Part 7 of the Indie Author Business Plan: Analyzing and Tracking Your Author Finances
Welcome to Part 7 of the 8-part Indie Author Business Plan. In this installment of our series we will talk about author finances. There are three key financial items every author should be tracking when setting out to establish their business model. Because whether or not our motivation in undertaking this career, or pastime as it may be, financial sustainability is always going to be a factor.
You want to be able to track your gains and losses so you can make adjustments where necessary, and give yourself the best chance to be profitable or at least not burning too much of your personal expenses. This requires knowing a few important elements that go into a thorough financial examination. Take the next step in monetizing your thoughts and creative ideas by learning these three items that will help you step out of the dark and into the light of financial growth!
All of the work it takes to get your book written and released to the addressable market is a fantastic achievement in itself, but it is only the beginning. Once your published work is out on the open market you’ll want to take a look at the most important performance indicators that can be tracked, starting with a profit and loss statement.
Profit and Loss Statement
This financial statement summarizes the revenues, costs, and expenses incurred within a specific timeframe, most commonly manifested as a quarterly or yearly report. When you begin to sell units of your product, you’ll be tracking everything you sell and spend. After a certain amount of time passes, you’ll be able to determine your company’s ability to create a profit, as well as adjust specific spending benchmarks in accordance with these tracked numbers. The goal is to try and raise the revenue and reduce the cost, so your profit margins continue to grow. With consistent tracking of your expenses, such as amount spent on a distribution website, amount spent on research, amount spent on marketing, etc., you can compare these figures to the revenue you bring in. From there, decide which expenses are the most valuable and which are the most wasteful. This comprehensive tracking document is known as your “Profit and Loss Statement” – a very useful and pivotal tool for business owners.
Cash flow is simply the amount of money that is moving into and out of your business. This is the most important indicator to monitor, as you may imagine, and signifies what usable assets you have at your disposal. Either your positive cash flow is increasing, giving you a positive amount of assets to reinvest, pay off loans, invest in a new venture, or any other opportunity that arises, or you discover a negative cash flow, signifying that your company is not performing as planned, and may require cutting some areas and/or a change in strategy. This flow of assets tells us if you and your business can remain solvent (able to pay off your debts and cover your costs) going forward, making it one of the most important things to know about your business.
Return on Investment
Return on investment is a performance indicator that tells us the efficiency of our investments – how much are we getting back? Simply, this is the return on an investment relative to the cost of the investment. To calculate your ROI, this industry-used formula calculates the percentage increase or decrease by dividing the return of your investment (return minus cost) by the total cost of your investment. Translating the ROI into a percentage makes it easier to track quarter-over-quarter, or year-over-year.
Crunching numbers is a very beneficial way to grow as a businessman or businesswoman, so use these three financials elements as starting points. From there you can research more key performance indicators and how to track them. The more you learn the more inefficacies you will discover, which can lead to amazing financial growth you might not have even known was possible!
Be sure to check out Authorpreneurlaunch’s eighth and final installment of our Indie Author Business Plan where we will discuss your Executive Summary!
Happy Writing and Number Crunching!
— Marquina (@Marquina) October 13, 2016