How to create a writing budget system
Writing doesn't require money – unless you plan to be a successful, selling author. You don't need a lot of cash to get started and grow your business, but you do need to be careful with your money. A writing budget system will help you control your spending. Start out concentrating on what you have in the bank, what money you are earning and what money you spend. Then once you master a simple budget, you can expand to more budgets if you want as a way of monitoring your writing business for growth.
There are two ways to increase revenue as a writing entrepreneur
- Increase the number of books you sell (increase revenues)
- Cut your costs (decrease costs)
Create a budget for your writing business by first determining how much money you want to spend this coming year. Stay within the amount of money you have. You do not know how much money you might make so don't count on having that cash until you have been paid and have the money. You can do a lot of things to increase sales, but you can't control sales. You can control how much you spend by using a writing budget system.
In the recent post, Finance Tips for Writers I talked more about why you need to keep a budget and track your income and expenses. As you grow your business, you will benefit from a writing budget system.
What is a writing budget system
A writing budget system is a way of creating ways to do the following:
- Allow you to project how much money you will earn from your writing and how much money you plan to spend over that period of time.
- Provides a means of tracking how much money you make and pay out over that period of time.
- Permits you to decide how much money goes out of your bank account versus the actual amount of money you earned.
Budgets require you to estimate some aspects of your business including:
- How many sales do you think you will make based on how many books you sold in the past (in other words how many books do you think you will sell?)(in other words how many books do you think you will sell?)
- What will your cost be during the time period of the budget? If your expenses increase profits will go down if your sales stay the same. If your costs decrease, you will make more money. Your budget should be updated to show this.
- What unexpected expenses came up that must be paid for? These can include great opportunities such as a speaking engagement that requires you to pay for airfare and a hotel but could result in a new three-book deal.
New to budgeting? Keep things simple. Set up a spreadsheet and just track the money you have to pay your bills, what you spend (your expenses) and the money you received as part of your writing business. (receivables)
As you get more experience running a business you can have several budgets as part of a writing budget system, which can include all or some of the following:
- Master budget – If you are just starting out you can use one budget that provides for incoming and outgoing money. If you are doing marketing and advertising, consider adding a marketing budget.
- A marketing budget – There are many temptations for writers to spend money on marketing. Create a budget. If something isn't on your budget, don't spend money on that item. Consider adding new items to next year's budget. Do a few things well, then try new outlets.
- A production budget that covers the cost of creating your books – Indie publishers should have a production budget for their books, even if they bundle it into the master budget.
- Cash flow budget. This compares cash coming in and flowing out over the month. Usually used by those writers who have accounts payable and accounts receivable. If your income is just from Amazon and you get a lump sum payment or immediate deductions from your bank account or through PayPal you may not need a cash flow budget, just keep track of your bank account balance!
- Recurring Budget – Track all your fixed costs that remain the same each month. These include hosting fees for your website, services such as MailChimp, Aweber, etc. This is helpful for keeping track of how much money you will need for things you would like to do but don't have to do to stay in business.
Set up a writing budget system.
Setting up a writing budget system is not difficult, just do the following:
- Decide how much money you expect to raise during the coming month and year.
- Write down any monthly expenses you have for your newsletter service or SEO service.
- Write down any yearly expenses you have such as for an image service or annual subscription service.
- Write down expenses that vary during the month or year. Such as book production expenses for self-published books like to your cover designer or copy editor.
- Set your financial goals for your business. You might want income to exceed your expenses and they should over time, but when you first start out, it is okay to have higher costs than incoming money or revenue as long as you have money in the bank to cover the extra costs.
Follow your writing budget system.
Writers need to track their expenses and revenue. If you don't have many costs and you just get your money from one source, like Amazon or D2D or Kobo, then you can either make up a simple spreadsheet using Excel or if you prefer to go old school, use a paper ledger. (I prefer Excel because Excel does the math for me!)
At the bottom of this post I have listed a few low cost budgeting software applications you can use.
Update your writing budget system.
Many entrepreneurs create a writing budget system and then never looking at it again. (Kind of like authors who create a Writer's Business Plan and never look at it again!) A budget is a business tool that will help you turn your work into a business that makes you money. To be most useful you need to keep it updated. You want to:
- Monitor your bank balance. It is a good idea to keep any extra money you have for your business in a Savings account where it can interest. If you get a fantastic opportunity, you can move some money into your main account to cover the unforeseen expense.
- Tracking your expenses on a daily basis is difficult for many writers to do, but at least try to look over your budget once a week. You can spend a bit more time at the end of each month when you get your bank balance.
- Use the monthly check to decide if you have been paying for a service for a couple of years that you don't need anymore now that your business is more mature. Maybe it is time to move to a slightly more expensive alternative that gives you much better value.
You don't have to have to use budgeting system software, but if you want to, here are some you might like that aren't too expensive:
BIGBOSSSOFT – free for 5 users (I have reached the point where I need to move from Excel spreadsheets to a budget system. This is the service I just started using. After I've used it a while I'll post a review.)
FreshBooks – $15/months for 5 users
QuickBooks – $5/month for 5 users
Bonus Writing Budget System Tips:
- As you add revenue streams consider whether the way you receive money and pay it out has changed. It may be time to start a variable budget or a cash budget.
- If the economy changes, whether it gets better or worse, it can impact the amount of money you make and spend. Follow the financial news for the publishing industry so you can adjust your expenses accordingly.
- Expect when you first start out that your expenses will be higher than your income as mentioned above. However, you should break even within 3 years. If after year 3 you are still not making money, then realize you do not have a viable business until you can live off your income. Sit down and review your Writer's Business Plan and figure out how to increase your revenue and lower your expenses.
- Elizabeth Warren coined the 50/20/30 rule when she wrote a book to help her daughter manage her finances. We can borrow from this personal finance rule for a writing entrepreneur's budget:
- 50% of your income should go to expenses required to operate your business (supplies, tax preparation feeds, office expenses)
- 30% of your income should go for things you would like to get for your business (perhaps course software or a conference in another country)
- 20% of your income should go to savings (I would break this up into 10% for savings and 10% as wages to you as a worker for the company. You might have to increase this amount and use 20% for income, but as soon as you can, modify your budget to put some earnings into an account used to grow the business through new opportunities, by expanding into new markets or creating new revenue streams. You might buy equipment to do podcasts, etc.) If you are interested, you can read more about Warren's personal finance strategy in this article.