Five Strategies for the Credit Crisis

Roiling financial markets have sent many leaving the equity markets and seeking solace with their remaining piles of folding money. But for writers the crisis can provide a financial boost, even with advertising down, if you know anything about finance or can help someone who does.

• Consider a book. Book chains and publishers are looking to make money from consumer fears with financial titles. So now might be a good time to go to a publisher with a title that helps people either make sense of what is happening or find ways to lessen the impact.


• Talk to your editors now. They will also be reacting to everything happening and will likely be open to stories about cutting costs, reacting smartly with personal investments, and even getting into stronger position for the eventual recovery.


• Companies are likely to expand custom publishing even as they trim back advertising. They can't completely stop marketing, so they'll want what seems to provide a greater assurance of success.


• Those specializing in financial advice will probably need to repair customer relations and otherwise find a way to dig themselves out of a hole. So offer them some help in doing so.


• Take the load off clients. When everyone wants to cut costs, help them by providing additional services. For example, you might take on large aspects of a project, managing it for the company at an additional cost that is still lower than it would be to bring someone in-house or even hire a temp. That frees them up to shore up the business and increases your income. A warning on this strategy: do not give the services away, or you devalue them and now create the expectation that you should be doing it for free going forward.

In a Credit Crunch, Double-Check Your Clients

You know things are tight when you start seeing companies in your industry halting their debt payments. Companies can go from reliable to hiding in a matter of days because they suddenly find that they cannot get the amounts of credit they need to keep their business operating as it should. That means now is the time that some regular clients may suddenly become completely irregular. Once they're in a bind, there is little you can do, so the best way to avoid cash constipation is to look for some warning sings now:

• If a client is publicly-held, check its financial news. I did this with a client the other day (never pays to forget your own advice) and found that it had recently issued a press release about securing financing. A good thing, because then I looked at its financials and noticed that cash on hand was down to a few hundred thousand dollars at the end of the quarter. Yuck. I've just finished an assignment, but will probably "not get around" to sending another query until I see things improve.


• This is a time when you should pay close attention to any change in payments. Do not rationalize them away by saying that it's an unusual circumstance. So is the credit crunch. Tha'ts not to say a company would have an inadvertant mix-up, but don't make the assumption.


• Don't wait for problems to happen; make your exit plans now. In other words, if there are some clients that look questionable, immediately market to find potential replacement clients. That doesn't mean that you need to dump an existing client, but you want to be able to balance your work load and shift into a different set of clients if necessary. You also get the benefit of broadening your client base, being in greater demand, and maybe even making more money.

Watching the Account Payable Metric

There are various numbers that help you keep an eye on your freelancing business. An under-appreciated one is the current size of your accounts payable. That refers to all the companies that owe you money at any one point. The reason AP totals are important is that they become an early warning sign of cash flow problems. Take your monthly revenue goal and divide the AP total by it. That shows how many months of revenue you're expecting in at any given time. I find that the number needs to be between 1.5 and 2, meaning that at any time I'm owed between one-and-a-half and two months worth of invoices. In that range, I can expect a regular flow of funds with clients paying between 45 and 60 days. If the number drops below that, then it doesn't matter how much I've just billed out, because I don't have invoices old enough that I can realistically expect checks. If you've had problems getting cash in and you don't have enough on hand to act as a cushion, or even if you do, consider working to increase your billing for a few months so you begin to develop a backlog that will help provide more dependable cash flow.

Newspapers and Goodwill

Most people think of good will as a desirable state of mind around the winter solstice holidays, no matter what you call them. But in business, goodwill is the difference between the value of a company - expressed as the value of all its stock - and the value of the firm's tangible assets. In other words, goodwill is how much investors and the market think a company is work over and above the more objective value of everything it owns. And if you count newspapers as a market, read this Bloomberg article and you may see why you should make the acquaintence of this term.

Goodwill exists because the world wants to account from where the value of a company comes. It's clear why; without financial attribution, charlatans would be free to claim any value of a company, pulling the wool over the eyes of many. The problem with goodwill is that it can be fickle. As the opinions of those in the market change, so can the goodwill, and the value - and financial solvency - of the company. Some companies, like Google, have a great deal of goodwill value. But the danger is when you see too much value in goodwill, you must wonder how stable it is.

As the article's author, Jonathan Weil, notes, many publicly-held newspaper companies have a great deal of goodwill on their balance sheets. That might mean that the values are artificially high and that companies will ahve to write down their book value, which means it will be harder for them to get credit, raise money, and do other things that will hinder their competitiveness. Here's Gannett as an example:

Even Gannett, the largest U.S. newspaper publisher, looks ripe for a balance-sheet hit. Its market value is $7.9 billion. By comparison, its $8.98 billion book value at Sept. 30 included $10.06 billion of goodwill and $818 million of other intangibles. Tara Connell, a spokeswoman for the McLean, Virginia-based company, says Gannett is evaluating the matter.

If you're going to do business with an industry, it's important to gain some financial literacy so you can see where trouble might be brewing.

Learning Everyday Business Analysis

A writer on an online forum recently noted in passing that Writers Digest seems to have shifted its editorial focus, targeting would-be writers rather than experienced working writers. There's a lot to learn from this observation, and much to be gleaned for the way that I think writing is moving.

Why WD would shift audience definition comes down to money. Compared the the number of people who think they would like to be writers, I suspect there is a relatively small pool of those actually in the business.

The publisher needs to make a lot of money to pay for articles, marketing, design, production, printing, and everything else that is part of publishing. The money has to come from a combination of advertising and subscriptions. Remembering the concept of different business models in the writing and publishing world, either you pay, the audience pays, or someone else pays. One aspect of third parties paying is that they must think they'll get more back in business or value than they money they pay to the publisher. In the case of a publication aimed at writers, I suspect the expectations are low, because we are, let's face it, such an incredibly cheap lot.

That means the money coming from readers - subscriptions and news stand sales - are going to be the big driver of revenue. There are two ways of getting this money: charging a small number of people a lot, or charging a lot of people relatively little. In other words, you have to balance real niche publishing (vehicles that address the interests of small audiences who badly want something) against mass market (getting less money per copy, but selling many).

To make niche publishing work, you'd have to charge a premium price and get the audience to pay. Think of it this way: you have a collection of four targeted articles in a month. Each runs 1500 words. If the articles' writers are going to get even $1 a word, that's $6000 in labor. A subscription base of 1000 would have to pay at least $6 a month, or $72 for a subscription, just to cover the writing labor, with no money for design, marketing and sales, and production. Roughly double that to cover other costs and leave some profit for the publisher, and consider whether the audience members will pay $140 or $150 a year. Are you providing something of such value that it becomes worth it to them? And are they the type of people who will recognize the value and appreciate it?

There are newsletters that get have these types of subscription fees, and some that charge much more. But I'm not sure writers are good candidates for being willing to pay that sort of premium. And so, the publications like WD fall back to the least common denominator, publishing articles for people who aren't in the business but wish they were. Get an audience of 20,000, and the money you need from an annual subscription of those four articles (at least distributed electronically) goes down to $7 or $7.50 - low enough that many people will take it on impulse.

I think this is an example of the types of calculations we're all going to have to start making. What is the audience for a particular piece of writing? What will they pay? How much does it cost to reach them? Quotidian business planning and analysis is as necessary as a firm grasp on grammar, and a darn sight more important than excellent spelling. You can always use a spell checker, but there's no such thing as a business checker.

Danger of Hourly Rates

I'm a big fan of smartly using hourly rates. You must know how much you need to make per hour, and viewing assignments in the light of your hourly minimums can be a good analysis of whether they are economically worth your time.

However, when it comes to financial business planning, looking only at hourly income can be limiting. Many writers grossly under estimate and misattribute the time they spend on assignments. You can't count just the writing. Time includes all the research. Maybe you did some interviews before and you think you can easily spin off another version of a story. The hourly rate on the new version may only seem good because you're pretending that there wasn't time and, so, cost associated with it. Those interviews took time to land, set up, and conduct. To not count that time is to literally subsidize the cost of producing the assignment out of your own pocket.

Another problem with looking only at hourly rates is that you forget that you're interested in making a certain amount of money each month. (You have done your basic financial planning, haven't you?) But if each of the assignments is relatively small, you'll need more volume to reach the income you need. For example, you might argue that 25 cent a word assignments are acceptable because you can do them quickly, making the hourly amount attractive. Yet, if you have to write 6K words at $1 per word to meet your monthly goal, you'd have to churn out 24K words at 25 cents a word - and that's a significant amount of work to nail down and complete in 30 days.

I've found that to do a good job of a given type of article at a certain length takes about the same amount of time, no matter what the pay level is. You could cut corners, but that affects the quality of what you do, which, in turn, affects the chance of your getting into better paying markets, because now your clips won't support what those markets want. Overall, the most efficient way to make more money is to get paid more per assignment, not to add on more assignments.

Passing on (Most) Low Paying Assignments

Writers often debate whether low paying assignments ever make sense. When you sort through the arguments made for possibly taking a low paying assignment, they usually fall into the following camps:

• good exposure for future work


• Foot in the door with a client


• Still offers acceptable hourly rate


• Chance to place a story you can't place elsewhere


• Creative opportunity you can't get elsewhere


• Chance to do a type of work you haven't before


• Chance to plug a book or other project


• Perks make it worthwhile


• Need the clip to break into a higher paying market


• Nothing else you could do with some writing


• It's good exposure


• Can use as paid research for other stories


• Money comes quickly and at a good time


• It will make me an expert on the topic

There is some potential value in any of theses reasons - on rare occasions. But before jumping into a low paying assignment, consider whether you are talking yourself into a bad idea. I've seen a lot of writers given reasons from here to Sunday and back why low-paying pubs made sense. But sometimes this is simply rationalization from people who are afraid to go after larger markets. So be sure to take a big dose of self-honesty and of realism to see if your reasoning really does hold up. Here are some questions to ask:

• Foot in the door with a client What are the chances that you'll actually be able to move up to better assignments from the client? Or will you be seen as a certain type of writer not suited to the quality needed for more lucrative work?


• Still offers acceptable hourly rate Will this distract you from better paying work that you need to meet your monthly goals?


• Chance to place a story you can't place elsewhere How important is it to write this particular story? Can this publication really offer the impact that you tell yourself you want?


• Creative opportunity you can't get elsewhere Will you be able to invest the time necessary to do a good job? Are you diverting your creative energies from more realistic projects?


• Chance to do a type of work you haven't before Are you getting diverted from the work you should be doing? Are you building a skill or knowledge area that actually will serve your business?


• Chance to plug a book or other project Are the readers the potential audience for this other project?


• Perks make it worthwhile If you did higher paying work, could you afford to pay for the perks yourself?


• Need the clip to break into a higher paying market Are there intermediate markets that might pay better and provide a more recognized clip?


• Nothing else you could do with some writing Might there be a better market worth waiting for? Are you spending time writing things that have little financial value?


• It's good exposure Will your potential clients actually see this writing?


• Can use as paid research for other stories How likely is it that you will sell other, better-paying stories on this topic? If there is a market, why not start with better paying publications?


• Money comes quickly and at a good time Are you getting distracted for the real issues of whether your overall client mix and financial processes are good?


• It will make me an expert on the topic Will you gain large amounts of specialized knowledge from writing one or two articles? How many clips do you need to write about the subject in higher-paying publications? (Hint on the last one - you shoudln't need more than two or three.)

I'm not suggesting that lower paying assignments never make sense. Just be skeptical when you're listening to a sales pitch - whether it's coming from someone else, or from inside your own head.

Tallying Your Yearly Financial Results, Part IV

Once you've completed your end of year review, it's time to look foward. As you look at what has worked and what hasn't, you want to consider what you need to change for next year:

• Do you need different clients?



• Should you consider more aggressive pricing?



• Would more efficient business processes help you make your goals more easily?



• Have you been too easy when planning annual goals?

Don't let the review be something that makes you feel good or bad. Make it useful and let it guide you to better business next year.

Tallying Your Yearly Financial Results, Part III

Once you've considered income and expenses, you can consider profit. This can be a tricky area. Although from one view your profit is revenue minus expenses, that's not entirely true. Ideally, a business creates a profit over and above the regular income requirements of its owner. If you've made at least your bottom line goals that cover all business, personal, and tax expenses, then congratulations - you can consider yourself in the realm of business profit. Anything above that is gravy that the business brings in. Consider keeping at least some of this out as working capital so that, if clients are late, you can float your needs without trouble.

Another area of profitability is the per client view. You should review how long it takes to do assignments overall and then on the average for each individual client, and multiple the revenue for those assignments by the time it took to do them. That will let you know what you actually make per hour, and not what you think you make per hour. Then, as part of your end of year planning, you can review how your clients stack up and see which ones might be worth replacing with ones that either are more profitable or that offer a chance for personal or professional expansion that might offset a lower than optimum level of profitability.

Tomorrow, looking forward.

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.

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.