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Business 101 for Authors and Writers
by Bill Collier

Whether you like it or not, writing, producing and selling a book is a business. You may not have thought about it in that way when you first got the idea to write a book, but that's the way it is. You may as well come along peacefully and make the most of it.

As such, you owe it to yourself to give yourself the best possible chance of success. This means ... yep, you guessed it. You have to become a businessperson.

A creative writer and a businessperson in the same body? Is that even physically possible? It is. Others have done it, and so can you. Let's take a brief look at what it means to be a "businessperson."

Keep Business and Personal Records Separate

Your book business needs its own records. Period. First and perhaps most importantly, many of your business expenses will be tax deductible. (By the way, I'm not a CPA, so consult your tax advisor for his or her advice.) And, it just makes plain old common sense to be able to analyze your activity separate from your personal activity.

This can be as simple or as complicated as you like, but I recommend simplicity. For a very small operation with few expenses and few sales, a ledger book may do. With any sort of volume at all, however, you'd be better off using your computer. QuickBooks is an affordable, easy-to-use, and proven accounting software package, but there are many out there - even some "freeware" versions that cost you nothing. Do your homework, ask others what they like, and select a product that works for you.

Consider opening a business checking account and obtaining a separate credit or debit card, just for business purchases. This makes it especially easy to track your enterprise's finances. If you go through the line at the store and have 3 items for you personally and 2 for the business, make the clerk do two check-out transactions. Yes, it is a bit more work to do all this but absolutely is worth it in the long run. When you figure in the tax deduction, think of it this way: Uncle Sam allows you to purchase business products and services at a discount.

It's probably overkill at first, but as your business grows you may want to set up a business "entity" of some sort ... limited liability company (LLC), corporation, etc. You'll want to discuss this decision both with an attorney and your tax advisor, because it brings both legal and tax implications with it.

Speaking the Accounting Language

Happily, you won't need to be an MBA or CPA. You won't even need a business or accounting degree. But you will need to have a grasp of basic accounting and business concepts.

You have many ways to gain some entry-level business education. Most community colleges offer adult education classes in business, accounting and related areas. So do many local school districts. These classes are generally inexpensive, are taught by folks in industry in layman's terms, and are held evenings and weekends. This is a great way to get the information you need.

In the meantime, here are five terms you should understand: Sales, Cost of Goods Sold, Gross Profit, Overhead Expenses and Net Profit.

Sales (also called Revenue) is basically the amount you charge and collect for your products. Let's say your book sells for $20 retail, for $12 to bookstores and for $9 to Amazon.com. In a given month you sell 25 books at retail price direct to readers, 25 to bookstores and 50 to Amazon. Your total sales that month come to $500 retail + $300 to bookstores + $450 to Amazon, for a total monthly sales figure of $1250. Do not confuse your sales with profit - which we'll get into below. The total number of books sold is 100.

Cost of Goods Sold is the price you pay for the books. Let's assume in our example that your cost per book is $3.

Gross Profit is the difference between your sales and your cost of goods sold. You sold 100 books at a cost of $3 each, so your cost of goods sold is $300. So, take your sales figure of $1250 and subtract your cost of goods sold of $300, and we get $950 Gross Profit. Do not confuse your gross profit with net profit - which we'll get into below.

Overhead Expenses are those costs that contribute to the business other than the direct cost of goods. This includes marketing costs, office supplies, business-related travel expenses, and so on. Continuing with our example, let's say you had total overhead expenses of $400 this month.

Finally, we're down to Net Profit - also known as "The Bottom Line." (Net Profit is literally the bottom line on a Profit and Loss Statement, and that's where the phrase "the bottom line" comes from.) Net Profit is calculated by subtracting Overhead Expenses from Gross Profit. So, $950 minus $400 = $550 Net Profit. Congratulations! Your business earned a $550 profit for the month!

Before you get too excited and rush out to spend this money, don't forget that you'll owe tax on that money! So, really there are two Net Profit numbers to be concerned with: Net Profit Before Tax and Net Profit After Tax.

Here's our example:

Sales                           $1250
minus Cost of Goods Sold $ 300
equals Gross Profit          $ 950
minus Overhead Expenses $400
equals Net Profit             $550

Finally on the subject of speaking the language of accounting, I'll mention that there are three main financial statements for any business. They are the Profit & Loss Statement (also known as the "P&L" or the "Income Statement"), the Balance Sheet, and the Cash Flow Statement. The P&L reports activity ... sales, expense and profit for a given period of time, such as a month or a year. Our example above is a simple P&L. The Balance Sheet reports what you own and what you owe ... as of a specific date. Profit does not always equal cash, hence the need for a Cash Flow Statement. Because this is a brief introductory article, I'll refrain from explaining why. Just know that cash is the lifeblood of any business. No matter what, don't run out of cash!

Putting it All Together

There are hundreds of books and websites out there about small business, so there's no shortage of available advice. I'll simply leave you with these final thoughts:

  • Spend most of your time in marketing-related activities - developing sales, reaching out to customers, and so on.
  • Focus on free and low-cost marketing strategies.
  • Keep your expenses under control and conserve cash.
  • Never stop learning. Take classes, read books, ask for advice and learn from your own mistakes.

Being in business is difficult but you can be successful if you approach it armed with a bit of knowledge, common sense, some self-discipline and a dose of optimism. Most of all, enjoy the journey.

Bill Collier is a St. Louis-based business coach, consultant and speaker. He is the author of the book “How to Succeed as a Small Business Owner … and Still Have a Life.” His website is www.collierbiz.com, and his email is bill@collierbiz.com

 

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