Who You Gonna Call? Informal Networks

I’ve just returned from a packed weekend at my first Winchester Writers’ Conference. This event, which has been running for the past 33 years, was the brainchild of the wonderful Barbara Large, who has just stepped down from her role as Director (although we got the feeling she wouldn’t be disappearing completely from the scene).

The weekend was a mixture of master classes, short talks and the brilliant one-to-ones, the opportunities for delegates to spend time in front of agents, publishers or authors, pitching their latest work in progress. There was anticipation, there was relief, there was laughter, and there were tears. But whatever the emotions we felt as each fifteen minutes slot was finished, we had been given the opportunity to learn from the industry experts.

And that’s the topic we’re moving on to next. We’ve identified our business objectives and made our plans; we’ve decided on our business structures; we’ve set up our financial systems; we’ve even done a risk assessment (well, we have done that after last weeks’ posts, haven’t we?). We’re now going on to think about our support network — and we all need one of those.

Next week, we will look at the professional support structure and think a bit more about the experts we might need to consult in running our businesses. Today, we’re going to think about another aspect: our informal networks. If there is one memory of Winchester that is stronger than any other, it’s the sight and sound of hundreds of writers talking, swapping notes, and learning from each other.

Writing is a lonely business! We spend hours hunched over a notepad or a keyboard, often staring at acres of white space; and when the page or the screen is full of words, we look at them and wonder if they are any good or whether we’re wasting our time. At other times, with our business hats on, we stare at the spreadsheet, the cash book (or the carrier bag full of receipts) and try to work out what it all means (and why we’re doing it)? In most businesses, there would be other people we could talk to, performance standards to measure ourselves against, even rules and regulations we could follow. But, our business isn’t like that. And there will be times when it will all seem too difficult to carry on. But it’s our business! We can’t just stop doing it — or at least, we shouldn’t!

So we need a support network, and the best place to start looking for this is online. There are many established writing communities on Facebook, Twitter, LinkedIn, Google+ (and any other network we might be using). And the beauty of social media is that if we can’t find what we want — we set it up for ourselves. Whether we think we will get support from old college friends, from business people in our own town, or from someone across the world, it’s all possible via the internet. [In fact, I’ve been chatting, I mean talking business, with a friend in Australia just this morning.]

When I started my small business more than twenty years ago, the internet wasn’t available — at least not for ordinary people — so all our networking was done face to face. Even today, when we are all connected and online (some of us far more than we should be!), it’s still good to get out there and talk to people. A smiley face is no substitute for the real thing.

Remember we are business owners, and as such, some of our problems will be shared by people in totally different fields of work. Most towns have general business networks, whether they are called business guilds, chambers of commerce or something more fanciful. For example, I am a member of the wonderfully-named Ladies Do Latte, a group of 400+ business women across the South West of England. Networking groups provide the opportunity to pick the brains of people who will have the same business issues as us, even if their product or service is totally different. And of course, there is always the chance of picking up new projects while chatting to someone over breakfast or lunch.

Local writers’ groups are great for helping to improve our writing craft; for critiquing; and for finding like-minded people to share a stall at a book fair; collaborate on a writing project; or act as beta readers. But, there are many other opportunities for writers to get together, whether that’s via national organisations such as the Society of Women Writers and Journalists (SWWJ) and the Romantic Novelists Association (RNA) or more regionally-based ones such as the West Country Writers’ Association (WCWA). All these groups have meetings, which range from annually to monthly. The London Book Fair has traditionally been an industry event, focussed on the agents and publishers more than the authors. However, with the growth in indie publishing, this is becoming another useful place to meet people.

I started this post by talking about the Winchester Conference. There are a number of other such events running throughout the year and I’m going to finish by giving a plug for my particular favourite, the Writers' Summer School at Swanwick. This runs for a week during August, has been doing so for the past 65 years and has a dedicated ‘family’ of writers who attend each year, who are very welcoming to any ‘newbies’ and are always willing to help with problems anyone has, either with the craft of writing or with the business side. Of course, I might be biased, as I teach The Business of Writing at Swanwick each year, but if you are looking to spread or set up your informal face-to-face network, then a conference is a great way of doing it. I look forward to meeting some of you there.

Risk Management

All businesses are subject to risk and our business as writers is no exception. These days, risk management has become a huge topic: the subject of whole books; the purpose of entire corporate departments; and the originator of reams of documents and forms. However, that’s not the approach we’re going here.  We’re just going to think for a while about possible risks and how we would deal with them. Once we’ve done that, we can forget all about it. If the risks never materialise, we’ve lost maybe an hour or so of our time. If the worst does happen, we will know what to do and will be less phased by the problems, whatever they may be.

Risk management is actually a three-part process; whatever our business, risks have to be identified, assessed and managed. In our writing business, they might include:

·       risks of under-resourcing

·       health and safety risks

·       credit risks

If we work on our own, and we get sick or we have too many projects to complete (and wouldn’t that be a nice problem to deal with?), we could lose customers through being unable to work.  What about the situation where two important book fairs are scheduled for the same day. We can't split ourselves into two. These are risks of under-resourcing.

There is the risk we might be injured on a customer's property or a customer might be injured on our property.  These are health and safety risks.

There is the risk that our customer might default on payment.  This is a credit risk.

 

As business people, we need a risk management process for two reasons:

·       We think about potential risks in advance and put contingency plans in place, allowing us to get on with business, without worrying about things going wrong.

·       It may be a regulatory requirement, especially health and safety risk assessment and government or local officials may wish to see evidence of our risk assessment process.

Enterprise Risk Management Process

With so many different types of risks to consider, it is not necessary to address each one in a different way.  What is required is an enterprise risk management approach, where risk management becomes part of 'the way things are done around here'.  We have a generic risk assessment process, flexible enough to fit all circumstances and a simple risk assessment form covering the four stages of the process (and when I say simple, I’m thinking of a blank piece of paper on which we write down our thoughts and conclusions; it really is that simple).

Stage 1: Checking for Hazards

A hazard is a reality — something already existing.  Cables stretched across the floor; a dangerous chemical used as part of the job (and yes, I know the most dangerous chemical a writer works with is probably typex, but bear with me; it’s just an example!); or a customer who is having financial difficulties. Each of these is a hazard we might come across.

Stage 2: Identifying Risks Associated with Those Hazards

A risk is something that might happen.  Someone might fall over the cables; chemicals might splash in someone's eye; the customer might go bust before paying our bill.  They are possibilities, not certainties.

Stage 3: Assessing Probability and Severity

Probability deals with how likely something is to happen.  If the cable is at the front of the office and people are continually walking through the area or across the walkway at a busy book fair, the probability of someone falling over them is greater than if they are in a back office or behind a stall where people rarely go.

Severity deals with how bad are the consequences of a risk becoming a reality.  If someone gets a paper cut from one of our books, the severity is low (although paper cuts do sting, don't they?). On the other hand, if a chemical splashes in someone's eyes, it could blind them or at least stop them working for a time, so the severity is much higher.

Probability and severity are considered separately, since they are independent of each other. For example, the severity of chemicals splashing in someone's eyes is high, but the probability is much lower in our writing business than in a chemical factory (and now you see why I needed that example in my list). If we were running the factory, we would need to install eye bath stations, or maybe even showers, against the risk of chemical burns. in our writing business, that's not a measure we're likely to have to take. Having said that, it's important to make sure the top is tight on the typex bottle before giving it a good shake.

Stage 4: Avoiding, Eliminating or Mitigating Risks

Once we know the size of the potential problems, we can decide what to do about them.  We might decide that the cable should be rerouted or a sign be put up to warn people to be careful (avoidance of risk).  We would ensure that anyone working with the chemical wears eye protection (elimination of risk).  We might take out insurance against defaulting customers or insist in payment in advance (mitigation of risk).

Example

As writers, one of the greatest risks we have relates to storage of our files. After all these files contain our work in progress, our finished products, our orders, our financial records; in fact pretty much everything we need to run our business. So let's do a quick risk assessment.

 

A hazard could be that we store all the files relating to our business on one single computer or laptop. That is a fact.

 

A risk would be that the computer suffers a fatal break-down and all our files become corrupted or lost. That is a possibility.

 

The probability will depend on a number of factors such as the age of the computer, the storage method we are using or the nature of the computer problem.

 

The severity of the problem is such that I can feel you all shuddering from here!

 

So how do we manage this very real risk to our business as writers? It's highly unlikely that we can eliminate the risk altogether. Computers do break down, often at the most inconvenient time. I lost my machine some years ago, just a week before I was due to deliver a manuscript to my publisher. It was at the time when we were migrating from Word 2003 to Word 2007; the whole look of the thing changed and I needed to learn how to use the new software while finishing the final edits. It was not a good week! 

 

So if we can eliminate, we must mitigate or avoid the effects of the risk. That might be by using an external drive that can be removed from the machine and stored elsewhere; by making multiple back-ups regularly; or by using a cloud-based storage system like Drop Box. Once we have these systems in place, and we know they are working well, we can forget about them until or unless the worst happens. And if it does, it will be a mere inconvenience, rather than a disaster.

 

Summary

Risk management doesn't have to be daunting.  All it takes is a bit of thought, a generic step-wise process and a simple risk assessment form.  It’s worth spending an hour thinking through the risks in our business and planning what we would do if a risk became a reality. Then we can put it to one side and get on with what we really want to do: our writing.

Cash Flow Planning: Expenditure and Dealing with Deficits

Having looked at income, we now turn to expenditure. Here, there is tends to be more certainty, especially with regard to fixed costs (the costs we incur whether or not we have any work). For example, we know what rent or rates we are going to pay. We know what our utility bills are going to be. We know how much we’re paying for our phone. All of these tend to be regular payments that can be entered into the monthly columns.

Of course, if we are working from home and charging a proportion of the household costs to the business, we can choose to do this annually rather than monthly — or even to waive the charge altogether until the business is established. But if we do this, we have to remember we are giving ourselves a false picture when assessing how successful we have been.

The variable costs (those associated with a particular piece of work) are a little more difficult but for each income figure we enter, we should be able to estimate the related costs. These need to be entered at the time they are incurred (or at least paid for) which will often be before the income arrives.

To finish the statement, we need an opening balance for the beginning of the year and a carried forward figure at the end of each period (month). Remember that we do not start each month afresh. If we have a deficit at the end of one month, that is the opening balance at start of the next month.

OK, I think it is now time for a picture, or at least a chart. Let’s have a look at an example (and remember, the only purpose of these numbers is to illustrate the points, so we shouldn’t get hung up on whether they make sense individually or not).

Example 1 (click on chart to enlarge)

In this example, we have the four different income streams: six articles paid monthly between August and January; Amazon sales which come in bimonthly from October onwards; direct sales to the public which vary depending on events per month; and fees for running a writing course every two months. We see that the income varies between £20 and £370 per month.

For expenditure, we have a regular monthly contract for phone and internet; we have mileage costs and printing costs associated with the course, the former occurring in the same month and the latter a month earlier in each case; and we have a regular ‘drawing’ to cover our personal expenses. Whether this is a salary that we are paid as an employee of a limited company, or whether it is a drawing we make as a sole trader is irrelevant here. This is the money we need to live (and again - these are examples only, not real figures). We see that our total expenditure is fairly fixed at between £550 and £580 per month.

We have started the year with an opening balance (i.e. funding) of £4000. At the end of the year, our closing balance is zero. This means that we are projecting a loss of £4000 during the year. But remember, we are talking here about cash flow. What this tells us is that if we start with £4000, we will have enough cash to last the year but that we will need to sort out more funding (or raise income, or reduce expenditure) at the beginning of the next financial year.

Let’s suppose we don’t have a £4000 pot to start the year off. What happens if we only have £3000?

Example 2 (click on chart to enlarge)

 

In this case, our cash flow goes negative in December and we need to find more funding at that point but we have demonstrated that we can start with a smaller pot and keep the business running.

If we have our cash flow set up in a spread sheet, as I’ve shown here, it’s very easy to play the ‘what if’ game by changing some of the figures and seeing what the effect is on the bottom line. For example, try pushing up the income or reducing the expenditure to see what happens. This is also useful for crystallising exactly what we need to do to make the business a success.

As always, note that I am not an accountant or a lawyer, just a long-term business owner, talking about my own experience. If you are unsure about anything, always take advice from an appropriate professional.

Cash Flow Planning: Income

Like the P&L and balance sheet, cash flow can be looked at historically. In this context, it is used to show how changes in the balance sheet have occurred over the past year. However, I believe it is much more important as a planning tool and it is this aspect we are going to look at in the next couple of articles.

Cash flow is used to examine the expected flow of money over a given period of time, which may be years, but will certainly be months. It allows us to identify our cash requirements, to spot any periods when we can expect a deficit and then to plan in advance the funding of that deficit.

It not part of the record-keeping needed to work out how much we owe the tax man (or vice versa), so a cash flow plan is not a statutory requirement. However, I would suggest it is one of the most important tools in our box. It is particularly critical if we are likely to incur high expenses (which may be the case when we are starting a business) or if there is expected to be a time lag before payments will be received. This sort of time lag is certainly one that most writers will recognise.

A cash flow plan is an easy document to prepare and is best done either on paper (although this means we will have to do the sums in our heads) or in a spreadsheet. It can also be done within a computerised accounting package, but I’m not sure it’s worth the bother. Personally, I would opt for the spreadsheet every time. Set it up with a column for each month. Start with a year and when that’s done, we can decide whether we need to carry it forward for a second year or more.

The plan can be based on actual or projected figures, and will often be a mixture of both. We often know what our expenses are going to be, while we merely have expectations on levels and timing of income. We start by brainstorming all the income streams we are hoping to tap during the next year; together the the expected amounts and mostly importantly the timing of receipt. This is not about raising invoices; we can’t pay a bill with an invoice. This is about getting money into the bank. And it’s also about knowing and understanding the payment systems operated by our various clients.

Let’s take an example:

Suppose we are commissioned to write a series of monthly articles for a writing magazine and we are offered a fixed fee per article. The series will run from July through to December. The delivery date for the first article is April and then monthly thereafter. We will raise our invoices on a monthly basis from April onwards. There are a number of possibilities for payment:

·        The magazine may pay within a set period of invoice date; this may be 30 days, it could be 60 days, it could even be 90 days. The key thing is to know what to expect. Let’s assume they pay within 30 days of invoice date. The money should be paid at the end of May and therefore would be available to deal with June’s bills.

·        The magazine may pay at the end of the month of publication. In this case, the money would be paid at the end of July and would be available for August’s bills.

So there is a possibility that work carried out in April will not provide any positive cash flow until August. Of course, with a monthly contract, we know there will be money coming in each month from then on, for as long as the contract exists and for the three or four month time lag thereafter.

If we think about other income sources, there is usually a delay associated with payment. For example, money from sales of ebooks via Amazon or Smashwords is delayed twice: firstly until a threshold amount of sales has been made; and secondly according to payment policy. Amazon has varying thresholds depending on currency and payment method, but once the threshold is reached, payment is usually made 60 days following the end of the calendar month in which the threshold is reached.   That’s quite a time lag to build in.

Of course, some income can be obtained up front: cash from books sold direct to the reader; fees paid by students on writing courses or seminars; advances from publishers on commissioned books (I have been told that these still exist occasionally) are three examples I could think of. On the other hand, the royalties paid by publishers on traditionally published books can be months, if not years, down the line.

Once we have identified all likely income streams and the timing of expected payments, each stream in listed as a separate row on the spreadsheet and the income payments listed in the appropriate column. We can then calculate our expected income by month over the chosen time period.

Next week, we’ll look at expenditure planning (depressingly easier to do than income planning) and dealing with cash flow deficits.

As always, note that I am not an accountant or a lawyer, just a long-term business owner, talking about my own experience. If you are unsure about anything, always take advice from an appropriate professional.