Tallying Your Yearly Financial Results, Part II

Yesterday we talked about revenue. Now it's time to bring in expenses. You may have created a budget for the year - and certainly you should have done so if your financial goals were to have any meaning. If not, you're simply making up numbers, and the could as easily be wrong and misleading as they could be right.

Now it's time to take those numbers and see how they added up. You aren't just interested in the grand total, but how your individual categories came out. Say that your cost of food was significantly higher than you had expected. Overall, you could still get things to work out by cutting back in other areas. But if you take away from a non-discretionary area - like retirement savings - then you might be taking a problem and making it appear to go away, but actually causing it to ultimately be worse, though at a later time.

If, in general, you find yourself under-estimating expenses, then you're actually under-estimating the amount of revenue you need, throwing off your markenig and sales planning. I think writers are best off treating expenses on an accrual basis - that is, treat them as though you have to pull the money out when the expense comes in, and not at a later time if you can delay payment. It's a bit more pessimistic than looking at them only when you pay, because that can provide some breathing room. But in planning, you're not interested in being comfortable. Instead, you want to be more conservative and know that you can cover what you need, not depending on the ability to procrastinate.

Tomorrow, some words on profit, and profitability.