PUBLISHED FEBRUARY 2017
by Deb Vanasse, Staff Reporter, IBPA Independent
If you’re aiming to start a business, publishing has great appeal. With a manuscript and access to print-on-demand and e-publishing technologies, you have a product and, in theory, access to a large market. Capital investments are minimal, and there’s the tantalizing prospect of a breakout book that yields significant rewards.
But it’s no secret that a fair number of publishing start-ups flounder, many because their proprietors fail to properly organize their businesses. Conversely, those that prosper typically implement sound management practices from the start, then adapt as their circumstances change.
Begin with a Plan
As president and CEO of Kamen & Company Group Services, Kevin Kamen is a media consultant who helps publishers determine which practices add the most value to their enterprises. He also suggests strategies for growth. Regarding the need for a business plan, Kamen doesn’t mince words. “Publishers think that if they produce these wonderful books, people are going to read them,” he says. “But if you don’t have a game plan that’s workable and within budget, you’ll screw up your entire company.”
In what Kamen likens to a roadmap for creating revenue, a publisher’s business plan articulates strategies and tactics that will enhance distribution and readership. The US Small Business Administration (SBA) offers an online tool that guides entrepreneurs step-by-step toward development of a three- to five-year plan. Specific to publishing ventures, the Midwest Book Review offers advice for formulating a small press business plan on its website. For professional assistance in developing a viable plan, publishers can hire the services of a media consultant.
From the outset, publishers need to choose a business structure that best suits their situation—sole proprietorship, limited liability company (LLC), cooperative, corporation, partnership, or S corporation. For details on these options, check the SBA website. Your choice of structure will have legal and tax implications, so the advice of an attorney and accountant can also be helpful.
As the company grows, the structure may need to change. Light Messages managing partner Betty Turnbull explains that her company began as a sole proprietorship: Wally Turnbull, doing business as (DBA) Light Messages Publishing. “We maintained this simplest of structures for years, and it worked well,” Turnbull says. “But as we expanded and began to bring on new authors, we consulted with professionals and realized that we needed more protection and a more formal structure. So we became an LLC in 2014.”
The change was fairly simple, she says—a matter of generating the proper paperwork and swapping out tax IDs. “The (LLC) structure works well for us,” she adds. “It’s simple to maintain, lends credibility to our press, and gives us important liability protection.”
At first blush, publishing would seem to be all about books. But the success of a publisher depends in large part on the people who create, market, and manage its products. “What a publisher needs to do is have really great editorial people working for them and a marketing and business department with talented people who can monitor the revenue coming in, as well as the costs of doing business,” Kamen says. A company might launch as a one-person show, but the need for specialists leads sooner or later to the dilemma of how to best establish and formalize working relationships with the people who contribute to the production, marketing, and distribution of products, as well as those who manage day-to-day operations.
On the editorial side, publisher Peter Goodman of Stone Bridge Press notes that until you have enough work to occupy a part- or full-time employee, you’ll likely want to contract out those tasks. “You may need different kinds of editors—copy, developmental, proofing—or cover artists or book designers, and since these are very different skills, different people will necessarily be providing those services,” he explains. “One of these tasks you may take on yourself because that’s what you’re good at and enjoy. But don’t think you can or should do everything yourself.”
Turnbull also favors contract employees for the production side of the business. “Because most books have a very clear timeline with specific tasks and projects, we’ve found that we work best with a small group of trusted independent contractors,” she explains. “This allows us, for example, to pull from the talents of several designers and proofreaders depending on the needs of each of our titles. We couldn’t afford to keep three designers and four or five proofreaders on staff, but by using independent contractors, we can tap into a larger brain trust.”
For legal and tax purposes, it’s important to understand the distinction between an independent contractor, hired to complete a specific task within a defined timeline, and an employee, whose work is ongoing and open-ended. The SBA website delineates these two workforce options, and the IRS independent contractor or employee guide details the tax implications of both scenarios.
Opting to use the services of independent contractors may have copyright implications. “When hiring outside designers and illustrators especially, be sure ownership of their work is stated clearly in a written contract,” Goodman suggests. “Unless you stipulate otherwise, they own their work, even if you pay for it and use it.”
For those tasks relevant to the daily operations of a publishing business, employees may be the best option. In particular, sales and marketing functions are best handled in-house, Goodman advises. “These positions benefit from continuity, repetition, and forming personal attachments between the employee and the vendor or book reviewer,” he explains.
When you contract with an outside publicist, the intellectual property generated—contacts, addresses, relational data—belongs to the publicist, not to the publisher. But with an employee, each new launch benefits from previous marketing efforts. “If you’ve got someone in-house doing your publicity, all the goodwill they build up keeps getting leveraged back into new projects, which makes the employee increasingly efficient and cost-effective,” Goodman says.
Accounting and Royalties
In any business, numbers must be crunched. From the outset, Goodman recommends that publishers invest in expert advice or enroll in a basic accounting course in order to understand the accounting principles that apply to production, sales, inventory, and royalties. “It is very complicated,” he says, “so give yourself time and don’t invent stuff as you go with kludgy workarounds.”
Dedicated accounting programs for book publishing may be beyond the means of most small presses, he notes, but QuickBooks will suffice as long as it’s customized in a way that makes sense for the business. For example, Stone Bridge calculates the expenses for each book as sub-items instead of linking them to expense accounts. “This is nothing that appears in any QuickBook manual,” Goodman notes, “but it enables us to track expenses book by book and to generate other useful reports.”
At Light Messages, QuickBooks is also the accounting software of choice. “We like it because it allows us to create specific categories to meet our business model,” Turnbull explains. “You can set up a budget and keep track of how you’re doing with specific categories.” She also lauds the ease of setting up QuickBooks custom reports, tracking income and expenses, downloading online banking data, and reconciling accounts within the platform.
Despite the program’s advantages, Goodman and Turnbull agree that it’s of little use for generating royalty statements. To accomplish that task, Stone Bridge conducts mass exports of data and then enters it piecemeal into spreadsheets, author by author and book by book. “There are royalty programs you can buy that will make this task simpler, but you still need to feed them the correct data,” Goodman says. Companies with in-house tech talent can design their own programs for tracking and calculating royalties (see page 14).
Publishers can do themselves a favor by keeping their royalty structures simple, Goodman suggests. “Pay versus net receipts, and don’t mess with fancy formulas,” he says. “Also, pay annually if you can, or every six months. No one wants to spend a lot of time doing accounting. Remember, too, that as a publisher, you may not get paid for 90 days or more by your distributor, so if you are on a monthly pay schedule, you may be paying out from earnings way before you have the actual revenue to do so.”
Using QuickBooks, publishers can generate W2s, 1099s, and sales tax reports, but for filing state and federal returns, Goodman recommends a professional. “It won’t be easy, but try to find a tax professional with experience in book publishing—not just manufacturing, but royalties, rights, foreign sales, and backup withholding, advances as assets, and so on. This is not a job for just anyone,” he says.
A professional can also advise publishers regarding their liability for sales tax and for use tax on review and comp copies. Paid against manufacturing costs, a use tax is owed by the end user, which, in the case of comp and review copies, is the publisher, Goodman explains.
As a company expands, so does the complexity of managing multiple projects. “When you have to use multiple spreadsheets in a day to keep track of your timelines and titles, or when you find yourself constantly playing catch-up because once again you missed a moving piece of the constantly shifting publishing puzzle, it’s time to switch to a project management system,” Turnbull says.
Light Messages opted for Podio, a system of customizable templates and workspaces. “This means you can completely tailor it to your needs as a publisher,” Turnbull says. “It also means you have to build it from scratch. The task seemed daunting to us at first, but, in the end, we are so glad we put in the time. The relatively few hours we invested have more than paid off in better coordination, fewer errors, and the ability to take on more titles because we all work more efficiently.”
Through their customized system, Light Messages manages the tasks and timelines associated with each author and title. They also use the system to track marketing campaigns, and they rely on the chat feature to message independent contractors at work on each project.
Every business needs to comply with state and federal laws covering worker’s compensation and unemployment insurance. Depending on the size of the company and the nature of the books published, business and liability coverage may also be a good idea.
Business insurance typically covers certain losses, property damage, and the general liability associated with doing business. Goodman recommends pursuing additional riders to cover inventory in off-site warehouses.
Specialized publisher’s liability coverage covers expenses associated with plagiarism suits. Though it’s more difficult to procure, Goodman recommends it particularly for companies that publish on topics likely to generate complaints, such as health and wellness advice, financial advice, investigative journalism, and contemporary photography.
The work of getting organized doesn’t end with the start-up phase. Like the individuals who manage them, businesses will have their ups and downs, Kamen points out. Periodic assessments are essential, he says—on an annual basis or, even better, every 90 days. In these assessments, publishers should evaluate the effectiveness of their organizational strategies and adapt necessary changes.
By getting organized and staying organized, publishers can avoid the short-sightedness that causes others to fail. “A lot of publishers don’t take on the mission in a very responsible way, especially dealing with finances and thresholds,” Kamen says.
In contrast, successful publishers attend to every facet of the business—distribution, marketing, funding, competition, talent, new methodologies, websites, printing costs, and, of course, editorial content. Publishing may be more complex than they first expected, but by getting organized from the outset and fine-tuning along the way, they equip themselves for challenge.
Deb Vanasse is co-founder of 49 Writers and founder of the author co-op Running Fox Books. She is the author of 17 books. Among her most recent are Write Your Best Book, a practical guide to writing books that rise above the rest, and What Every Author Should Know, a comprehensive guide to book publishing and promotion, as well as Wealth Woman: Kate Carmack and the Klondike Race for Gold.