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Thanks! Courtney's so much smarter than the average bear. I'm always happy when she shares her knowledge.
 

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I have an ROI spreadsheet.

I've estimated that if I release another Saltwater City book, I'll make between $6.00 - $8.00 an hour with the first year's sales, depending on how it boosts sales of my other books.

I do all my own stuff, so I have no outside costs except the stock art. My calculations are completely hours, no hard costs.
 

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Good article.  I would add that an author might also want to do an additional statement that does not include any prorating. In accounting terms, this would be a statement that does not include allocations.

With financial accounting, one always includes the allocations. However, in cost accounting, the overhead is not included in order to determine if the product is making a positive cash flow. It is possible for a product to make a loss under financial accounting, yet make a positive cash flow with cost accounting.

Both are useful tools.
 

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Terrence OBrien said:
Good article. I would add that an author might also want to do an additional statement that does not include any prorating. In accounting terms, this would be a statement that does not include allocations.

With financial accounting, one always includes the allocations. However, in cost accounting, the overhead is not included in order to determine if the product is making a positive cash flow. It is possible for a product to make a loss under financial accounting, yet make a positive cash flow with cost accounting.

Both are useful tools.
I'd suggest that most of us don't really have allocations. Maybe a home office. An expensive computer maybe? But overall, I'd think for most of us those costs are minimal.
 

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"I'd suggest that most of us don't really have allocations. Maybe a home office. An expensive computer maybe? But overall, I'd think for most of us those costs are minimal."
I agree. In that case both the financial and cost accounting statements would be very close. But if one is allocating computers and travel to conferences, the difference can grow depending on the number of books in the allocation base.
 

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GREEK! You people speak GREEK!

But I do have all sorts of fancy mancy stuff in Quickbooks. Sometimes I spend a whole day running reports. It's fun for all ages!
 

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Courtney's advice is always so sound, and I'm constantly amazed by her willingness to share and give of her experience.

Thanks for the link!
 

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Terrence OBrien said:
I agree. In that case both the financial and cost accounting statements would be very close. But if one is allocating computers and travel to conferences, the difference can grow depending on the number of books in the allocation base.
I don't think I'd add my allocations for each project. I'd like to know the actual nitty gritty numbers solely for each project. Anything else is extra I can usually strip out if I have to. Conferences are a want, not a need. And the home office? I can write anywhere. And let's face it, I'm going to have a computer anyway. So my preferred way is to run the numbers for each project and then pop the rest of those numbers into the yearly budget.
 

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Arkali said:
Courtney's advice is always so sound, and I'm constantly amazed by her willingness to share and give of her experience.

Thanks for the link!
I have a girl crush on Courtney when she talks business.
 

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Thanks for sharing this article! This was very timely for me.

And I agree with the others who say Courtney is a seriously smart cookie. I had an email exchange with her a couple years ago, and she was kind enough to answer me (a total stranger) and say some really smart things that had a big impact on me. Since then I've been convinced she's made of win, which she just keeps reinforcing.  :)
 

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Terrence OBrien said:
Good article. I would add that an author might also want to do an additional statement that does not include any prorating. In accounting terms, this would be a statement that does not include allocations.

With financial accounting, one always includes the allocations. However, in cost accounting, the overhead is not included in order to determine if the product is making a positive cash flow. It is possible for a product to make a loss under financial accounting, yet make a positive cash flow with cost accounting.

Both are useful tools.
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.
 

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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.
 

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My plan is a bit different. It doesn't involve a P&L, just a real, 90-day forecast.

Basically, I know what I will make 90 days in the future (you wait until 60 days after the close of the month to get paid), and I treat day 91 as 0 sales. I expect 0 sales after 90 days. I hope for more, but I expect absolutely nothing. Since my new releases usually fall about 120 days apart (may get shorter, may sometimes be longer), I am very tight on everything prior to a release in order to give that book a good chance with advertising, art, editing, etc.

It's not as scientific, it's not precise and by the numbers, but it works for me. And I think it gives me more time to write, which is really the only thing guaranteed to expand business. I also don't have huge expenses (they're pretty much set month to month on my business, with slight tweaks, and I work a full time job to cover living stuff), and I save my big purchases for the end of the year. New software, new computers, and really new anything goes around November and December because I know what I'll bring in up to February/March of the following year and those months are usually decent.

Not knocking anyone else's methods, though. I think we all have a way, and any method that doesn't destroy your life is perfectly acceptable. :)
 

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I just wanted to add one extra facet to the idea of P&L that has not been covered.

I already run my own low expense business privately teaching music lesson.  By low I mean compared to most businesses.  I buy printer ink, paper and the occasional music technique book.  This is my living and the business does generate a profit for me.  Frequently, however, I am in the situation where I owe a little bit extra in taxes rather than receiving a refund.  My accountant is very good but can only go far in quarterly predictions.  There have been several years where I made more than expected.  So at the end of the year I have to decide if I want to spend money on some extra business expenses or just give all of it to the government.

This problem has been slightly remedied for me because things like cover art are almost a 100% tax write-off.  So in "splurging" (buying nice stuff, not spending every dime I have) in things like cover art, I make more because the book sells better and I save money on income taxes.

Just something for you other self-employed people to think about.
 

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I see this a lot and it drives me a bit nuts so I feel compelled to point it out. You can view your deductible expenses as receiving a discount by the amount of your tax rate, but you're not saving money by incurring deductible expenses for the sole reason of reducing your taxes paid.

What I mean is, don't spend money because you feel the need to reduce your taxes, spend it because you have a legitimate business need.

Example:

$100 cash, 30% tax rate.

W/o Deductions: $100 * 1-(.3) = $70 at the end of the year, $30 taxes paid

W/ Deduction: $100 - 25 = $75 * 1-(.3) = $52.50 at the end of the year, $22.50 taxes paid.

In essence, the $25 expenses really only costs you $17.50, but it will not leave you with more cash at the end of the year. I've seen a lot of people who will spend money haphazardly towards the end of the year just so they can reduce their taxable income. It's wise if you're going to need to purchase items anyways; but there are those who will do it just because they don't like taxes.

When making purchasing decisions I usually run a net-of-tax discount in my head, and then look at my budgets to make sure it still makes sense to purchase.
 
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