Then, each month (or quarter at the very least), you'll want to true up your *actual* income/expenses to your forecasts & budgets. This will help you identify any problem areas as you go forward and will help you avoid disaster. This will help give you an idea of how much "wiggle" room you have to do... anything... that involves money; including attending seminars, workshops, dues & fees, etc.
I wrote the above in an attempt to keep the process very simplistic. And please note that what Courtney talks about in the blog post is a further subsection of the above guide (you would want to re-create her steps for each book you're planning to release in a given year and then sum all of those numbers over into the higher-level view of things).
If you have bank accounts setup for your publishing business, then using Mint.com would be a very easy (and free!) way to establish annual budgets and track your income and expenses. It can still be used if you're mixing personal stuff; it just becomes more of a hassle to maintain.
