If your publishing company is like most new businesses, insufficient capitalization will be one of your greatest problems. Raising the money you need to pay for the production and promotion of your book or books will take you into the world of finance. If you already had the money, you would not be reading this.
The money is there, and it is available. However it won’t come looking for you.
Where to Look for Funds
Gustav Berle, author of The Instant Business Plan, believes there are four general categories of money sources:
A. YOR (Your Own Resources)
B. FAF (Friends And Family)
D. Other lenders
, from government programs to credit cards.
According to the Wall Street Journal, most entrepreneurs spend their own money to start their businesses. Forty-eight percent rely on savings, 29% borrow from banks, 13% shake down their friends, 4% look for individual investors, less than 1% strike deals with venture capital firms or government agencies, and 5% are successful with other sources.
Some people advise the use of “OPM” (Other People’s Money) rather than your own. Then if your business goes bust and you lose all the borrowed funds, you still have your own money in reserve. But locating OPM takes some searching and using it sometimes has drawbacks.
Consider, for instance:
Just like marriages, partnerships have a poor track record. Partners are rarely “silent.” They want to know why the book is not selling better, why it is not in the airport bookstore, why you are attending a book fair, etc. You will spend more time on explaining the publishing business to your partner(s) than you will on promotion. Many agree that “Do not take in partners on your book” is a good rule.
The Small Business Administration.
Since mid-1994, publishers have been eligible for both guaranteed loans (from banks) and direct loans. Look in the telephone directory under United States Government to contact the SBA for loan information.
Here are three new loan programs from SBA:
A. SBA Microloan Program.
Usually under $10,000 and through a community development corporation rather than a bank.
B. SBA Small Loan Program.
$50,000 or less. See SBA Form 4 Short Form. SBA Guarantees 90% of the loan.
C. SBA Low Doc Program.
$100,000 or less. SBA Guarantees 90% of the loan.
For obvious reasons, banks don’t search for loan applicants in the publishing industry. They like “going” firms with upbeat balance sheets. Even armed with a detailed market-research report on your product, you may find that you can’t get an appointment with the loan officer. A stack of books is not considered good collateral to a bank; if you defaulted, they would not know how to turn the books back into money. If you ask for money to fund a publishing business, the bank probably won’t be interested.
However, many people have been successful in acquiring money by asking for a “vacation” loan. Basically, there are two ways to borrow money from a bank: “term loans” (which are normally used to finance purchases such as cars, paid back monthly, and limited to 36 months); and “signature loans” with interest at the prime rate plus about 5% (which run for a period of months and are theoretically payable at the due date but often renewed). You may need collateral to borrow money from a bank, perhaps a second mortgage. If you have enough real and personal property, you will be able to get the money on your signature alone. Don’t think small; large amounts are often easier to borrow.
All banks are not the same. Stop in at several and pick up pamphlets on their loan policies. Take the brochures home and compare them.
Some people advocate altering your W-4 Form as a way to have the IRS lend your withheld taxes back to you. If you still have a regular day job and a lot of money is being withheld from each paycheck, you may claim an exemption from withholding by making out a new W-4 form for your employer (early in the year). If you are in the 30% tax bracket, this is like getting a 50% raise. Of course, you must be serious about your business, keep good records, and take deductions. If the paperwork is done correctly, you should be able to spend and deduct the formerly withheld money and “zero-out” at tax time. Once you are working for yourself full-time, you will file estimated tax forms rather than use W-4’s.
Theseare often used to raise money. As a book goes to press, send out a brochure and a cover letter to all who might be interested in it, and offer to pay the postage for a pre-publication order (but never discount the price of a new book). Emphasize that the book is on the press. Say you won’t cash checks until the book is shipped. Mention a shipping date that allows a month or two for snafus in the schedule. Make another special offer to dealers, such as free freight on carton lots. (For details on pre-publication sales, see Para Publishing’s Special Report Book Marketing.)
Book club or premium sales.
When they are made before a book is printed, these sales often bring in enough money to pay for the entire first print run. (See the Special Report Book Marketing for more information on selling to book clubs and selling premiums to corporations.)
Some small publishers team up with other publishers who have similar books but serve other markets. In co-publishing, you may share the printing bill, with each publisher taking part of the print run and each paying the printer directly. Alternatively, you can ask the co-publisher to put up the money and offer to buy books from them at printing cost plus 10%, making sure (if you are a self-publisher) that you also get your author’s royalty.
Although selling stock in your business is another way to raise money, it is better to sell stock in a book. And if you can find someone who will risk an investment, you can find someone who will give you a straight loan at a good rate of interest.
This involves an investor lending you money on a specific product in return for a royalty on every book sold. You do not have to give up any equity in your company; you do not have to pay any debt until money comes in from sales and there are no liabilities on your balance sheet. Under these conditions, the investor’s risk is high, though, so you will have to pay higher “royalty” interest and you will want to limit the term to the first printing. You do not want an investor around for life.
are available from many foundations for worthwhile publishing projects. See the contacts in the accompanying list titled “Raising Money Resources.” Most of the grants and fellowships are for fiction and poetry. Many are sizable but there is a lot of paperwork.
will often lend on a book. I went to my parents for money ($15,000) on my first book in 1972. The second manuscript was ready before I could pay off the first loan. It was 1973, the book was on hang gliding; the topic was hot and the window of opportunity was moving. My parents were not interested in loaning again so I approached my brother for $10,000. Seven months later, I paid both loans off in full. Since New York publishers move slowly, I had a year and a half without competition and had sold over 35,000 copies by the time the first competitive book hit the shelves. The hang gliding book allowed me to quit my parachute design job, establish my publishing company, move back to California, and buy a home in Santa Barbara. Without the loans from my family, I would have missed the window of opportunity.
Bear Kamoroff found seven friends to participate in the first and second printings of his best-seller Small Time Operator. He reasoned that it would be easier to borrow $1,000 from seven friends than $7,000 from one friend.
Why be selfish? Why not let your friends share in a project and maybe even ask your doctor and lawyer if they know people who might like to invest. If you do borrow from friends or relatives, make the same presentation to them that you would to a bank. Talk figures and do not get emotional. Then write a loan contract and pay them the 10-15% interest that you would pay the bank. Put the loan on a business basis and keep the friendship.
Avoid relying on this very expensive money. Maxing out the plastic is not recommended.
Credit unions, retirement plans, the Veterans Administration (if appropriate), and the Farm Home Loan Association are among the other places you might look for money. There is no one answer for every publishing situation. Only one or two of the above suggestions may apply to you. And all of them assume you have a good salable book or books to begin with.
Dan Poynter is the author of the classic “Self-Publishing Manual,” as well as many other books and special reports for publishers. This piece is condensed from his “Special Report on Raising Money to Publish Books.” See http://ParaPub.com for more information.
Raising Money Resources
Many of the books and magazines listed below are available in libraries, especially large libraries. Browse creatively and ask librarians for other suggestions. Selected organizations, consultants, and Web sites are listed as well.
The Catalog of Federal Domestic Assistance
Corporate Fund Raising Directory
Financial Feasibility in Book Publishing
by Robert Follett
Grants and Awards Available to Writers
Literary Market Place
Money Sources for Small Business
by William M. Alarid
National Fund Raising Directory
Small Time Operator
, How to Start Your Own Small Business, Keep the Books, Pay Your Taxes & Stay Out of Trouble! by Bernard Kamoroff, C.P.A.
The Chronicle of Philanthropy
Fund Raising Management
The National Endowment for the Arts
, 1100 Pennsylvania Avenue NW, Washington, DC 20506. Tel: 202/682-5400. Web site: http://arts.endow.gov.
State financial programs tend to be less risk conscious, and you can get a list of them if you send a SASE to Bill Alarid, Puma Publishing Co., 1670 Coral Drive, Santa Maria, CA 93454. Tel: 805/925-3216.
The Foundation Center.
Write to: 79 Fifth Avenue, NY, NY 10003-3076. Tel: 212/620-4230; Fax: 212/691-1828. Web site: http://www.fdncenter.org.
Bill Alarid, Tel: 805/925-3216. He wrote the book Money Sources.
Stephen Kerr. Address: 300 Carlsbad Village Drive, Bldg. 108A-305, Carlsbad, CA 92008. Tel: 888/615-9727; 760/730-3400. E-mail: email@example.com. Web site: http://www.bizmark.net/.Business evaluations, buying and selling.
Tom Welch, CPC. Address: 335 W. Olmos Drive, San Antonio, TX 78212-1959. Tel: 210/737-7022. E-mail: firstname.lastname@example.org. Web site: http://www.moneywords.com. Financing Specialist, offers a variety of tools to help you achieve business success.
Eugene Schwartz, Tel: 914/679-8867. E-mail: EugeneGS@aol.com. Business, financial, and product development for publishers in all media. Business plans for raising money.
Venture Capital Institute
The National Association of Small Business
Investment Companies (NASBIC)
A service that offers business tools to educate
entrepreneurs who need capital
The Red Herring