Although writing a book is a creative process, publishing is a business. Your publishing business exists to make money. When you are educating yourself about the realities of publishing your own book, I encourage you to also learn about business itself. Getting books out into the world can be a challenging and expensive process. It’s worse if you don’t have good understanding of a few business basics.
By far, the best book I’ve read about business and entrepreneurship this year is one I got from our local library called The Knack: How Street-Smart Entrepreneurs Learn to Handle Whatever Comes Up by Norm Brodsky and Bo Burlingham. I think this book should be required reading for anyone even considering running a business. (I’ll be buying my own copy this week, since I have to return it to the library on Friday!)
Right from the first pages of The Knack, Brodsky explains the importance of margins and gross profit. You need to calculate the cost of goods sold (or cost of sales for a service business) and subtract it from your sales. That number is your gross profit or when you express it as a percentage, your margin.
One of the reasons so many publishing companies have had problems recently is because of low margins. If you are giving away 70-90% of your money to distributors, middlemen, employee salaries, and other expenses, you simply can’t survive. Brodsky recommends that businesses have at least a 40% margin to be successful.
The concept of margin is also why you should cast a wary eye at the inflated claims of marketers that say you’ll make millions of dollars if you buy their product or “system.” Someone can make a million dollars, but if they spend 980 thousand of it and don’t manage their cash flow, they’ll be bankrupt long before the guy who methodically made less money, turned a larger profit, and was able to squirrel away money for later. Here’s a frugal entrepreneur tip. If you’re struggling, do not buy the expensive “system”; invest the money in your business. Then go to the library and check out a business book on the topic instead. Libraries are a fantastic, yet incredibly under-utilized resource!
Today people are watching large businesses dying spectacular deaths and wondering what happened. It’s really quite simple. Money isn’t just about what you earn, it’s about what you spend. The higher your margins, the fewer sales you need to make. But when you do cash flow projections, you also need to consider how long it takes to get paid. If you pay a bunch of bills, but don’t make enough income over a period of time, you have a cash flow problem. Covering those lean times is another reason you want to have a financial reserve in place.
Here’s another bit of wisdom from The Knack. Brodsky says, “Business is a means to an end. Do a life plan before you make your business plans.” I’ve been advocating that idea for years. Your business is one part of your life, and it affects the rest of your life. Our business has enabled us to live a “retirement lifestyle” for years. We enjoy a largely low-stress existence, and we like it that way. Brodsky on the other hand had lofty financial goals, but points out, “my life was crazy. I had no time for my family. I never took a vacation. I wasn’t doing a lot of things I most enjoy.” Subsequently, he made a somewhat disastrous business mistake and ended up in Chapter 11. He then went on to start another more successful and sustainable business that let him enjoy his life more.
Making money and having a good life do not have to be mutually exclusive. I’ve met a number of people who make a good income and enjoy their life fully. I’ve met other people who have completely ruined their lives in the quest for the almighty dollar. Think about what you want from your life and how your business can take you there. After all, money should be a means to an end, not the end itself.