Developing Perspective

00:00:00 ◼   ► Hello and welcome to Developing Perspective.

00:00:05 ◼   ► Developing Perspective is a podcast discussing news of note in iOS development, Apple and the like.

00:00:07 ◼   ► I'm your host, David Smith.

00:00:12 ◼   ► I'm an independent iOS developer based in Herne, Virginia.

00:00:13 ◼   ► This is show number 99, and today is Thursday, December 6th.

00:00:16 ◼   ► Developing Perspective is never longer than 15 minutes, so let's get started.

00:00:20 ◼   ► All right, so similar to what I did on Tuesday's show, I'm going to do a bit more of a practical show today.

00:00:23 ◼   ► I hope trying to get down in the weeds and really work through some topics in great detail.

00:00:29 ◼   ► That's kind of what I think I'll be doing for the next little while.

00:00:32 ◼   ► But today I'm going to be talking about, I guess you could call it the logistics or the

00:00:37 ◼   ► accounting or the sort of the business side of being an independent business.

00:00:43 ◼   ► And whenever you talk about this kind of a topic, it's always worth certainly saying,

00:00:47 ◼   ► A, this probably only applies to people who, or applies most closely to people who live

00:00:51 ◼   ► in the US.

00:00:52 ◼   ► A lot of the things I'm talking about are based on the way business works in the US.

00:00:56 ◼   ► Many of them may even be based on how business works in Virginia, where I live.

00:01:00 ◼   ► I'm neither your accountant nor your lawyer, but always wise to seek advice from people

00:01:04 ◼   ► like that or to be confident in your choices based on your own research before you do anything.

00:01:09 ◼   ► But this is kind of the experience I've had.

00:01:10 ◼   ► I've been doing this for quite a while, so hopefully some of the insights I've had and

00:01:15 ◼   ► kind of how I do it will be helpful.

00:01:17 ◼   ► So without further ado, so basically when I'm talking about the sort of the financial

00:01:22 ◼   ► side of a business.

00:01:27 ◼   ► It's at its core, is just about how you manage the money

00:01:28 ◼   ► of a business.

00:01:32 ◼   ► And at the end of the day, a business is all about money.

00:01:33 ◼   ► That's sort of what you're, you know, it's all about are you

00:01:38 ◼   ► able to make a profit from the work you do?

00:01:40 ◼   ► Are you able to generate more income for a smaller amount

00:01:43 ◼   ► of expense?

00:01:48 ◼   ► That's all business is at the end of the day.

00:01:49 ◼   ► Anything that gets more complicated or sophisticated or

00:01:49 ◼   ► thinks it's cooler or cleverer than that, it always makes me a little nervous.

00:01:52 ◼   ► Business is just about bringing in more money than you put out.

00:01:57 ◼   ► And so, this is kind of how you sort of approach that.

00:02:01 ◼   ► First, I've heard from a lot of people who listen to this show who are independents or

00:02:06 ◼   ► hobbyists, you could call them, or people who are thinking about getting into this.

00:02:10 ◼   ► And the first thing I want to say is that it's very important that you treat your business

00:02:14 ◼   ► like a business, because if you don't, no one else will.

00:02:19 ◼   ► And your accountant, your lawyer, the IRS, which is the Internal Revenue Service here

00:02:23 ◼   ► in the US, the people who come and collect the government taxes from you.

00:02:28 ◼   ► But I say that because one of the best advice I ever got when I was first starting out was

00:02:33 ◼   ► that you have to separate your personal finances from your business finances.

00:02:39 ◼   ► That is an absolute essential thing in order for you to be able to be successful in business

00:02:43 ◼   ► is to separate those two and treat your business like a business.

00:02:46 ◼   ► It has its own set of books, it has its own accounts, it has its own philosophy and schedule

00:02:52 ◼   ► and philosophy for managing its finances that may be different than what your personal goals,

00:02:58 ◼   ► finances, and structure would be.

00:03:03 ◼   ► Businesses have different goals, businesses have different needs, and so you have to treat

00:03:07 ◼   ► them separately.

00:03:08 ◼   ► And so the first thing you always have to do, and this is, I think generally would be

00:03:12 ◼   ► applicable, is that you really need to create a separate account for your business that's

00:03:17 ◼   ► separate from your personal.

00:03:18 ◼   ► If you're special, if you're starting out, it can seem a little silly, but it's one of

00:03:23 ◼   ► those things that I feel like was the most important thing in setting up the financial

00:03:28 ◼   ► sort of groundwork for my business was creating its own account.

00:03:32 ◼   ► And the primary reason for that is that it lets you very clearly see how you're doing.

00:03:36 ◼   ► say you create, opening a business, opening a business account, or even just a separate

00:03:41 ◼   ► personal account, the exact details don't matter as much as there being a separate place.

00:03:46 ◼   ► What that allows you to do is, all the money that goes into that is income for your business.

00:03:51 ◼   ► All the money that comes out is expense for your business.

00:03:54 ◼   ► You can very easily take care of that, and you can understand it and you can look at

00:03:57 ◼   ► it.

00:03:58 ◼   ► Say you seed your business with whatever it is, $100, $1,000, depending on exactly what

00:04:03 ◼   ► you need.

00:04:04 ◼   ► You seed your business with a certain amount of money.

00:04:07 ◼   ► And then the amount you are above or below that is how well your business is doing at

00:04:10 ◼   ► that time.

00:04:11 ◼   ► Very simple, very straightforward.

00:04:12 ◼   ► It's not a lot of accounting, bookkeeping, fancy things like that.

00:04:16 ◼   ► It's just how much money is in the account.

00:04:19 ◼   ► And that's something that I found was very helpful early on to help me kind of wrap my

00:04:24 ◼   ► head around it.

00:04:25 ◼   ► And the second thing that really, really helps is that it makes bookkeeping so much easier

00:04:31 ◼   ► because all I had to do initially...

00:04:33 ◼   ► At this point now I have someone who does my books for me and I have an accountant.

00:04:36 ◼   ► When I was starting out I was doing it all myself, just an Excel spreadsheet even.

00:04:40 ◼   ► Basically, it was very easy for me to run my books, to categorize my income, do all

00:04:46 ◼   ► those things, because every financial transaction that in any way was related to the business

00:04:53 ◼   ► of my business was in that ledger.

00:04:57 ◼   ► That made my life so much easier.

00:04:58 ◼   ► I just go through, here's all the deposits, here's all the debits.

00:05:03 ◼   ► And that's my books, that's my balance sheet.

00:05:06 ◼   ► And it was so much easier to do that

00:05:08 ◼   ► than when I first started out, it was just something,

00:05:10 ◼   ► I ran through my own personal stuff,

00:05:12 ◼   ► but it was a mess and definitely wanted to avoid that.

00:05:15 ◼   ► So definitely, what I would strongly recommend

00:05:16 ◼   ► is you create a checking account

00:05:18 ◼   ► and probably get a credit card for your business.

00:05:21 ◼   ► Like I said, depending on where you are,

00:05:24 ◼   ► it will depend on how easy it is

00:05:25 ◼   ► to create your own business entity, an LLC, or an S corp,

00:05:29 ◼   ► or all the things that you can do.

00:05:30 ◼   ► I don't really want to get into that.

00:05:31 ◼   ► really up to your own situation and financial planning and things.

00:05:36 ◼   ► But however it is, even if you're just a sole proprietor, if you're just doing your business

00:05:40 ◼   ► on your own as yourself, create separate accounts for your business that lets you manage and

00:05:46 ◼   ► more clearly have visibility into your financial situation.

00:05:51 ◼   ► Second, and this is perhaps just as important, is the importance of keeping good records

00:05:57 ◼   ► for your business.

00:05:58 ◼   ► It's one of those things that your business is, especially from a tax compliance perspective,

00:06:04 ◼   ► but just generally, the level of care you need to do with record keeping is, I feel,

00:06:10 ◼   ► just higher than it would be in your own personal finances.

00:06:12 ◼   ► No one really cares where you had lunch and how much you spent and so on.

00:06:18 ◼   ► But for businesses, and especially for tax compliance reasons, it's very important to

00:06:22 ◼   ► keep track of all your receipts, all your records, have all that in place so that you,

00:06:26 ◼   ► When it comes to your taxes at the end of the year, when you're kind of looking through

00:06:30 ◼   ► things, you have really clear documentation for this.

00:06:34 ◼   ► Certainly it really helps that a lot of things are, you know, I do online now, and so I just,

00:06:39 ◼   ► you know, I have a collection of receipts and things, and for me, like I've said, someone

00:06:44 ◼   ► else does my books for me, and so I just email her all of the receipts whenever I get them,

00:06:48 ◼   ► with a little category, with a one or two word description of what it was, if it isn't

00:06:52 ◼   ► obvious.

00:06:53 ◼   ► And that helps me sort of try to collect all the receipts.

00:06:55 ◼   ► The goal is that for any transaction that the business has, you have a record of exactly

00:06:59 ◼   ► what that is, when it happened, and often who was there, what it was about.

00:07:04 ◼   ► And that really helps with your tax compliance when you're trying to justify a business expense.

00:07:10 ◼   ► The whole concept of a business expense is a funny thing.

00:07:13 ◼   ► I definitely hear a lot of people who have this mindset, "Oh, I want to start a business

00:07:19 ◼   ► because then everything's a business expense," as though somehow that makes everything free.

00:07:24 ◼   ► It certainly helps and the government picks up a portion of a lot of the expenses I incur

00:07:29 ◼   ► as a business, which is great and I appreciate that.

00:07:34 ◼   ► But it's sort of like mortgage interest.

00:07:37 ◼   ► It's not free, that's tax deductible.

00:07:39 ◼   ► It's cheaper.

00:07:41 ◼   ► The way that works out practically is if I make a purchase for something that's business related,

00:07:44 ◼   ► say I purchase a thousand dollars worth of widgets,

00:07:50 ◼   ► the government is essentially going to be paying for a portion of that.

00:07:55 ◼   ► And in the sense of a portion of that's not counted against my taxable income.

00:07:59 ◼   ► And so the government is chipping in part of that.

00:08:03 ◼   ► And so it's better to think about it as a discount.

00:08:07 ◼   ► Essentially everything is whatever, 30% off, 40% off,

00:08:09 ◼   ► depending on what your tax rates are.

00:08:12 ◼   ► But that's how you think about it.

00:08:15 ◼   ► It's a discount.

00:08:16 ◼   ► It's not like the business is buying it so it's free,

00:08:17 ◼   ► or the business is buying it so that you can go crazy.

00:08:17 ◼   ► It's still your money. You're just purchasing that at a discount.

00:08:22 ◼   ► That's just something that a lot of people I hear, you'll get to the end of a year and be like,

00:08:27 ◼   ► "Oh, man, I got this extra money I don't want to have to pay tax on."

00:08:30 ◼   ► And that's perhaps one of the most silliest things you can hear.

00:08:33 ◼   ► It's sort of the old phrase, buying something because it's cheap that you don't need is no deal at all.

00:08:35 ◼   ► Because something's on sale doesn't mean that it's worth buying unless you would have bought it otherwise.

00:08:42 ◼   ► And so that's the other thing you want to keep in mind, is that your business is still your money.

00:08:47 ◼   ► or it's you and your partner's money that you're spending.

00:08:50 ◼   ► And so be mindful of that.

00:08:51 ◼   ► And don't get too carried away of thinking,

00:08:53 ◼   ► oh, it's a business expense.

00:08:54 ◼   ► It's a business expense.

00:08:56 ◼   ► It's still coming out of your pocket to some degree.

00:08:58 ◼   ► And then next, I just want to talk

00:09:00 ◼   ► about budgeting and salary and this type of thing.

00:09:04 ◼   ► So for a while, I used to think I really

00:09:06 ◼   ► needed to be careful about budgeting.

00:09:07 ◼   ► And ultimately, I found that it didn't really

00:09:09 ◼   ► fit with the way I work and the way I think

00:09:12 ◼   ► to have a very detailed budget.

00:09:13 ◼   ► Some people, that works great.

00:09:14 ◼   ► Some people, it doesn't.

00:09:16 ◼   ► You want to find what works well with you.

00:09:18 ◼   ► But the real goal of a budget is to have

00:09:20 ◼   ► a sense of where you are on a cash flow

00:09:23 ◼   ► basis from my perspective.

00:09:26 ◼   ► My goal is to say in a typical month, I spend x.

00:09:31 ◼   ► In a typical month, I make y.

00:09:33 ◼   ► And I'm trying to make sure that those two offset so

00:09:35 ◼   ► that I have a profit and that that profit is going

00:09:37 ◼   ► to be roughly what I can do.

00:09:40 ◼   ► And so budgeting for me, I find, is

00:09:41 ◼   ► most helpful in the sense of helping

00:09:43 ◼   ► to determine if something is worth,

00:09:45 ◼   ► if I can afford to do something.

00:09:47 ◼   ► If I'm thinking about doing an advertising campaign,

00:09:48 ◼   ► or I'm thinking of buying a new device,

00:09:50 ◼   ► I can look at it and say,

00:09:52 ◼   ► how's the business doing compared to

00:09:54 ◼   ► the money I want to make?

00:09:56 ◼   ► And this leads into probably the second,

00:09:58 ◼   ► or I guess now it's up to the third,

00:10:00 ◼   ► key thing that I find,

00:10:01 ◼   ► is as soon as you can,

00:10:03 ◼   ► if you're trying to do a business at all seriously,

00:10:05 ◼   ► if you want this to replace your income,

00:10:06 ◼   ► if you want it to be your main job,

00:10:08 ◼   ► I think it's very, very wise

00:10:10 ◼   ► to start paying yourself a salary from your business.

00:10:13 ◼   ► rather than just sort of doing the somewhat simplistic version of,

00:10:18 ◼   ► you get to the end of the month and you just write yourself a check for whatever is left at the end of the month,

00:10:23 ◼   ► every month or something like that. I used to do that and that was kind of the way I used to do.

00:10:29 ◼   ► I first worked it out when I was a business, but I found that on the personal side,

00:10:33 ◼   ► that was very stressful and challenging to have these massive fluctuations. If I have a good month,

00:10:37 ◼   ► you know, a lot of apps are selling or whatever, you know, maybe it's the Christmas rush and so you get a little burst in sales.

00:10:43 ◼   ► And then you get this nice check, okay great,

00:10:45 ◼   ► we're doing our personal stuff based on that,

00:10:49 ◼   ► and you have a few dry months,

00:10:50 ◼   ► and things get tricky and tight,

00:10:53 ◼   ► and it's more difficult to balance that.

00:10:56 ◼   ► I definitely found that it was a lot less stressful

00:10:58 ◼   ► being independent when I started to just take a salary

00:11:01 ◼   ► from the business and to gradually build up

00:11:04 ◼   ► a buffer in the business to pay me that salary.

00:11:08 ◼   ► And obviously that's still my money in the business,

00:11:10 ◼   ► and I could take it out at any time,

00:11:12 ◼   ► But by leaving it in the business and paying it out to myself in a measured way, it sort

00:11:19 ◼   ► of smooths out all the ups and downs of the business and makes my life much simpler. It

00:11:25 ◼   ► makes things like budgeting much easier on the business side because I know what my expenses,

00:11:29 ◼   ► from a personnel perspective, including my own costs, are going to be every month. And

00:11:33 ◼   ► that's what I'm basing it on.

00:11:35 ◼   ► And then I think what I do is quarterly, I take out any extra profit that's left above

00:11:40 ◼   ► and beyond what I need to operate the business, a reasonable cushion and margin.

00:11:44 ◼   ► I take out quarterly as a bonus, if that makes sense.

00:11:48 ◼   ► But I've just found that to be a tremendously helpful thing for simplifying my expenses

00:11:54 ◼   ► and simplifying the difficulty on a personal side of being self-employed.

00:12:00 ◼   ► As soon as you can do that, I'd highly recommend it.

00:12:03 ◼   ► It's one of those things that certainly takes a little discipline.

00:12:06 ◼   ► And really what you're looking for is you're hoping to find one of those nice bigs, and

00:12:13 ◼   ► capitalize on a big spike in the business.

00:12:16 ◼   ► Most of these businesses that I talk about here, selling apps or doing consulting, are

00:12:20 ◼   ► very bursty.

00:12:21 ◼   ► There tends to be good months and bad months.

00:12:23 ◼   ► And so whenever you get a good month, try and leave something in the business, and leave

00:12:27 ◼   ► something in the business, and leave something in the business every time you have a good

00:12:30 ◼   ► one, and then you'll be taking it out evenly over the course of the year.

00:12:35 ◼   ► And I said that really, really, really helps.

00:12:38 ◼   ► Especially on a personal side with your spouse or family life,

00:12:42 ◼   ► it's sort of like you have a job again.

00:12:44 ◼   ► It's sort of like you just have a regular job

00:12:46 ◼   ► that you're making an income from.

00:12:47 ◼   ► And you can plan accordingly, and you

00:12:48 ◼   ► can work out your mortgage, and you

00:12:50 ◼   ► can do all those things in a way that makes a lot more sense.

00:12:53 ◼   ► For me, I found it was really difficult

00:12:55 ◼   ► if I had one of these big burst months,

00:12:58 ◼   ► or I have a consulting client who finally catches up

00:13:01 ◼   ► on their invoices or something, and I'm

00:13:04 ◼   ► this large influx of money, to treat that as though it

00:13:09 ◼   ► essentially needs to last a couple of months, if it wasn't actually paid to me that way.

00:13:15 ◼   ► So that's kind of how I do it. I'm trying to think of other parts of this that are important to keep in mind.

00:13:20 ◼   ► Probably the last one is just to make sure that you--

00:13:26 ◼   ► and it gets back to what I was saying at the beginning--that if you don't treat your business like a business, no one else will.

00:13:31 ◼   ► will. And what I mean by that is that you have to take your finances very seriously

00:13:36 ◼   ► when you're a business. It's a different level of responsibility. It's a different level

00:13:39 ◼   ► of accountability. And often the amount of money that you're talking about is more than

00:13:45 ◼   ► what you would typically have to deal with if you were a salaried employee. A lot of

00:13:48 ◼   ► the overhead costs, the benefits, expenses, taxes and stuff your employer was paying for

00:13:52 ◼   ► you that you never saw, it's your own company, you're responsible for that. And the classic

00:13:58 ◼   ► example is you're going to be responsible for, you know, sort of payroll taxes and stuff

00:14:03 ◼   ► often, depending on your situation, whatever. But you know, there's often times when you'll

00:14:08 ◼   ► have money in the business that isn't actually yours, that'll ultimately be owed to the government

00:14:12 ◼   ► or ultimately owed to some regulatory body or whatever. And you have to be very careful

00:14:17 ◼   ► as you don't get sloppy about that and take money out that turns out wasn't actually yours.

00:14:22 ◼   ► All right, so that's it for today's show. As always, if you have questions, comments,

00:14:26 ◼   ► concerns or complaints, I'm on Twitter @_davidsmith, I'm on AppNet @davidsmith, and otherwise I

00:14:31 ◼   ► hope you guys have a great weekend, happy coding, and I'll talk to you next week. Bye.