Transcript – Episode 13

Hey fellow in the authors, welcome to this week’s episode of the Indie Author Biz Guide Podcast. This is the third episode of our Financial Basics for Authors series. In this episode, I talk about tracking your money coming in and going out. This is shown on your income statement, also called your Profit and Loss statement. This is one of your two financial statements that you need to be looking at every month.

 

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 into your career and build 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.

 

Tracking Money Coming In and Going Out

 

Our businesses have money coming in in the form of sales and revenues. They also incur and pay expenses and have money going out. The financial statement that tracks and shows you how much money came in and how much money went out is your Profit and Loss Statement or also called your Income Statement.

For those who are listening to this audio and you want a little bit more of a visual of what the different sections are of your income statement, I do have a sample income statement and a sample balance sheet, which we’ll be talking about in the next episode, available on my website at Indie Author Biz Guide dot com forward slash resources.

Your income statement you can think about as a video of your business. It shows your income and expenses over a period of time. You can have one that’s just for your month and then you can compare for the year to date. Or if you’ve been in business for a while, you can have this month’s data compared to last year’s data, so you can see how you’re doing. Are you doing better or are you doing worse than last year?

You can also do that same comparison for, say, we’re in June. We could see from the first six months of this year compared to the first six months of last year. How are we doing? Are we still staying on trend? It allows us to make better decisions for our business because we can see if our business isn’t doing as well this year as it was last year.

Is there something that we’re doing differently? Maybe we haven’t released a new book, maybe we’re not doing as much advertising as we did last year. We can look at those things and then make a decision. Is there something that we can do to help improve our business?

Of course there are some things that are out of our control, such as inflation running rampant or more appropriately, corporate greed running rampant and people having less disposable income.We can also see that and think about what we can do to work with that in our business.

 

The Income Statement Sections

 

When you look at your income statement, you’ll see several sections and each one is broken into a different type or category of either income or expense.

 

Revenue Section

 

Your top section is your money coming in, your revenues, your sales. And this would be your book sales from whatever format you use and whatever platform.

If you sell merchandise on your website, such as cups and mugs and tote bags or bookmarks or whatever that would be shown in that top section. If you do speaking, you would have speaking fees that would be part of your income.

If you write nonfiction and you have built a course around your books, which is one of the things I’m doing around my Business and Accounting book, I’m creating a course around that. When I start selling that, that will be part of my income.

You have a Patreon account, you’re getting those monthly subscriptions, that is income that would be shown on the top of your income statement.

 If you offer services, some authors in addition to their books, they like doing book formatting, so they offer formatting services or they do editing because they like the editing process and are good at it. Others, like myself, I offer coaching services and consulting services. That’s part of my income at the top of my income statement.

All of that gets added together and you can do your income as detailed or not as you desire. All of the accounting systems are designed that you can do it with a lot of detail or a little bit of detail. You could have each one of those as a different line item or just show it as income. It’s more of a general practice is to be able to see at least your big categories. If you’re doing merchandizing, you want to see that.

Cost of Sales Section

 

Your next section is your cost of sales. How much did it cost you to generate and make those sales? In our case, I would include your editing, your cover design, and your formatting as part of your cost of sales because you could not sell your book without having it properly formatted, without it editing, without a good cover design.

If you sell your books, either on your website or at in-person events, you’ll also see in your cost of sales the cost of printing those books. You don’t record your print cost, if you’re doing accrual basis and you’re taking account of your true cost like we talked about in the last episode on cash and accrual basis, you record the cost of your print books when you sell them, not when you buy them. When you buy them that’s inventory. When you sell them, that’s when you record the cost of getting those books printed and shipped to you.

You would also have any credit card fees for those direct sales. If you sold merchandise, then you would need to record the cost of that merchandise. For instance, you have a great map, you write fantasy and you’ve got this great map and you’ve printed that up really special to sell on your website. When you buy that map to sell, you put that cost just like you would your books in inventory. You’re holding it. You haven’t sold it yet, that’s an asset that you own. When you sell it, you take the cost of those maps that you sold and that gets put as part of cost of your merchandise sales.

If you’re selling direct, it would also include shipping your books to customers.

All of those expenses, those are all expenses. When all of those are totaled up, you get a cost of sales.

 

Gross Profit Calculation

 

You will see your total revenues or sales minus your cost of sales, which would equal your gross profit. This is not the profit of your business. This is just the gross profit of what you have available for the rest of your expenses. You have to account for what it cost you to make those sales, and whatever is left over is what you have available for your operating expenses. And the net of this, your gross profit, tells you how much you made from your sales and just your sales, not your business, it’s just your sales.

 

Expenses Section

 

The next section is a listing of all your expenses. This is usually broken up into two pieces. One, your marketing and sales expenses, and your general administration of expenses.

Marketing Expenses

 

Your marketing and sales expenses would include any advertising expenses. If you did Facebook ads or Amazon ads or Bookbub ads, that’s where it would be put. If you did any crosspromos that you had to pay for, that’s where that expense would go. You did giveaways or bought some swag, that’s part of your marketing expenses. I put my email provider, I use MailerLite, I put the expense for that in my marketing expense because I am marketing to my subscribers.

You add all that up and that gives you all of your advertising and sales expense.

 

General and Admin Expenses

 

Your next section, which is pretty large, is your general administrative expenses, and these are all your expenses to just be in business.

These include your professional development expenses, such as taking courses or getting coaching, any subscriptions, whether that’s a professional subscription like you’ve joined Alli, that would be part of your general expenses. You have software costs, whether you buy the software outright or you’re having to pay a monthly fee for that. If you have any professional fees like an accountant or you’ve talked to a copyright lawyer or registering your copyright would be in here.

If you do in-person book sales and you’ve paid for a booth at some place, that would be an expense and any expenses to set up your table, any decorations that’s a part of your tradeshow expense. I call it trade shows. Any expenses that you had to travel to that show would be an expense. Your website.

Like I said, that section is usually really long. And you would add your marketing expenses and your general admin expenses together to get your total expenses.

 

Net Income (or Loss) Calculation

 

And you take your gross profit, which was your sales minus cost of sales, and you subtract your expenses, all of your expenses, and then it gives you your net profit or loss.

If you had more expenses than you had income, your company had a loss. If you have more income than you have expenses, congratulations! Your company had a profit, and we need a profit in order to continue going as a company. Otherwise we’re just always putting money in from our personal accounts. We don’t want to do that.

We want our business to support us, not us supporting our business.

Quite often, your first years in business will be at a loss. You’re building your readership. You’re building your platform. You’re figuring out what it takes to make those sales. You’re building your back list. If you’ve only been in business for 1 to 5 years, and you’re showing a business loss that is normal, not only in the publishing industry, which we’re in, but for all businesses. It generally takes about five years for most businesses to show a profit. When you’re starting your business plan for that.

 

Types of Data that Can be Found in Your Income Statement

 

And one of the great things about using a software like QuickBooks or Xero, there’s some others out there. All of the software packages can break down your expenses and show you as little or as detail as you want.

For instance, your advertising expense on your income statement, you can just show it as advertising expense. You can also break it down in your accounting records so that you can see Facebook ads. How much did I spend on Facebook ads? Amazon ads. How much did I spend on Amazon ads? How much did I spend on the crosspromos such as Book Barbarian or Fussy Librarian or Bookbub? How much did I spend on that type of advertising?

Then you can see and look at that data and tell which one is getting you better return for your money. Are you spending too much in Amazon ads, and you need to be spending a little bit more on Bookbub ads? You’re wide, you want to increase your sales on Apple or Kobo, increase your advertising on Bookbub to those platforms or Facebook ads to those platforms.

You can look at this data and see what’s happening in your business. That’s why you have accounting data, is to make those business decisions for your business, not to do your taxes.

You can slice and dice this information and data. If you love data, accounting is your cup of tea! You can run a report that shows every single month what you did, so you can really see those trends. You can do a comparison of last year to this year or the last five years. You can drill down of, “Oh, my professional development was really high this year. What did I do? Oh, I attended like five conferences this year.” Was that too many? Or I don’t have anything here. Do I need to attend some conferences for increasing my craft level and networking with other authors?

Your financial statements is a direct reflection on your business decisions, and they can help you make your decisions because you’re now making those decisions on data, not just going by the seat of your pants, or even worse, just fires putting out fires. You’ve got fire, fire, fire! You’re only paying attention to the fire that’s in front of you. That’s not a way to run a successful business.

And if you want to be doing this for a long term, you need to be treating your writing as a business and doing those things to set it up for a successful business. In my book, Business and Accounting for Authors, can help you do that. There is a section on your financial statements and looking at your money coming in and going out. It has a simple chart of accounts with the list of all the common expenses that this type of business has.

You can get my book on my website in print, e-book or audiobook format. It’s available on all of the platforms or you can order it from your library, just go to them and ask them for it and they can get it for you.

 

New Service: Author Business Coaching

 

If you need personal help in getting your business set up for success, getting those plans put in place so that you aren’t always putting out fires, I now offer Author Business Coaching. And that’s what I do in this coaching program is help you put those plans in place, so when things happen, you already have a plan in place so you can just take care of it. Or you can look at where your business is now and plan for your growth.

If you’re always putting out fires, you can’t plan for growth. You can’t say, “Oh, this is where I am now. This is where I want to be, how do I get there, and put a plan in place to get there,” if all you’re doing is putting out fires and flying by the seat of your pants.

Flying by the seat of your pants works for writing. I do that. It does not work for your business. In fact, it can be disastrous. I invite you to check it out. You can find out more information about my Author Business Coaching services at Indie Author Biz Guide dot com forward slash ABC.

I hope this episode has helped you in understanding your income statement and tracking your money coming in and your money going out. And our next episode we’ll be talking about knowing what your business owns, what it owes to others, and your owner equity. And all of this information is shown on your balance sheet. I hope you tune in next week for that episode and I hope you have an amazing day today. See you next time.

Thanks for listening to this episode of the Indi 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 tell your indie 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!