Accounting - What do you do?

[MatrixGamer]

I agree, it doesn't take long if you're organized. The trouble is learning how to get organized. In 1995, Terri and I started saving 10% of what we make (as recommended in the book "The richest man in Babylon"). Then I started keeping all my reciepts (in a bag). That taught me to write things down on the outside of the bag. Then we started using a written budget for house hold expenses - when I pay a bill I write the amount down in that months square. Then I started recording enteries into a journal. I'm slow so I eased into this over 8 years.

Ralph's point about reading your POD contract closely is well taken. I've not worked with POD places because I effectively and working to become one myself, but if you contract says they print 10 even if they sell only 2 the you do have 8 books in your inventory (with the likely hood that they'll charge you to warehouse them to boot!)

Chris Engle

[MatrixGamer]

This topic may be dead but before I give it up I would like to see if other people want to share how they do their accounting and how they learned to do what they do. I think people seeing the process makes it easier for them to do it for themselves.

Chris Engle
Hamster Press

[guildofblades]

>>Inventory is another matter entirely and a crucially important one. I have a feeling that many Indie Publishers run afoul of the Inventory related tax rules. <<

These days we have a part time accountant keeping our books, so I don't handle much of this info. I now she uses quicken to keep them though.

Inventory can be a tricky thing on the accounting issue. For instance, all sellable inventory is an "asset" and the cost of producing it can not be written off as an expense until the time it is actually sold. So if you spend $4,000 (art, editing, actual printing) on 1,000 books, then sell one hundred books directly on your website, here is what happens. Say you sold them for $20 each. So you have grossed $2,000. You only sold 100 books so you may now only write off the production expense for 100 of those 1000 books. At a $4.00 cost of goods sold, you get to write off $400. Therefore you still have an inventory asset of $3,600. Plus you now have a cash asset of $2,000. If you spent your last dime on production, this means you started with $4000 in invetory assets and now have assets of $5,600. Without other cost related deductables, you'll now have to pay profit taxes on the $1,500 difference. This is really important to note since, you only have $2,000 cash on hand and have only made back half your initial cash outlay, so you are still cash flow negative.

It gets even more complicated when you handle elements of your own productions like we do. Only "sellable" inventory has an asset value. So as we buy up "materials" that will go into the production of our board games, we have to keep a realistic resale value on those materials as assets in their own rights, since they are not yet fully produced game assets in their own right. Now, since things like paper, ink, digital printing plates, copier toner etc are commodity items and since our business has no realistic sales venues to sell this material, all such material we buy has a realistic "resale" value far less than the actual price we paid for it. Or in other words, almost all said materials is subject to depreciation, much like equipment is. For us, on the tax books, that means all materials bought for games production have an asset value far less than the expense value of cash spent on them. Technically speaking, we "could" value on our hand inventory the same way, but we don't because that would really foul up our own internal accounting. So once a set of materials is printed and produced into ready to sell games, we value to inventory value on those games as the actual prices paid for the materials that went into them. This helps us to insure we have an accurate accounting of cost of goods sold (once rolled into other costs that factor into the final CPGS figure anyway). However, since we do not keep a large stockpile of complete games (maybe between 40 to 100 of any given title) fully packaged and ready for shipping, our materials expenses versus assets on hands as an edn result of those materials works out very favorably for us come tax time every year.

Oh, and with regards to needing to keep accurate accounting to insure you have an accurate COGS so you know you are turning a profit on each sale. BUNK and double BUNK.

I will say this. Everyone here that is producing a game for sale should know 100% of the costs going into that production BEFORE it ever gets produced. And in knowing that, you should also have memorized, or at least accurately recorded somewhere you can access daily, what that cost translates into on a PER UNIT BASIS and what profit margin that allows you for your different sales venues. THIS INFORMATION IS CRITICAL if you have any hope of running a small publishing company for a profit.

For instance, we have a new edition of one of our current board games in the works. Our WWI board game. We are prepping the new artwork, game maps and other files right now, but have yet to spend a dime on production. However, even before we started work on the digital side, we figured out our production side and costs. Already I can tell you that:

1) It will carry a MSRP of $34.95

2) I have a detailed list of all components that need to be purchased for the game to be produced, in what quantities and at what costs.

3) I have a documented list of production steps we have to take to move those printing materials into the final game format that will be ready for sale.

4) I know our COGS on a per unit basis will be $3.54

5) I know our markup when sold at wholesale will be 395%

Yes, when we first started publishing, we didn't have such an accurate view of what our production we doing for us and what they were costing us. But I can also tell you, until we did get that organized, we also were not making anywhere near the profits that we do now. Because now we understand "exactly" where our money is going and how it is working for us. But I know this not because of a review of our accounting books. This information is figured long before the actual expenses of production ever hit as a ledger entry in the accounting books.

Every product you look to produce should have as detailed a spec sheet as possible. It is, in effect, like generating a small an informal business plan for each production. It will tell you were you plan to spend your money (production, freelance work, advertising and marketing programs), what your COGS is, what your cash flow break even points are, and frankly, where you should be focussing your sales efforts at.

[MatrixGamer]

I do a similar calculation about my cost of sales per unit. I don't go to my accounts for that information - but I get that number by looking at the cost of my materials (recorded in my accounts).

I had not considered that the market value of my materials is less than what I paid for them - that makes sense. Does that fly with property tax auditors?

Chris Engle
Hamster Press

[guildofblades]

>>that makes sense. Does that fly with property tax auditors? <<

I honestly don't know yet. The Guild of Blades is still run from the homes of the two principle partners, so it hasn't become an issue yet. Though it is something I ought to ask our accountant. We've been saving up so we can have an 11,000 square foot modular warehouse built so we can have room to expand.

At just a guess, I would say it will still be a non issue. Materials are assets that are separate from the property itself as is product and the machinery you use inside the building. So for valuation of the property itself, I would imagine only issues regarding actual upgrades to the property and building themselves would be at issue. And there are so many variables that go into that I could not really say. So much depends on location.

Ryan S. Johnson
Guild of Blades Publishing Group
http://www.guildofblades.com