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Ma10: Month-End for October 2020 (Part 1) NOTES
For proper formatting (bold, italics, etc.) and graphics (where applicable) see the PDF version. Copyright: 2020 Retraice, Inc.
Ma10: Month-End for October 2020 (Part 1)Margin by Retraice1
On financial reports, budgeting and miscellanea.
Air date: Monday, 2nd Nov. 2020, 2 : 15 PM Pacific/US.
Monthly reflectionToday, reflecting on financials. In Part 2, other business data.
Money and stupid cashWhile there is stupid cash out there2, there isn't so much that you're likely to have some in the beginning.
Someone once said that 'money follows good ideas'. But that can't be true.3
The first rule of intelligent investing is: Don't lose money.4
Our investmentWe incorporated in December, 2019, but did a lot of work and spending before that—and since, before going live in September 2020.
Three accounting reports plus oneWe use the standard balance sheet, income statement (aka profit-and-loss), and cash flow statement. We also built a 'cash projections' report, which captures essentially the entire financial picture on one page, in two tables and two charts (see figure below).
We use Quickbooks, which tracks all transactions and generates the accounting reports (except our cash projections report).
Balance sheetHere's an oversimplification:
Outside investorsBased on estimates, we put in a year's worth of cash, as an initial investment. We were able to do this without outside investors because our business overhead is small. On fundraising, see Sutton and Detweiler.5
Securities lawsOn the special-ness of the "founders' round" of investing, see Sutton and Detweiler.6
The purpose of the SEC and U.S. state securities regulators, or your local equivalents, is to protect people from being swindled. It is not to protect investors from losing money; if you are uninformed and want to take stupid risks, that is perfectly legal. What's not legal is for someone to misinform you.7
Our strategic decisionsWe don't have customers yet because we can't: our strategy requires a lot more promotion before trying to close sales, and that requires free content, so our paywall is not currently passable because there's nothing on the other side yet.
Zero day and other daysWe have a zero-cash day projected, assuming no customers and no new expenses. But before zero day, minimum-balance fees kick in. The slope toward doom gets more steep the closer you get.
Our 'cash projections' reportIt has one table that shows transactions past and future, one table that shows annual totals by payee, and two charts that show totals (spending, balances, break-even and zero-day) past and future. This is the report that most clearly represents our financial position and trajectory, including how long we have to live and what our next goals should be.
Figure 1: * Our 'cash projections' report (blurred). The gray areas are past-confirmed transactions and totals; red numbers are negative, green positive; the left-side chart is past totals, the right-side chart is projected totals; the red line is our cash balance; the blue line is our month-to-month expenses; the green bar is the nominal break-even point (without employees). The lower-right table is annual expense totals by payee, and how many monthly customers are needed to cover each payee, at different price-points and assuming taxes and other fees. Thoughts on incorporatingThe following applies to U.S. businesses. The cost is around $1,000, depending on how you do it, and your state of incorporation. This is without legal counsel, which can be done but is risky for most businesses. It is the way we did it.
That figure includes filing fees and state licensure. It does not include other necessary licenses (city, county, industry-specific), research costs (books, in our case), the cost of 'qualifying' in your state of operation (if you incorporate in a state other than your business's base of operations, you'll pay a similar sum to qualify to do business in that other state), etc.
The benefits of incorporating are many: it's easier to raise money, easier to attract employees, and the processes and corporate formalities are rich with business guidance and best practices. The opposing view is that it's too much overhead and hassle for most small businesses.
Corporations and LLCs have an interesting history.8
More on the balance sheetWe've spent about a third of our initial investment so far.
Thoughts on annual pricingIn the beginning, you're trying a lot of things, so taking the annual discount on a service is risky. In fact, it might be that the services that are worth having don't offer an annual discount, but this is just our impression.
Income statement (profit-and-loss)This breaks down the detail of expenses and revenue by category. For example, we have many transactions categorized as 'marketing and advertising', because so much of what we're currently doing (free podcast, free website, free livestream) is leading to 'free' product, i.e. not product, but marketing material. We've spent $0 on advertising and marketing in the traditional sense.
If you run a single-month report, you'll see how you did this month, but some months are more expensive than others. Our pricey months are December and February.
Contents and packagingOn the subject of ads and marketing, Jack Conte (founder of Patreon) once argued that artists should be passionate about what's inside the box, but be very flexible about the exterior packaging that helps get the box to its audience.9
More P&LWe also had bank fees (sigh), hosting fees (for mp3 and PDF files and distribution), a PO Box, etc.
More 'cash projections' reportIt helps us see more clearly, and answer questions more quickly, especially regarding when big financial hits are coming.
Cash flow statementAgain, how expensive the given month is will make a big difference in how this report looks on its face.
Routine, reports, clarityRunning the reports monthly gives a clean, multi-angle look at your business, which is essential. For us, the cash projections report is most useful right now.
ReferencesConte, J. (2016). PatreCon: Adjust your packaging. Youtube.com. 15th Nov. 2016 https://youtu.be/R5tkpqW-1BY Retrieved 3rd Nov. 2020.
Gevurtz, F. A. (2004). The historical and political origins of the corporate board of directors. Hofstra Law Review, 33(1). http://scholarlycommons.law.hofstra.edu/hlr/vol33/iss1/3 Retrieved 13th Sep. 2019.
Graham, B. (1973). The Intelligent Investor: A Book of Practical Counsel. Harper Business, 4th revised ed. Fourth edition 1973; this edition, with material from Jason Zweig, 2006. ISBN: 978-0060555665. Searches: https://www.amazon.com/s?k=978-0060555665 https://www.google.com/search?q=isbn+978-0060555665 https://lccn.loc.gov/2003047894
Graham, B., & Dodd, D. (1940). Security Analysis: Principles and Technique. McGraw-Hill, 2nd revised ed. Second edition 1940; this edition, with commentary from multiple authors, 2009. ISBN: 978-0071592536. Searches: https://www.amazon.com/s?k=978-0071592536 https://www.google.com/search?q=isbn+978-0071592536 https://lccn.loc.gov/2008023115
Retraice (2020/11/02). Re10: Living to Guess Another Day. retraice.com. https://www.retraice.com/segments/re10 Retrieved 2nd Nov. 2020.
Ribstein, L. E. (2003). LLCs: Is the future here? A history and prognosis. ABA Business Law Section, 13(2). https://studyres.com/doc/16603361/is-the-future-here%3F---american-bar-association Retrieved 1st Sep. 2019.
Sutton, G. (2016). Start Your Own Corporation. RDA Press, 2nd ed. ISBN: 978-1937832001. Searches: https://www.amazon.com/s?k=978-1937832001 https://www.google.com/search?q=isbn+978-1937832001 https://lccn.loc.gov/2011279504
Sutton, G., & Detweiler, G. (2015). Finance Your Own Business: Get on the Financing Fast Track. Success DNA / Brisance. ISBN: 978-1944194017. Searches: https://www.amazon.com/s?k=978-1944194017 https://www.google.com/search?q=isbn+978-1944194017 https://lccn.loc.gov/2017304946
1https://www.retraice.com/margin
2Cf. Retraice (2020/11/02) on stupid bodies and brains.
3Graham & Dodd (1940) p. 669 ff., Graham (1973) pp. 204-205.
4Graham (1973) p. 18.
5Sutton & Detweiler (2015).
6Sutton & Detweiler (2015) pp. 182-184.
7Sutton (2016) p. 176.
8See for example Ribstein (2003) and Gevurtz (2004).
9Conte (2016).
View all episodes
By Retraice, Inc.For proper formatting (bold, italics, etc.) and graphics (where applicable) see the PDF version. Copyright: 2020 Retraice, Inc.
Ma10: Month-End for October 2020 (Part 1)Margin by Retraice1
On financial reports, budgeting and miscellanea.
Air date: Monday, 2nd Nov. 2020, 2 : 15 PM Pacific/US.
Monthly reflectionToday, reflecting on financials. In Part 2, other business data.
Money and stupid cashWhile there is stupid cash out there2, there isn't so much that you're likely to have some in the beginning.
Someone once said that 'money follows good ideas'. But that can't be true.3
The first rule of intelligent investing is: Don't lose money.4
Our investmentWe incorporated in December, 2019, but did a lot of work and spending before that—and since, before going live in September 2020.
Three accounting reports plus oneWe use the standard balance sheet, income statement (aka profit-and-loss), and cash flow statement. We also built a 'cash projections' report, which captures essentially the entire financial picture on one page, in two tables and two charts (see figure below).
We use Quickbooks, which tracks all transactions and generates the accounting reports (except our cash projections report).
Balance sheetHere's an oversimplification:
Outside investorsBased on estimates, we put in a year's worth of cash, as an initial investment. We were able to do this without outside investors because our business overhead is small. On fundraising, see Sutton and Detweiler.5
Securities lawsOn the special-ness of the "founders' round" of investing, see Sutton and Detweiler.6
The purpose of the SEC and U.S. state securities regulators, or your local equivalents, is to protect people from being swindled. It is not to protect investors from losing money; if you are uninformed and want to take stupid risks, that is perfectly legal. What's not legal is for someone to misinform you.7
Our strategic decisionsWe don't have customers yet because we can't: our strategy requires a lot more promotion before trying to close sales, and that requires free content, so our paywall is not currently passable because there's nothing on the other side yet.
Zero day and other daysWe have a zero-cash day projected, assuming no customers and no new expenses. But before zero day, minimum-balance fees kick in. The slope toward doom gets more steep the closer you get.
Our 'cash projections' reportIt has one table that shows transactions past and future, one table that shows annual totals by payee, and two charts that show totals (spending, balances, break-even and zero-day) past and future. This is the report that most clearly represents our financial position and trajectory, including how long we have to live and what our next goals should be.
Figure 1: * Our 'cash projections' report (blurred). The gray areas are past-confirmed transactions and totals; red numbers are negative, green positive; the left-side chart is past totals, the right-side chart is projected totals; the red line is our cash balance; the blue line is our month-to-month expenses; the green bar is the nominal break-even point (without employees). The lower-right table is annual expense totals by payee, and how many monthly customers are needed to cover each payee, at different price-points and assuming taxes and other fees. Thoughts on incorporatingThe following applies to U.S. businesses. The cost is around $1,000, depending on how you do it, and your state of incorporation. This is without legal counsel, which can be done but is risky for most businesses. It is the way we did it.
That figure includes filing fees and state licensure. It does not include other necessary licenses (city, county, industry-specific), research costs (books, in our case), the cost of 'qualifying' in your state of operation (if you incorporate in a state other than your business's base of operations, you'll pay a similar sum to qualify to do business in that other state), etc.
The benefits of incorporating are many: it's easier to raise money, easier to attract employees, and the processes and corporate formalities are rich with business guidance and best practices. The opposing view is that it's too much overhead and hassle for most small businesses.
Corporations and LLCs have an interesting history.8
More on the balance sheetWe've spent about a third of our initial investment so far.
Thoughts on annual pricingIn the beginning, you're trying a lot of things, so taking the annual discount on a service is risky. In fact, it might be that the services that are worth having don't offer an annual discount, but this is just our impression.
Income statement (profit-and-loss)This breaks down the detail of expenses and revenue by category. For example, we have many transactions categorized as 'marketing and advertising', because so much of what we're currently doing (free podcast, free website, free livestream) is leading to 'free' product, i.e. not product, but marketing material. We've spent $0 on advertising and marketing in the traditional sense.
If you run a single-month report, you'll see how you did this month, but some months are more expensive than others. Our pricey months are December and February.
Contents and packagingOn the subject of ads and marketing, Jack Conte (founder of Patreon) once argued that artists should be passionate about what's inside the box, but be very flexible about the exterior packaging that helps get the box to its audience.9
More P&LWe also had bank fees (sigh), hosting fees (for mp3 and PDF files and distribution), a PO Box, etc.
More 'cash projections' reportIt helps us see more clearly, and answer questions more quickly, especially regarding when big financial hits are coming.
Cash flow statementAgain, how expensive the given month is will make a big difference in how this report looks on its face.
Routine, reports, clarityRunning the reports monthly gives a clean, multi-angle look at your business, which is essential. For us, the cash projections report is most useful right now.
ReferencesConte, J. (2016). PatreCon: Adjust your packaging. Youtube.com. 15th Nov. 2016 https://youtu.be/R5tkpqW-1BY Retrieved 3rd Nov. 2020.
Gevurtz, F. A. (2004). The historical and political origins of the corporate board of directors. Hofstra Law Review, 33(1). http://scholarlycommons.law.hofstra.edu/hlr/vol33/iss1/3 Retrieved 13th Sep. 2019.
Graham, B. (1973). The Intelligent Investor: A Book of Practical Counsel. Harper Business, 4th revised ed. Fourth edition 1973; this edition, with material from Jason Zweig, 2006. ISBN: 978-0060555665. Searches: https://www.amazon.com/s?k=978-0060555665 https://www.google.com/search?q=isbn+978-0060555665 https://lccn.loc.gov/2003047894
Graham, B., & Dodd, D. (1940). Security Analysis: Principles and Technique. McGraw-Hill, 2nd revised ed. Second edition 1940; this edition, with commentary from multiple authors, 2009. ISBN: 978-0071592536. Searches: https://www.amazon.com/s?k=978-0071592536 https://www.google.com/search?q=isbn+978-0071592536 https://lccn.loc.gov/2008023115
Retraice (2020/11/02). Re10: Living to Guess Another Day. retraice.com. https://www.retraice.com/segments/re10 Retrieved 2nd Nov. 2020.
Ribstein, L. E. (2003). LLCs: Is the future here? A history and prognosis. ABA Business Law Section, 13(2). https://studyres.com/doc/16603361/is-the-future-here%3F---american-bar-association Retrieved 1st Sep. 2019.
Sutton, G. (2016). Start Your Own Corporation. RDA Press, 2nd ed. ISBN: 978-1937832001. Searches: https://www.amazon.com/s?k=978-1937832001 https://www.google.com/search?q=isbn+978-1937832001 https://lccn.loc.gov/2011279504
Sutton, G., & Detweiler, G. (2015). Finance Your Own Business: Get on the Financing Fast Track. Success DNA / Brisance. ISBN: 978-1944194017. Searches: https://www.amazon.com/s?k=978-1944194017 https://www.google.com/search?q=isbn+978-1944194017 https://lccn.loc.gov/2017304946
1https://www.retraice.com/margin
2Cf. Retraice (2020/11/02) on stupid bodies and brains.
3Graham & Dodd (1940) p. 669 ff., Graham (1973) pp. 204-205.
4Graham (1973) p. 18.
5Sutton & Detweiler (2015).
6Sutton & Detweiler (2015) pp. 182-184.
7Sutton (2016) p. 176.
8See for example Ribstein (2003) and Gevurtz (2004).
9Conte (2016).