Money, money, money

A while back I (Laura) asked if anyone would be interested in reading a bit about 404 Ink’s finances; where our money goes, how much we earn, our profits, our challenges and so on. Enough people said yes (3 people is enough for me!) to encourage this blog into being. We like the idea of sharing info that is usually top secret to both demystify some elements of small press publishing and show that not all successes equate to shit tons of money. (If only.)

You’ll already be able to see some of our finances over on our profile on Companies House but you won’t see much but the raw numbers. They don’t always tell a full or clear story so here’s 404 in money-terms, as accurately and clearly as we can present them.

*** DISCLAIMER: These numbers and interpretations are in no way to be mistaken as representative of other publishers or the entire publishing industry, indie or otherwise. It’s not even fully representative of our own financial standing (to do so would take an infinite blog that no one would want to read) so please take the following as a simplistic insight into the basic finances of 404 Ink. Don’t go sharing these numbers as gospel, k? Share them as ‘hey, a publisher explained some of the finances behind their company, that’s interesting’. Everything is accurate as of 28th February 2019 but these things can change so do bear that in mind depending on when you’re reading this. Cheers very much. ***

An overview

Because we’re still tiny (in the grand scheme of publishing things) we have unaudited accounts. We give our raw numbers of book sales and cash flow to our accountants Wylie & Bisset and they prepare our accounts to be filed to HMRC…and that’s about it. It seems so simple when put like that…

We’re currently in the middle of our third financial year and about to file accounts for our second year. Our first year was 01/08/16 - 31/07/17 and our second year was 01/08/17 - 31/07/18. We’ll keep these in mind while looking at turnover.

Let’s have a look at our basic profit and loss from the last two financial years.

Hey! Yas! Profit! We made a profit of £15,193 in our first financial year (during which point we published our first two magazines, Nasty Women and Hings) which we’ve since seen may have been positively skewed due to the success of the Nasty Women Kickstarter. In our second year our profit went down to £11,398, which was the year we published two more magazines, The Last Days of James Scythe, On the Edges of Vision, Mayhem & Death and The Goldblum Variations. This is largely what I calculated and predicted so it came as little surprise - in fact we were just happy to see we were still in profit! We believe this was due to the larger costs we’ve spent in printing (and reprinting) as our list as expanded and as we’ve travelled a lot more for events and book fairs.

While our profit went down, our turnover went up - from £46,450 to £77,320. This number is by and large our book sales, the net amount we received from sales.

The nitty gritty

Our detailed profit and loss show where we spent money and where we received money in year one and two. I’ll focus on year two, our busiest of years.

Our biggest costs are unsurprising:

£33,813 on direct costs of all things publishing - mostly book printing, unsurprisingly
£21,467 more on printing books and merch and pens and paper and all that good stuff
£5,091 on travelling (this was the year we sold copies of The Last Days of James Scythe in venues across the UK as well as having events and book fairs to attend)
£4,365 on posting books to customers (though they do mostly pay for postage so we recoup a lot of this)
£2,767.35 isn’t listed but we’ll be paying this in corporation tax by May 2019.
£1,887 on sundry costs - this could be anything in the day to day running of the company.
£1,539 on accountancy - because you really need to get experts to do the number crunching.

And the rest should be self explanatory! We’re starting to know how to have some fun, check out that huge £549 spent on ‘entertainment’. (Usually just some scran while we have meetings or treat our authors to a drink or two)

But for all those costs, we received £4,164 from various funds (Creative Scotland and Publishing Scotland mostly), which always help in our operations and connections.

So, taking away our costs from our turnover, that leaves us with that £11,398 profit to carry on to our third year, 01/08/18 - 31/07/19.

The bitty nitty gritty

Those P&Ls only offer so much insight and there’s a lot more to it than the above which makes finance look way too easy. So why not chat a bit about the royalties we give, the money that goes to directors and staff and where exactly our sales go? The cash flow helps with laying that out for me as it keeps a record of everything coming and going.

From 01/08/17 - 31/07/18 we paid…

Royalties to authors: £17,097
Directors Laura, Heather and Publishing Assistant Mika: £5,356 (total, not each)
Freelancers (cover designers, editors etc): £3,475
Authors for events: £3,078

As you can see, at that point we were still paying a small amount to ourselves, to help with rent, bills etc while still working freelance. Freelancers include cover designers, editors, proofreaders, photographers, generally anyone who contributed to our books in their creation.

Royalties are what we’re most proud of, making sure that our authors get the best deal that we can possibly offer while still being tiny. We try to offer double the industry average for royalties, and that can really start to pay off when sales take a jump upwards. We send our authors royalty statements in June and and December every year, and pay them (usually) within one week of the accountancy period so they have the money they’re owed ASAP. This may become more difficult in future as cash flow becomes more challenging with large expenditures on the horizon but it’s always top priority at 404.

But what are the challenges associated with book sales?

Breaking down the slices of a book cake (mmm) will help. Note that for the below, I’ve had to round up a lot and make some averages so this is not reflective of every book by a long shot, but it’s the most common example of how sales work for an average title.

When someone buys a £8.99 book from us via our website…

Printing cost: 80p
Royalty to author: £1.35
Share to 404 Ink: £6.84

WE LOVE IT WHEN PEOPLE BUY DIRECTLY. It also means the author gets more.

When someone buys a £8.99 book from a bookshop…

Printing cost: 80p
Royalty to author: £1.08
Share to distributor: £1.08
Share to bookshop: £3.60
Share to 404 Ink: £2.43

When someone buys a £8.99 book from Amazon…

Printing cost: 80p
Royalty to author: 90p
Share to distributor: £1.08
Share to Amazon: £5.40
Share to 404 Ink: 81p

It’s fairly self-explanatory that sales via Amazon really hurt. For some titles we practically make a loss on sales so we have to reassess some of our RRPs in future to balance this issue.

All of this information is in terms of print books and not ebooks, which aren’t a huge money maker for us at the moment, so I don’t have much analysis to offer on that I’m afraid!

What’s next?

We’re going to be taking further financial hits while we’re taking on a sales company who will take a further 12% of our sales. It’s going to be a difficult few months while we wait to see the financial gain of their efforts via the finances. We know it’ll be worth it, but the cashflow is indeed king to make sure we can take those hits now for long term benefit.

FMcM are helping us with the publicity of our May title Animals Eat Each Other which is another cost we’ve had to consider. Again, we’re gunning for that long term benefit.

We recently became VAT registered (because we passed the £80,000 turnover threshold) so that’s some more paperwork for me to keep track of, but it also means we’re going to get a good bit of cash refunded to us because we don’t charge VAT on books. More paperwork but more money returned. Swings and roundabouts.

We, the directors, are also paying ourselves better than we did in year two, largely due to the great people at Creative Scotland supporting our list this year so we can free up some of the cash to ourselves. For part of this year we’re paying ourselves for 2 days a week, though we of course work closer to 5/6/7 days a week on 404 Ink. But 2 days is better than none and the fact that we can currently do that is a blessing we try to remain grateful for. We are also able to pay our new Project Officer Imogen thanks to Creative Scotland, and our bookkeeper, Louise.

Our third financial year is going pretty well all in all.

As you can see in this graph from our distributor BookSource, we’re having a better year in sales to bookshops and Amazon than we did through most of the previous year. December 2018 was strangely a lot lower than December 2017 but that’s likely because November 2018 was very strong for us, due to Chris McQueer’s HWFG publication. As long as we’re selling more than the previous year, we’re happy!

The end

The purpose of this was to give some explanation around our income and costs, some raw data to be stared at and hopefully some insight into how we do what we do. We do pretty well for still being a small team with small resources but 2019 is our year of expansion in terms of operations so while we expect to see a few challenging months and likely, again, low profits, we’re pushing for the 404 reputation and recognition throughout the UK and beyond. A one day, that’ll turn into cash to fund some more books, we hope!

If this proves useful and interesting to enough people I may try to make this an annual blog so you too can experience the rollercoaster ride that is publishing finances…

If anything is unclear or you have any questions about the above, feel free to tweet questions at @404ink on Twitter and if I have the time, I’ll try my best to reply. And if you feel so inclined to support indie publishing, now that you see where the money comes from and goes, you can purchase some rather cool books at 404ink.com/shop.