When doing self-publishing, having sales will not be your only concern. Find out how to self-publishers should handle finances as well as some tips to make self-publishing easier for you.
Accountants Are Of Big Help
Today's article has three points and you're going to want to stick around for the third point. Because it is a secret as to the top reason you want to make sure your finances are under control when it comes to self-publishing.
So the topic we're going to be discussing today is how to self-publishers should handle finances. When you're getting started as a self-publisher, you're making no money at all. You're a brand new author.
You're putting your books onto the market and you're hoping and praying that maybe somehow they're going to start selling. When they do start to sell, initially, we're very excited because we see the money coming in. We've been to this point just seeing the money go out.
Paying for the tools we're using, paying for courses and coaching. Making sure that we're getting everything in alignment that we're going to need to do to get our book onto the market properly and selling. But once it does start to sell, now money's coming in and that creates a little bit of attention.
How many taxes do I need to pay? What form of a company should I set up for all of this? Do I need to reserve money for taxes? There are all sorts of expenses that are going to start coming in. The expenses and the money that are coming in brings in a lot of questions. Because we have all the receipts as well that are coming in.
Then, do we subtract them? How exactly do we handle all of these finances? How to self-publishers should handle finances? This is such a common question for self-publishers when you're getting started and that is what we're going to hit in today's article.
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I can start with my own story on this one. When I first got started, as I mentioned we start with a lot of costs. I set a website, I set up an email list, and I was pulling in new subscribers.
I was putting my books onto the market, going through the whole process, and the frustration of hiring lots of people. Making lots of mistakes to get the cover. Writing to get the formatting right to build the tools to pull all of this together.
Understanding how to build the covers and narration. Tons of different things that were going on. So far, it is just fine because I wasn't making any money.
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Finally, when the books did get released, I started seeing the trickle of sales. I remember how happy I was thinking I want to shoot for getting a dollar a day in royalties. That was my very first goal.
How long would that take exactly? It went a lot faster than I had imagined. But at a dollar a day, it wasn't that big of a deal. After all, it was far below what would be the taxable level for within the country of Norway that I was living at the time.
Because my total royalties would still be below that threshold, they're not trying to immediately start hammering you with taxes for the first kroner or dollar that you earn. But rather once it builds past a certain threshold, then at that point it becomes a problem.
But at this point, it didn't matter because if I'd spent a thousand or so dollars on getting my first books onto the market and then I'm making a dollar a day or something like that, everything I'm doing is at a pure loss. So I didn't feel the need really at that point to do that much.
However, those dollars a day shortly turned into a hundred dollars a week and at that point, it started bringing in some questions. Then from $100 a week, it became $250 a week to $1000 a month started coming in from these book sales.
At that point, I knew something had to be done. In other words, I understood that my royalties were exceeding my costs by quite such a margin. I had already crossed then the level for the Norwegian thing.
But what exactly did I need to do with the bookkeeping and all of this? Well at this point, I got in touch with an accountant and that is what I would recommend for you to do as well. So when you cross that threshold and you say "okay what do I need to do here?".
I was having to make sure I wasn't just in compliance with Norwegian law but also the United States law. So as I was working through this, they started bringing in a lot of questions. Accountants were able to help me with the bookkeeping.
Save For The Rainy Days
I would keep track of all the receipts and all of these things, the money coming in and the money going out. To make sure that things were fine. But the accountants in both countries would then take all of this data and they would register in a system.
It is to ensure that when filing taxes, I was completely in compliance. But then I discovered that once the royalties were going from a thousand up to four thousand a month, well then suddenly it was a little bit of a difference with regards to what needed to be done.
My accountants were saying you need to create an LLC to protect yourself here. Both in terms of if somebody wished to sue you but also in terms of the taxes that you'd be paying. So as opposed to when I earn money within my LLC and I take a cost against those taxes or those royalties for example and I have a zero dollar profit.
I'm not having to pay any taxes as opposed to outside all of the money being earned from being taxed immediately on those sales. Also, with value-added taxes and such, I'd be able to get that money back as well.
Now there were disadvantages because, with the LLC, it requires additional quarterly or every two months reporting to the government on the status of everything. And paying taxes in advance, so that was when I started to understand you need to save up a cash reserve within the company to protect yourself.
So that when bad times come, like Amazon shuts down an account or this or that happens which hasn't happened to me but it has happened to a lot of people I know, that you would then have that cash to pivot. This is one of the reasons I've also said that you should make sure you just distribute where your money's coming from.
We want it coming from multiple different places across the internet so that we do not have a problem. So your books are being sold on multiple platforms in multiple formats. If something happens on one of those platforms like maybe Amazon decides to cut the royalties in half, you're not going to be in a world of hurt.
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You have enough time and money to ensure that you survive that entire process. Within the LLC that I had created, I then had the protections of that. And I knew with my accountants on both sides of the ocean that we were also protected.
That my accounting was being done exactly correctly. And the other thing that was so important was my accountants would look at the situation based upon the exact money coming in and going out. We'd be sure to fill out the tax forms to maximize the earnings I'd be getting and to minimize the taxes I would be paid within the companies.
And for me, I am incredibly happy to pay taxes in both of these countries. To make sure that I am in compliance and for the way the tax monies are used, the more taxes I'm paying, the better for the societies. At the same time, the more earnings I'm getting, that would trigger these additional taxes.
But I don't have the desire to pay taxes I'm not required to pay. It's not about handing out money for free to the governments and these accountants who were able to help me. As I would just put a disclaimer and I am not a financial advisor, so I'm not telling you what to do.
But I am saying you can speak with lawyers and accountants to make sure what works best for you and what is the best way for you to do it. For me, these were the keys to playing out.
I've been using the same people, I swapped out some who are a little less professional and maybe pricier for other ones who are maybe more engineered towards working with online sales. Those who can understand the aspect of it and cut holding costs as low as possible.
Yet holding me in compliance with the requirements by the governmental authorities in both the United States and Norway. I don't know where you live but you definitely should check this out and make sure you're not making any of these mistakes here. That sort of the secret point of the day why this is so important.
But here's the second one, how to self-publishers should handle finances? Well, my first point is that when under a thousand dollars a year, you should see if you're even required to file anything.
At some point, in virtually all countries, they're going to have a point where "look, if you've set up a lemonade stand, they don't need you to open up an LLC or all of these sorts of filing requests based upon just pennies that are being earned". I know within the United States, you have laws like this and in Norway as well.
So it's when as long as it's under a certain threshold, you're completely covered and just fine. But once we cross that threshold, then it becomes incredibly important to make sure that you comply with the laws of the country that you're living in so you don't get yourself in serious trouble.
Protect Yourself And Your Company
The second answer is once you hit a thousand dollars per month, you should get in touch with an accountant right away. Make sure that you can see that maybe creating LLC is best for you or there's a whole series of different options available. Now within the Norwegian setup, the LLC is a no-brainer.
The biggest reason is for the tax benefits of this, I can decide when I take revenue and when I take costs within the company. So that means that it's going to make it easier for me to protect myself against these things. I personally also like to not just keep up a cash sum.
To protect me in the early days, I saved 50% of all royalties coming in until I had saved up about a year's worth of revenue. Now, this issue here is a big one. A couple of mentors I've had previously suggested this particular route.
So that you have a pile of cash just in case you never know what's going to happen with all the surprises. Then your budget out and see what expenses you're going to have throughout the year. To make sure that you'll have the money set aside.
So if you know you're going to pay let's say $12,000 at the end of the year in taxes, well then maybe you need to set aside $1,000 a month. To make sure you're going to have that $12,000 for taxes at the end of the year. In addition, a lot of the ways that I personally like to run things is reinvesting.
You take the money that's coming in and you say "I won't have any profit so I'm going to pay no taxes at all". And since the money you're earning you only get taxed after profits, you would simply have the costs that would equal those profits to ensure a zero profit.
But then reinvesting all of it back into tools and virtual assistants to help the production of more books, courses, and Coaching, the ability to get this sort of help as well building out and running ads. All of the things that you're going to have to run it with expenses and such, that you'll be able to push through all of this.
To make sure that you're exactly on the right track when it comes to your self-publishing business. That you're not wasting money and there should be no surprises when it comes to costs at the end of the year for your company.
But let's get on to the third point which is the most important and the secret point of the day when it comes to self-publishers handling their finances. The reason is you do not want to mess with your taxes and I'll just repeat that one last time.
Because it is so important, you do not want to mess with your taxes. Your entire company will sink, you will be found personally liable for whatever's going on. Again, I'm not a lawyer so I'm not telling you what will or won't happen.
But I can say it's going to be terrible, I highly recommend complying with the laws of the country you find yourself self-publishing in. To make sure that with this compliance, you don't have a surprise.
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I can't tell you how many times I read in the newspaper people who are millionaires, sports players, people on TV, and musicians who are cheating on taxes. The cryptocurrency was another one, we saw somebody recently Mcafee I think was getting in serious trouble for not paying taxes.
So please do yourself a favor and do me a favor as well. Because I'm wishing the best for you as well. As a fellow self-publisher, I'm in the same game as you are, and don't do something that's going to put everything you've ever done at risk. Instead, pay the taxes that are necessary but don't think this is simple.
The taxes are crazy complicated, hire an accountant once you're making about a thousand dollars a month. There's no need to mess with it. You're still small in the eyes of the IRS and stuff but get it in order.
In the beginning, phases once you cross the threshold of what has to be reported, find a very cheap inexpensive accountant to help you get your finances in order. You can upgrade that account as you get better. As you're making more money, it's feasible for your business to do what is in your best interest.
So those are a couple of my thoughts on this handling of finances for self-publishers. But I want to know from you how do you handle your finances? Because it's important for me to see, are you doing it correctly?
Do you have an accountant? Have you hired a lawyer? Are you set up as an LLC or maybe something else? I would love to hear from you below in the comments. Check out my other articles and videos for more answers to your self-publishing questions.