Tracking Your Money
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In this episode, I start our Financial Basics for Authors series, sharing with you the basics you need to understand your financial statements and accounting records. In today’s episode I talk about why you need to track your money and what records you need to keep.
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Transcript – Episode 11
Hey fellow indie authors, welcome to this week’s episode of the Indie Author Biz Guide Podcast. In this episode, I’m starting a new series about financial basics for authors. And in this series, I’ll be sharing with you basics that you need to understand your financial statements and accounting records. In today’s episode, I talked about why you need to track your money and what records to keep.
Listen to the end for a free resource you can download to help you in your indie author business.
Welcome to the Indie Author Biz Guide Podcast. I’m Tora Moon, genre bending fantasy and sci fi author, indie business author, and entrepreneur. Here we talk about the business of self-publishing, or as I prefer to call it, indie publishing. As an indie author, you have entered the wonderful world of entrepreneurship. On this show, I guide you through the rocky waters of the indie publishing industry.
I share business basics and principles you can apply to your author business, really, any business. Other indie authors share their experiences and expertise to give you insight in your career and feel your business. You can download your free indie author business checklist, find additional resources, and the show notes at Indie Author Biz Guide dot com. And now, here’s today’s episode.
Accounting is the Third Business Pillar
This is the first episode in the Financial Basics for Authors series. This series is to help you understand and learn more about the financial basics for your author business.
In episode three, we talked about the three pillars of business, and as a recap pillar one was your product and that’s your, in our case as authors, our books. Pillar two is your marketing. And pillar three is your accounting. And if any one of those pillars is weak and wobbly or you’re not paying attention to it, then your entire business is not going to be as stable or successful as you would like.
Many people hear the term accounting and go, “Oh my gosh, what is that? I can’t do that. That’s totally foreign.” At its simplest, accounting tracks the money coming in and going out. It tracks what you own, what you owe, and equity in your business. Those are all things that you, as a business owner, want to know about.
You want to know how much money came in through your sales. You want to know how much it cost you to make those sales. And you also want to know what it cost you just to be in business. You also want to track and know how much your assets, or the things that you own, are worth. And you definitely want to know how much you owe to other people. And pretty much what’s left over is your equity, and that’s how much you’ve put into the company or have taken out, how much the company’s activities has added to your equity or reduced it.
What is Accounting Used for?
But now you know what accounting is. What is it used for? One of the most common myths and beliefs that people have about accounting is you only need it for your taxes, that you only need it for your taxes. If it weren’t for taxes, you wouldn’t have to do accounting. Sorry. Wrong.
If something happened that wherever you are, you didn’t have to pay taxes, guess what?
You would still want and need to do your accounting because it gives you so much more information than just what you would owe on your taxes. And while it is used for that, in fact, having a good accounting system will save you in your tax prep expense. Because if your accounting is a mess, I can guarantee you, your tax accountant is going to charge you extra for doing your taxes because they have to do your accounting first before they file your tax returns.
If your accounting is up to date, everything’s been accounted for. That’s accounting means, you’re accounting for, that you are keeping track of. If all of that’s taken care of, and that’s a nice, neat little package that you give to your tax accountant, they’re not having to spend as much time on your taxes, and so they’re going to charge you less money for it.
One of the biggest benefits of doing your accounting and knowing how to read your accounting financial statements is it allows you to see at a glance, the health of your business. Is it strong and healthy? Are you profitable? If your business is profitable, you can look at what is working in your business and do more of that. You can also look at it and see what things need to be tweaked so that you can do better in your business and have even more profits.
And if your business isn’t doing so well, it isn’t so healthy and it’s struggling. Your accounting can show where you can focus your attention rather than just throwing spaghetti at the wall. You can tell that, Oh, my sales aren’t where they need to be, or I’m spending way too much on ads that I’m not getting the return on. Do I need to look at different types of ads? Do I need to scale that back? Do I need to focus more on building my list?
Your accounting records can show you that and give you that data. You can see trends in your business. After you’ve been in business for a while, you can see those trends in your business cycle. Because every business has cycles that they go up and they go down and most businesses, they’ll fall into a trend.
You know that in March your sales go up, but in August, when people are out having fun in the summer, your sales may be down and they may rise again heading up to the holidays and then drop after the holidays. If you have your accounting records, you can see those trends.
And you can see those trends in your different series of books. Does this series trend better at this time? So that’s a good time to be focusing ads on this series. Or does this series, like I can see my Sentinel Witches because it’s talking about witches and demons and magic, people are thinking about that in September, October for Halloween. I can see my Sentinel Witches selling better at that time of the year. I can then do more advertising for that series at that time.
If I had a holiday story focused around winter and Christmas, or Yule, then it would be good for me to advertise that series or those books leading up to that or during that time period. A lot of people aren’t interested in reading a holiday story in July.
If you have a summer story, they’re more likely to want to be reading about being on the beach. They can’t take a vacation on the beach, I’ll read about the beach. That story maybe good to be advertising, leading up to vacation season and say, Ooh, you’re going on the beach. Here’s a great beach read.
You can see those trends in your accounting, and you can see if you’ve done that and say, Oh, I’m going to do this advertising. You can see in your accounting if that actually had an effect or not.
Your accounting will tell you how much you’ve sold. Yeah, you can get that information off of Scribe Count, that’s a good one that does it, or used to be Reader Links, I’m not sure what it’s called now. They aggregate your sales so you can see what you’re selling.
You get better and more accurate information from your accounting records. And it will not only tell you how much you sold, it tells you how much it cost you to sell those books, your advertising, your cost of sales, and it tells you how much it costs for you to run your business.
If you’re selling direct, either online or in person, your accounting will show you how much you sold at X event. Say you attend several events during the year in person. You can look at your accounting and see, “Oh, these books do really well at this event, and this and this series just didn’t sell any or very few. But that same series sold really well at this event, and this one didn’t.” Now, you know, when you’re preparing to go to that event the next year to have more of this series of books and more of, you know, one and two sold better than three and four, you want more of those books and less of these others. And this event, you want more of this series and so on.
And when you’re selling directly, you will have costs of your sales. Not only how much it costs you to print those books, but your credit card processing fees are part of your cost of sales. If you have a Shopify store, your Shopify store is actually cost of sales because you could not sell those products if you did not have that store. If I were doing your accounting, that’s where I’d put your Shopify expenses is in your cost of sales.
If you love data and looking at data, accounting is a goldmine of data.
What Does Your Accounting Track?
What does your accounting track? We know accounting tracks things. Your accounting will track your money coming in and where it came from. When I do my accounting, I have a customer set up for Amazon, and not only Amazon as a whole, but I have Amazon set up in the various countries that I sell to at UK, Australia, Canada, Europe. Those are the main countries that I sell to on Amazon.
I have my Draft2Digital set up as a different customer. That way I can tell if my Draft to Digital sales are starting to go up. I could set up my Draft to Digital sales and break it down into what bookstore, or what channel, those book sales from Draft to Digital were coming from. I could set up a class for Apple, I could set up one for Kobo, I could set up one for Overdrive, and then I could tell which one of those stores I’m getting better sales at, and I can focus my advertising towards those sales. Or one of them isn’t selling as much as I want to. Through my accounting records, I can see that, and then I can make that decision of, do I want to do more advertising directed to that store?
And I keep track in mine of which book sold. That way I can tell which books are doing better, which aren’t, which need more love, or which are doing good with what I’m doing right now.
It tracks all your money going out and where you spent it, which is a good thing to know. How much did you spend on those Facebook ads? How much did you spend on conferences? If you’re a conference junkie, how much did you spend on conferences and courses? Do you need to cut back on that a little bit? Or if you haven’t spent any, do you need to add some so that you’re increasing your business knowledge, you’re connecting with other authors?
Did you buy a lot of inventory and you’re not selling it. So now you’ve got a lot of inventory sitting in your assets that you haven’t sold yet. Maybe you need to have a sale on your website to sell that inventory.
Now, some of the money that you receive isn’t income. Think about sales tax. You’re collecting sales tax from your customers, if you’re selling direct as appropriate, and we talked about that in episode ten about sales tax, that sales tax that you collect is not income. You owe it to the taxing authorities that you collected it for. For me, it would be the Utah Sales Tax Commission. I owe that money to that taxing authority. I don’t want to show that as part of my income. I want to show that as part of the money that I owe to people or my liabilities.
Another place where money received that isn’t income, maybe you applied for a small business loan and you received $10,000 for that business loan. That money is not income if you have to pay it back. If you have to pay it back, that is a loan. And now that is part of your liabilities, money that you owe to other people.
Some of the money that you spend isn’t always an expense. You may purchase equipment and if that’s a higher dollar value, you may want to count that as an asset of things that you own. In our author business, that’s not quite so much. But if you were a manufacturer and you spend $1,000,000 on a piece of equipment, that definitely is not an expense. That is an asset that they own that they can sell later.
Your inventory, if you’re selling direct, and you buy a bunch of books to sell on your website or at in-person events, that is not an expense until you sell those books. While they’re sitting in your garage or on your shelf waiting to be sold, they’re inventory. They’re an asset.
What Do You Need to Keep?
So how do you keep your records and what do you need to keep? First off, one of the things you need to keep and download every month is all of your sales reports from Amazon and whatever other platforms that you sell on. You’ll use these reports for recording your sales or give those reports to your accountant to record your sales–even better. And you’ll need to keep those to reconcile the amounts that you receive, because they haven’t paid you yet for those sales. And that is a receivable. You have an asset, you’re expecting money from somebody else. You’ll want to keep all of those.
You’ll want to keep receipts so that you can enter them into your accounting system, so you can track your expenses. If you have an accountant, what you do is you send those receipts to your accountant, and they enter them in. One of the ways that clients did it when I was doing accounting, they’d scan their receipts and just email them to their accountant. Some people did it old fashioned, kept the paper receipts, put them in an envelope and mailed to their accountant, and their accountant would then mail them back.
For tax purposes in the United States, generally, you want to keep your records, whether it’s electronic or paper, for seven years. IRS has seven years to come back and do an audit on your taxes.
How Do You Keep Your Records?
How do you keep those records? If you’re just starting out, the most basic accounting system that there is is having a file or an envelope where you put in all of your receipts, and this can be either by month or by type of expense. While this is good, you’ve got all of your receipts together, put in a copy of all of your sales reports, it’s okay. It doesn’t give you any usable data. You just have that information available that you then give to your tax accountant. And that’s why they charge you more to do your taxes, because they’ve got to go through all of that and figure out what do you made and what expenses you had.
You can start there. And even when you have a system higher up, you still want to keep those receipts. So either a file, whether that’s a manila folder file or a file on your computer, you want to keep all of those receipts, so you still need to do that.
But next step, that will give you some data, but it’s harder to slice and dice, it’s harder to see your data. The next step up is doing an Excel or Google worksheet. And this is good for simple businesses, and it can work if all you have is cash coming in and cash going out, then a worksheet could work. It gives you some data, but it doesn’t give you all of your data. You’re not going to be able to see how much you owe. You’re not going to be able to see how much you own. You’re not going to be able to see your different trends.
Doing this would be called a cash basis because you’re keeping track of the cash going out and the cash coming in at the time that you receive it. You’re not worried about when you made the sale or when that expense was incurred. You’re just keeping track of it as the money goes out. For a very simple business, that’s all you need.
However, independent publishing is not a simple business. Our income comes in 60 days after we make the sale. If we’re tracking on a cash basis system, then we’re making decisions on inaccurate and faulty data. And I’ll go more into that in the next episode. In episode 12, when I talk about the two methods of accounting.
And the best system to use is an accounting system that can be QuickBooks or Xero or Sage, Google accounting programs. I, I use QuickBooks, so I know it. Many of these programs now are subscription model and available as online based, if that’s what you like.
They are not intuitive no matter what they say. You are best to have an accountant help you set one up or have an accountant look at it and make sure that it’s set up properly. Because with accounting systems, the axiom garbage in, garbage out applies. You want to make sure it’s set up properly, otherwise you’re getting faulty data and making bad decisions.
So even better, when you can afford it. I know not everybody can afford an accountant when they’re starting. I know accounting. I want an accountant. I’m not where I can pay for an accountant right now, but when I get my revenues where I want them to be, one of the first consultants I’m hiring is an accountant, and they can worry about all this stuff. And I can worry about what’s important to my business, which is writing and teaching and coaching and helping other authors with their author business.
I do talk about accounting systems and what you need in my book, Business and Accounting for Authors, and as part of the resources that go with this book, I give you a sample chart of accounts to help you set up your accounting system. And I have available for you, both with the book and just as a free resource that you can download to help you, is a simple Excel worksheet to help you track your money coming in and going out to get started on doing this, and that’s available on my website on my resources page, and that’s Indie Author Biz Guide dot com slash resources.
My book is available on my website in e-book, print, or audiobook, and it’s available wherever you buy your books, or you can ask your library to get it for you.
I hope this episode has helped you with your author business and help ease some of your anxiety about accounting.
In the next episode, we’ll talk about the two methods of accounting, “Cash? Accrual? What the heck?” and that’s episode 12. Hope to see you there and learn more about treating your writing as a business and understanding your financials.
Thanks for listening to this episode of the Indie Author Biz Guide podcast. I hope you found value in it. You can get your free business checklist, find more information, and any downloads mentioned at Indie Author Biz Guide dot com forward slash podcast.
Please like and subscribe and here in the author friends about the show. If you’d like to support the show, you can donate to Buy me a coffee at Buy me a Coffee dot com forward slash I A B G. These donations help support the cost of hosting, editing, and production of the podcast.
Thank you, and I hope you have an amazing day!