20 September, 2006
In my last entry, I talked about practical business advice dealing with business partners. Some people started to bring up issues of money, so I figured I should talk a bit about that.
Keep in mind that a lot of business planning is pretty grim by nature. You want to keep your business running, but it will almost always be teetering on the edge. You don’t go into game development for the money; if you do, you’re a fool. Therefore, you need to be extra careful and extra considerate about money.
So, here’s some practical bits of advice about money, after the break.
1. Hire an accountant (and a lawyer)
Seriously, you do not want to have to deal with this stuff yourself. Filing corporate tax forms makes smart people cry. Even filing an additional schedule for a Sole Proprietorship can be a hassle. Get an accountant to help you with the tax filing. The accountant will guarantee his or her work, so if there’s a screwup they will have to cover it. Trust me, you don’t want to have to handle this stuff yourself.
Likewise, get a good lawyer. Even if it’s just to review contracts and provide boilerplate contracts for you to use, it can save you a lot of heartache down the line.
But, do not use these professionals as an excuse not to understand the details. Get to know the important bits about tax issues for your company. Learn about Intellectual Property and how it affects your company. Even if you’re not going to be filing tax forms or filling out a patent application yourself, understanding the basics can help. These professionals are there to do the busy work so you do not have to. They also know the details so you can learn from them.
And, the best way to save money on these is to make a friend in these fields. Someone in your family may know an accountant or a lawyer. If so, you might be able to get some light services, such as simple contract reviews, on the cheap or even free. Even if you have to hire someone unknown, let them know about your company. They may appreciate having a game developer as a client and may not charge you as much as they do the ruthless capitalists they have to deal with most of the time. Some firms I have worked with will even do things like some file intellectual property claims for free, understanding that if you need to enforce that claim you will hire them to help you do so.
As I once heard, the lawyer protects your company from everyone, except for the IRS. The accountant helps protect you from the IRS.
2. Cash flow is vital!
If you do not have the cash to pay for something, that is bad. Always plan ahead and be prepared to change plans if needed. Prioritize your expenses and stick to them. Taxes must always be paid, ALWAYS. Payroll is next most important because it sucks to not pay the people that try to make you money; plus, there are laws supporting them. For most other bills, things can be flexible. Most places won’t shut things down immediately if you’re a bit late. But, try not to get into a habit of being late. A nice letter to someone you work with directly can be nice if you’re a bit late. That goes a long way towards smoothing over a situation when you have to pay a bit late.
Get a good bookkeeping software package to track your money. I use QuickBooks, but there are some other highly recommended programs out there that you may find more to your liking. Some people are able to use a simple spreadsheet and claim that works fine, more power to them. Just make sure you track your income and expenses using the method your chose and be detail-orientated. Work with your accountant to come up with a good system to help you keep things organized for your own convenience. Some programs also have tools for tracking payments and expected income, which can help you manage your cash flow.
But, before you start spending money when “the check is in the mail”, remember that…
3. Business moves slow
UPS had the slogan “moving at the speed of business.” To which I would respond, “That slow?!?”
The simple fact is that business moves slow. Large companies can make a lot of money by delaying payment as long as they can. Small companies are in the same situation you are and may not have the cash to pay exactly when you expect. Prepare for some payments to be late. Prepare for some of of your debt to never be paid. “Bad debt” is common in small business, so always hedge your bets if you can. Be wary of exclusive arrangements because there’s always the possibility that someone won’t pay for what they say they will. Or, they may delay the payment, inadvertently of course, just enough to put you in a bad situation.
Likewise, it will take you a while to sign contracts. When we were buying Meridian 59 from 3DO, everything was set in place: we were named a price, we didn’t haggle, and we were ready to take possession immediately. Yet, it took almost a year for the contract to be negotiated and signed. Eventually our lawyer stepped in and pressed 3DO to finish the deal. (Which goes back to bit number 1 above, having a good lawyer can help a lot!) So, don’t bank on things getting done quickly.
4. Live within your means
This is true for the business and for yourself. On a personal level, understand that you won’t be making six figures and adjust your lifestyle appropriately. Get a dependable car with good gas mileage instead of something flashy or expensive. Be prepared to live somewhere you can get cheap rent. You might have to put up with roommates for a few more years. Jeff Tunnell wrote a great blog post about Five Foundational Steps To Surviving As A Game Developer; his first bit of advice is “Right Size Your Life”, and that is vital advice. It’s something I didn’t do very well, and I’m still living with large credit card debt I’m struggling to pay off as an indie.
Likewise, make sure your significant other realizes what’s going on. My wonderful soulmate works hard at her boring jobs to let me do my game thing. She understands that it is an investment, and she supports me in what I do. I’m very, VERY lucky in this regard. Make sure that your significant other is aware of the sacrifices that will be required. Consider the well-being of your family and yourself before you get neck-deep into running a company.
As I said, “live within your means” applies to your business as well. It might be cool to go get the high-end $3,500 Alienware notebook computers, but do you really need that? Can someone on your team put together a few desktop systems and save money? Can you get a used laptop to check email and write documents while on the road? Can you work from home instead of getting posh office space? Perhaps rent some office space by the hour if you have to entertain clients? Take a serious look at your expenses. At Near Death Studios, we only have four main expenses: taxes, bandwidth, accountant, and salaries (including a payroll company). Sometimes we use our lawyer, but only when we really need to. We all work from home, and we save money when we can. As a result, we’re able to stay profitable even with a very modest income.
5. Remember, time really is money
One of the hardest things about starting up a company is focus. It’s easy to fire up WoW or EQ2 or some other game and spend hours that you should have spent working. Or, maybe your blog takes up considerable time. (Not mine, of course, I provide it as an educational reference!) Keep in mind that the minutes you fritter away doing other things is time you’re not spending on your project. This just delays your project in the long term, and reduces your chances for success. Don’t hesitate to roll up your sleeves and jump in.
Keep this in mind for other things, too. The accountant and lawyer will help save you time in the long run if you use them well. They can spend the time to file taxes and handle the other details it would take you too long to deal with. It can save you money in the long run if you have the money to spare at the time.
Of course, don’t be foolish and take this to the extremes. If your bank account is empty and rent is due, don’t hesitate to take some paying work to make sure you don’t have to worry about having a roof over your head. And, don’t forget to have some fun. Loading up WoW on occasion isn’t a sin, but just make sure you’re doing it to relax rather than to simply avoid doing work. After all, you have to keep up with the market, right? Finally, remember you can invest some time for future payoff. For example, having a blog can be a great way to promote yourself and your ability. At the Austin conference, many people said they read my blog and enjoyed it. (Now they can prove that assertion by posting a comment here! ;) But, it has helped me become a bit better recognized in the industry, and potentially land some consulting work. So, it’s time well invested in my case.
Feel free to post your own advice.