Planning cashflow : normal expenses?

[GBGames]

I am still working on a really simple business plan, based on Steve Pavlina's article To Plan or Not to Plan (http://www.dexterity.com/articles/planning.htm). While it seems to be geared more towards those who already have an existing business, I've found it quite useful for my startup needs.

However, I've been procrastinating the writing of the Cashflow section, and I finally realized that it is because I don't know what I'll really need, which makes it scary. For the moment, I just want to make a listing of expenses. Here is what I have come up with so far, but I was wondering if anyone here has a better idea of what kind of expenses a one-person indie company can expect to see.

Domain Name Registration: 8.95/yr (GoDaddy)
Webhost: $5.95 - $100 per month (depends on what you get...)
Artist:
Sound:
Code:
Porting:
Tech Support:
Accounting:
Legal: (to form an LLC in Illinois is $500, then $175 for the annual report)
Internet access:
Shareware Registration Service:
Marketing:
Hardware:
Software:
Group membership: $100 for ASP, $48 for IGDA, $24 for AISIP, ???
Conferences/Events: $10-$15/IGDA meeting, $25 Shareware Schmooze, GDC, ?

I'll be starting soon, but I figure I might as well ask and see if I can get a clearer picture of the obstacles before I run head-first into them. B-)

[EJSainz]

I would advice you to divide your expenses in some parts:

1) Opening expenses: this is the money you'll be needing to start your business. If you don't have this money, you won't be able to start. On our business this money is not very much, unless you need to rent a working place or buy hardware and software. Count here your legal opening costs, the hardware and software you'll be using, the furniture you'll be buying to work.

2) Fixed expenses: this is the money you'll be needing to develop your business. That's your salary, your taxes, the DSL line, hosting, publicity, selling service. You can also count here the money you'll be paying for external services, like legal advice, accountancy, music, programming or graphics.

It would be most interesting that you prepare an excel table wit 12 columns, one for each month, so you can place the monthly expenses. Each line would be an expense concept: salary (every column would have your salary on it), hosting (every column would have the hosting cost on it), music (only those months where you think you are going to pay money for music should have other figure than zero), etc.

Then just add all expenses every month, so you'll have a prevision of the money you'll need for each mont, and, more important, the money you'll need to earn monthly so your benefit is 0 - this is called the "balance point", a point where your business wins nothing, but loses nothing (notice that, since you'll be counting your salary, you'll be earning money, but not your business - that's very important since you need to eat and have fun to make more games!).

3) Variable expenses: that's the money you pay for every product unit. If we were making spoons, that would be the cost of the iron to make the spoon. In our case it's the money you pay to the selling service for each selling, and the taxes. In our case, what's most important about this is that you know how much are you earning from every sold unit -> so you know how many units you need to sell every month to reach the balance point.

If you sell below this units, you are not earning your salary (or even some other concepts - which is dangerous since you need them to work!). If you are selling over this, you are paying your salary, all the concepts, and your business is having benefits (which later you can distribute between all the associates - that's you - or save just in case things could go wrong).



Well, I think that's pretty all, at least as far as I know. I also had a bad time doing this, but man, was it important. Good luck.

[GBGames]

I would advice you to divide your expenses in some parts:

1) Opening expenses:
2) Fixed expenses:
3) Variable expenses:

Well, I think that's pretty all, at least as far as I know. I also had a bad time doing this, but man, was it important. Good luck.

Thanks! I'm wondering about the salary part. I will be forming a single-member LLC with business income being applied on my personal 1040 for taxes. I would imagine that I don't need to specify salary as an expense...unless the government allows me to declare my personal income as a loss, which I would imagine would not be the case.

[Drakkheim]

Thanks! I'm wondering about the salary part. I will be forming a single-member LLC with business income being applied on my personal 1040 for taxes. I would imagine that I don't need to specify salary as an expense...unless the government allows me to declare my personal income as a loss, which I would imagine would not be the case.

Just a word of warning, keep your personal finances and company finances as seperate as possible, pay yourself a $0.01 annual salary if you must. Over the last couple years I've seen over and over the results of small businesses who did not and when the company got into trouble the people's lives were turned upside down and inside out. I've seen it happen to both friends and family and it's never pretty.
Play it safe and if you are not 100% certain that your personal assets and corporate assets are seperate find a corporate attorney and get some professional advice. (yes they're pricey but so is your car,home, family and emotional well being)

Best of luck to you.

[mahlzeit]

The list seems fairly complete, although you can add office supplies and anything you use in the daily operation of your company (usually this stuff is at least partially tax deductible). Also, I don't know how this works in the US, but I had to open a business bank account, which was free, but the bank does charge money for the transactions. Oh, and insurance (if necessary).

[GBGames]

Also, I don't know how this works in the US, but I had to open a business bank account, which was free, but the bank does charge money for the transactions. Oh, and insurance (if necessary).

I was going to open an account for the business, but they charge per transaction?!? Or is there a fee for having a business account? Either way, I don't understand why it would be any different from having a regular account that they don't charge for. I guess it is one more thing to keep in mind, though. Thanks!

[Cartman]

I've recently been looking for a business account and found that the Credit Unions offer very cheap accounts for business. Overall they are always trying to be more competitive than the regular banks. Most of them do require your state filing numbers and sometimes a document from your company(bylaws or something like that).

[EJSainz]

Just a word of warning, keep your personal finances and company finances as seperate as possible, pay yourself a $0.01 annual salary if you must. Over the last couple years I've seen over and over the results of small businesses who did not and when the company got into trouble the people's lives were turned upside down and inside out. I've seen it happen to both friends and family and it's never pretty.

I don't know how it works out of Spain, but here you've got different ways to formalize a company. Limited Responsibility Society (Sociedad Limitada, SL) is one of them, and by law your company will only respond with it's funds - never with your money as a physical person. In this case, it's better to pay yourself a salary - you could divide benefits at the end of the exercise, but it would make no difference as you would pay the same taxes in the end.

Other societies, like the Individual Businessman (Empresario Individual, o Autónomo), are not limited on the responsibility, so you would have to pay even with your blood if something went wrong. Therefore, in this case there's not really a very big deal on paying yourself a salary, since your money and the company money are just the same.

Anyway, when making your initial calculations you must asign yourself a salary: if you don't, your numbers could tell you business are going well but you could be starving.

[Tom Gilleland]

The credit union checking account is cheapest and should be all you need. You might even get away with a business savings account that costs nothing and only lets you write a few checks a month. We also have a business credit card that we put all business purchased on. Nice statement at end of year. Make sure you pay it in full each month - ours is automatic.

Check with an accountant, but you may want to set up as an S-Corp as we did years ago. It offers better protection for you personal assets, but not as expensive as a corporation. The bottom line is pay for an accountant to help set it up correctly. Have them give you a list of things to do so that you don't miss something, and do them yourself to save money.

Small Business Rule #1 - Be frugal. :)

Tom