Tallying Your Yearly Financial Results, Part I

There have been some online discussions about reviewing your results versus your annual goals. I think it's important to take periodic stock of your goals and progress during the year, and I keep a monthly eye on both assignments and cash coming in. But if you're doing an annual look, you might keep the following things in mind. On the revenue side, there are actually three basic numbers you can consider:

1. the value of the assignments you receive during the year
   
2. the amount of money that publishers become obligated to pay you because of assignments you turn in


3. the amount you actually get in cash from payments

The first number gives you an idea of how well you are selling - the total response to your marketing. The second lets you know how much revenue you actually generate and are owed, and so whether your attempt to make money is doing well. The third says how much cash came in, which generally controls how easily you can meet your financial obligations.

Success on one area isn't enough - you really need success in all three. For example, you might be pleased because you have enough work booked, but if some of that came from a continuing contract, or was carried over from the previous year, then you have to see whether you are, indeed, selling effectively. Maybe you didn't care if you could have made any more, maybe you were maxed out for your work days, or maybe your sales efforts weren't as effective as they should have been.

Another analysis is whether you are completing enough assignments, and so, technically, earning enough money. It doesn't matter whether you've sold enough; your revenue is only what you could actually do and bill. That lets you know whether you are working efficiently enough and/or making enough per assignments. If it takes too many assignments to meet your goals, something is wrong and you need to consider how to change that so you can hit your revenue target in the time you have available.

A third, important, analysis is the third point: cash flow. It doesn't matter how much you book if you don't bring in enough cash to pay all your obligations. It's easy to whitewash this number by looking at the work completed, or even booked but not completed. However, don't get distracted. If you calculate that you need to bring in $50,000 for what you need for the year, it doesn't matter if you technically make $50,000, but only get paid for $40,000. That leaves you $10,000 in the hole, and is an example of why you generally need to complete more work than your economic goals, because you want enough cash to come in when you need it, and not afterward.

Tomorrow, I'll look at expenses and profitability.