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There is a moment in the final battle scene of the movie The Lion, the Witch, and the Wardrobe where a rhinoceros charges the White Witch. Before the rhinoceros can get to the Witch, a little gremlin cuts the rhinoceros’ ankles, causing it to crash to the ground, rendering him useless in the battle.
When authors are in the battle of book writing, they can become so focused on the writing that they don’t see the gremlins ready to cut them off from success.
The gremlins could be marketing problems or business challenges. You may not like them, but it’s no good avoiding them. Ignoring the business side of writing is like ignoring a dirty diaper. It only makes the problem worse.
What are the common business mistakes that can send your career crashing to the ground?
Mistake #1: Authors Ignoring Taxes, Business, and Paperwork Planning
Some authors insist on acting like artists who don’t care about the money. Such authors are extremely vulnerable to publishing scams. Unscrupulous people in the publishing industry will tell you exactly what you want to hear.
- Your book is amazing!
- You are amazing!
- I’m going to make you a star!
Then, they give you a contract.
They hope you’ll be so excited about finally publishing your book that you won’t read the contract carefully. They don’t want you to know that sometimes the contract gives control of the art and the money to the unscrupulous flatterer.
Contracts can be tricky, and sometimes it’s hard to get out of a contract. For instance, if you get paid now for future work, you have to keep committing to more work in the future in order to pay your bills. Sometimes publishing scammers keep the rights to derivative works, and all your sequels must be published through the original publisher.
Tragically, the authors who fall for these scams lose their money and their art. Authors who “don’t care about the money” end up having neither art nor money.
How to Avoid a Scam
Read the Fine Print
Always read a contract before signing it. Ask questions. Educate yourself about taxes, business, and money. The school of hard knocks is a bad place to learn these lessons.
Do Your Own Research
A literary agent can help protect you from predatory publishers, but having an agent isn’t a silver bullet. Why? Because some agents are con artists.
Anyone can call themselves a literary agent. Some “agents” may not be real literary agents. Other agents are good-hearted but may not have the experience or the connections to sell your book. Others may not be a good fit for you.
Reputable agents publish (or are willing to share) their client lists. If a literary agent offers you a contract, contact some of their authors and ask if they would recommend their agent. Some agents are absolute gems, and that is the kind of agent you want to work with.
As Tim Ferriss says, “A person’s success in life can usually be measured by the number of uncomfortable conversations he or she is willing to have.”
If you can’t find a happy author, don’t sign any contracts. Always contact references and past clients before signing a contract with an agent, publisher, or printer.
Beware the Hybrid Publishers
If you are indie published, you won’t be working with an agent, but many publishing companies will “make it easy for you to get published.” Such publishers make indie publishing sound nearly impossible, so they offer various services to help you publish your book.
If you do your research, you’ll discover that self-publishing directly through Amazon is not hard. Millions of people have done it, and many of them are not as bright as you.
Companies that offer to “make it easy” are typically offering to take most of the money. Sometimes, they just add additional steps and a layer of frustration between you and Amazon.
Going with a hybrid publisher can make sense if you only plan to publish one book. But if you want to become a professional indie author, you need to learn how to independently publish.
If you want to learn for free, I have multiple episodes and articles that will help.
Here are a few to get you started:
- 10 Decisions Every Indie Author Needs to Make
- How to Publish Your Book Independently
- 7 Kinds of Indie Authors
Mistake #2: Not Keeping a Budget
Many people believe that “doing things on a budget” means spending as little money as possible.
But that’s not a budget.
Operating on a budget means you decide how and when to spend your money before you spend it.
For some authors, budgeting means placing your monthly income into categorized envelopes. Other authors use a budgeting spreadsheet or websites like Mint.com or YNAB.com.
Carefully review your income and expenses while you’re in the calm and comfort of your own home, not while you’re across the table from a pushy salesperson.
Find Your Best Option
One benefit of keeping a budget is that it helps you ask better questions. If you as, “Will spending money on X help my writing career?” the answer is almost always yes.
But the better question is, “Which spending choice will yield the best return?” For example, having a budget allows you to ask, “Should I put money in the advertising envelope or the training envelope? Which is more helpful for me right now?” The answer depends on where you are in your career. If you’re just starting your career, spend the money on training and education. The more books you publish, the more you can afford to invest in advertising.
Keeping a budget forces you to think through your spending decisions with all the options in front of you.
Save Your Marriage
A budget can also help your marriage. Writing a book requires sacrifices from your spouse. You will be less available to your family while writing your book, and you’ll also need to spend some money to get your writing career off the ground. There is a reason spouses tend to feature prominently in the acknowledgments section of books.
Don’t sacrifice your marriage to write your book.
Creating a budget can spur helpful conversations with your spouse. If you both agree on a big-picture budget, you won’t nickel-and-dime your spouse with every writing expense that comes up.
Before my wife and I got married, our pre-marital counselor had us create a budget together. We’ve been running our family finances on that budget ever since.
A budget can also be updated as your family and career change. We had to update our budget when we had kids. We spend more money on diapers than I ever thought possible, but we’ve budgeted for it.
Every marriage is different. I’m no marriage guru, but older married couples tell me that communication is the key to long-lasting relationships. Creating and updating a budget is an amazing way to facilitate communication. In some ways, the budget is evidence that a beneficial and specific conversation took place.
The following episodes may help you create a publishing budget.
Mistake #3: Assuming You Are Not Eligible for Tax Deductions
You may be surprised to learn whether the IRS views you as a business or a hobbyist.
In the Tax and Business Guide for Authors, my CPA dad outlines the IRS’s criteria for determining whether someone is a hobbyist or a professional author. If writing is your hobby, you can’t easily deduct your writing expenses. But if writing is your business, you can.
Tracking expenses for your author business can make a big difference on tax day.
Sometimes minor tweaks in how you operate can turn your writing hobby into a business that will allow you to deduct expenses. Writing in a more business-like manner can also help you become a better writer faster.
Here are some of the criteria the IRS looks at:
- Does the time and effort put into the activity indicate an intention to make a profit?
- Does the taxpayer depend on income from the activity?
- If there are losses, are they due to circumstances beyond the taxpayer’s control, or did they occur in the start-up phase of the business? In other words, Are you using your writing to help pay the bills? If you need help making money now, listen to my episode, Yes, YOU Can Make a Living as a Writer, Here’s How.
- Has the taxpayer changed methods of operation to improve profitability? In other words, are you investing in continuing education to improve?
- Does the taxpayer or his/her advisors have the knowledge to carry on the activity as a successful business? In other words, Are you working with a professional editor/cover designer, etc.?
- Has the taxpayer made a profit in similar activities in the past?
- Does the activity make a profit in some years?
- Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
The IRS weighs all these factors, so you don’t necessarily need to check every box to take deductions. For example, Amazon lost money for over a decade when they first started out, but the IRS still considered them a business.
In the course, we discuss tax court cases of authors and artists who won and lost on this issue. The course includes a PDF of these court decisions, which can be a great resource to review and share with your CPA. If your CPA is unfamiliar with the appropriate case law, you may not get the most helpful advice.
Mistake #4: Not Tracking Expenses
If you are indeed a professional author in the eyes of the IRS, your business expenses may be tax-deductible. You can deduct writers conference expenses, the laptop you write on, software like Scrivener and Atticus, publishing costs, advertising, and more.
In the course, we talk about 19 different tax-deductible expenses authors can take, but you can’t take advantage of an expense you haven’t tracked. Even if you’re not yet a business in the eyes of the government, you should still track your expenses to see if you are staying within your budget.
Mistake #5: Not Keeping Work Separate
Commingling your business and personal finances creates a mess you’ll have to clean up later. For many authors, the mess is so overwhelming that they just don’t bother with it and end up paying far more than their fair share in taxes.
Paying more taxes than necessary means you’ll have less money for marketing and promotion, fewer book sales, and ultimately less influence on the world.
If you want to preserve your influence, keep work and play separate.
Having separate bank accounts for your writing business and your personal finances makes it easier to track expenses. You don’t need to use a different bank. Most banks will let you add a second account for free, which only takes a few minutes. Make sure the new account comes with its own debit card so you can easily pay for writing expenses. You also want to make sure you can transfer money between accounts without being charged a fee.
Mistake #6: Waiting Until the Last Minute to Form an LLC
Traditional and indie authors create LLCs to protect them from liability and to help keep business and personal finances separate. Every New York Times bestselling author I’ve worked with has had at least one LLC or a similar entity.
Foreign authors may also create a US-based LLC so they can easily receive and spend US dollars, which saves them money on tariffs, taxes, and exchange rates.
Indie authors often have to form LLCs early in their careers because they have earlier exposure to liability. They also spend more money more often, especially in the early days of their careers.
Like insurance, forming an LLC helps most when you get it before trouble strikes. So don’t wait to get sued before you form an LLC. You can expedite the process, but fees for expediting are expensive, stressful, and unnecessary. Save yourself time and money and get your LLC ready to go before you need it.
That said, you may not need an LLC yet. The Tax and Business Guide for Authors course tells you when it’s best to form one. We also cover it in our free episode, The Author’s Guide to LLCs.
Mistake #7: Not Having a Business Plan
Authors who fail to plan, plan to fail.
A good business plan will help you avoid costly mistakes that can torpedo your career.
A business plan can direct you to lose money during the startup phase of your career and then make money later on, which may satisfy one of the criteria the IRS looks at. It can also help you set realistic expectations.
Most professional authors have net losses during the first 5-10 years of writing. As they learn to write better and faster, income overtakes expenses, and some of them make a lot of money once they get established. This “sow now to reap later” approach is common in business.
Writing is Not a Get-Rich-Quick Profession
Building a platform and developing your craft takes time, so make sure your plan accounts for that.
If you are traditionally publishing, your book proposal is your business plan minus a budget. If you copy and paste your budget into your book proposal, you’ll have a rough draft of a business plan. You can adapt the plan to focus on your writing career in general rather than on a single book.
If you are indie publishing, it can be easy to ignore this crucial step, but a business plan could save your career before it even starts. It doesn’t take long, and it will give you a new focus and vision.
A typical business plan includes the following:
Briefly summarize the plan. Write this section last.
Describe what the company is and does. Remember, you are a company. Your books are your products.
List your customers and competitors. Who will read your books? Who else writes books and makes entertainment for your target readers?
It takes a team to publish a book. You may need a cover designer, an editor, a narrator, an assistant, and a literary agent (if you are traditional). You don’t need to know their names yet, and you don’t need to hire them full-time to include them in the plan.
If you publish traditionally, your publisher will pay for most of your team.
Products & Services
Describe the kind of books you plan to write, including which genre you plan to write. If you want your book to sell like crazy, determine the genre before you write the book.
Some authors supplement their income by offering services like:
One of the best ways to supplement your income is to become a virtual assistant for another author. As an author assistant, you can make money while you develop your skills. It’s a win-win.
Marketing and Sales
Your marketing plan details how you plan to get strangers to want to buy your book.
How much money do you need to get through the lean years before you start making money?
How much do you plan to make as an author? If you need help determining the answer, listen to Yes, YOU Can Make a Living as a Writer, Here’s How.
Your business plan does not need to be fancy. If you need help with it, The Tax and Business Guide for Authors has a module on creating one. I’ll walk you through each section of your business proposal and give you tips and advice on what to include.
Jennifer Lamont Leo, author of The Rose Keeper
During the Great Depression, a spoiled socialite must suddenly find a way to support herself and her child. Can she turn a homemade recipe for skin tonic into a livelihood?
June 2022 is Patron Appreciation Month
This month’s special gift for patrons is my course, the Tax and Business Guide for Authors. My dad, Tom Umstattd CPA, has been helping authors with taxes for over 35 years. This course normally sells for $99, but all Novel Marketing Patrons get this course for free.
We have a patrons-only Live Q&A with my dad, Tom Umstattd CPA, on June 30th, 2022.
If you become a patron before the end of June, you get access to the Live Q&A Webinar and a free copy of my $99 course, The Tax and Business Guide for Authors.
In this course, you will learn
- 19 tax deductions authors can claim
- How to qualify for tax deductions for your writing-related expenses (not all writers qualify)
- How to create a business plan
- How to make a living as an author
- How to be a business in the eyes of the IRS
- How, when, and why to form an LLC
- How to reduce the likelihood of being audited by the IRS
You can become a patron at AuthorMedia.com/patron for as little as $4.00 per month and receive this course with access to our Q&A session for free. Patrons get exclusive discounts on courses and a special bonus episode every month.
If you are a patron (or become a patron in June of 2022), you will get this course for free.
The Tax and Business Guide for Authors course is yours to keep regardless of how long you stay on as a patron. So yes, you could become a patron for one month, cancel, and keep the course. I hope you find the podcast valuable and will continue supporting the show. I couldn’t keep making these episodes with support from listeners like you.
You can become a patron here.
Our baby is learning to crawl! He gets up on his hands and knees and then flops forward.
Instead of focusing on how poor his form is or how much his chin hurts, he is thrilled by his ability to move forward on the ground, even if only a little.
So much in life is like this. Focus on the next step and celebrate the small victories rather than focusing on how much more you have to learn. You will learn faster and be happier.