0:00:00Hello and welcome to Developing Perspective.
0:00:05Developing Perspective is a podcast discussing news of note in iOS development, Apple and the like.
0:00:07I'm your host, David Smith.
0:00:12I'm an independent iOS developer based in Herne, Virginia.
0:00:13This is show number 99, and today is Thursday, December 6th.
0:00:16Developing Perspective is never longer than 15 minutes, so let's get started.
0:00:20All right, so similar to what I did on Tuesday's show, I'm going to do a bit more of a practical show today.
0:00:23I hope trying to get down in the weeds and really work through some topics in great detail.
0:00:29That's kind of what I think I'll be doing for the next little while.
0:00:32But today I'm going to be talking about, I guess you could call it the logistics or the
0:00:37accounting or the sort of the business side of being an independent business.
0:00:43And whenever you talk about this kind of a topic, it's always worth certainly saying,
0:00:47A, this probably only applies to people who, or applies most closely to people who live
0:00:51in the US.
0:00:52A lot of the things I'm talking about are based on the way business works in the US.
0:00:56Many of them may even be based on how business works in Virginia, where I live.
0:01:00I'm neither your accountant nor your lawyer, but always wise to seek advice from people
0:01:04like that or to be confident in your choices based on your own research before you do anything.
0:01:09But this is kind of the experience I've had.
0:01:10I've been doing this for quite a while, so hopefully some of the insights I've had and
0:01:15kind of how I do it will be helpful.
0:01:17So without further ado, so basically when I'm talking about the sort of the financial
0:01:22side of a business.
0:01:27It's at its core, is just about how you manage the money
0:01:28of a business.
0:01:32And at the end of the day, a business is all about money.
0:01:33That's sort of what you're, you know, it's all about are you
0:01:38able to make a profit from the work you do?
0:01:40Are you able to generate more income for a smaller amount
0:01:43of expense?
0:01:48That's all business is at the end of the day.
0:01:49Anything that gets more complicated or sophisticated or
0:01:49thinks it's cooler or cleverer than that, it always makes me a little nervous.
0:01:52Business is just about bringing in more money than you put out.
0:01:57And so, this is kind of how you sort of approach that.
0:02:01First, I've heard from a lot of people who listen to this show who are independents or
0:02:06hobbyists, you could call them, or people who are thinking about getting into this.
0:02:10And the first thing I want to say is that it's very important that you treat your business
0:02:14like a business, because if you don't, no one else will.
0:02:19And your accountant, your lawyer, the IRS, which is the Internal Revenue Service here
0:02:23in the US, the people who come and collect the government taxes from you.
0:02:28But I say that because one of the best advice I ever got when I was first starting out was
0:02:33that you have to separate your personal finances from your business finances.
0:02:39That is an absolute essential thing in order for you to be able to be successful in business
0:02:43is to separate those two and treat your business like a business.
0:02:46It has its own set of books, it has its own accounts, it has its own philosophy and schedule
0:02:52and philosophy for managing its finances that may be different than what your personal goals,
0:02:58finances, and structure would be.
0:03:03Businesses have different goals, businesses have different needs, and so you have to treat
0:03:07them separately.
0:03:08And so the first thing you always have to do, and this is, I think generally would be
0:03:12applicable, is that you really need to create a separate account for your business that's
0:03:17separate from your personal.
0:03:18If you're special, if you're starting out, it can seem a little silly, but it's one of
0:03:23those things that I feel like was the most important thing in setting up the financial
0:03:28sort of groundwork for my business was creating its own account.
0:03:32And the primary reason for that is that it lets you very clearly see how you're doing.
0:03:36say you create, opening a business, opening a business account, or even just a separate
0:03:41personal account, the exact details don't matter as much as there being a separate place.
0:03:46What that allows you to do is, all the money that goes into that is income for your business.
0:03:51All the money that comes out is expense for your business.
0:03:54You can very easily take care of that, and you can understand it and you can look at
0:03:57it.
0:03:58Say you seed your business with whatever it is, $100, $1,000, depending on exactly what
0:04:03you need.
0:04:04You seed your business with a certain amount of money.
0:04:07And then the amount you are above or below that is how well your business is doing at
0:04:10that time.
0:04:11Very simple, very straightforward.
0:04:12It's not a lot of accounting, bookkeeping, fancy things like that.
0:04:16It's just how much money is in the account.
0:04:19And that's something that I found was very helpful early on to help me kind of wrap my
0:04:24head around it.
0:04:25And the second thing that really, really helps is that it makes bookkeeping so much easier
0:04:31because all I had to do initially...
0:04:33At this point now I have someone who does my books for me and I have an accountant.
0:04:36When I was starting out I was doing it all myself, just an Excel spreadsheet even.
0:04:40Basically, it was very easy for me to run my books, to categorize my income, do all
0:04:46those things, because every financial transaction that in any way was related to the business
0:04:53of my business was in that ledger.
0:04:57That made my life so much easier.
0:04:58I just go through, here's all the deposits, here's all the debits.
0:05:03And that's my books, that's my balance sheet.
0:05:06And it was so much easier to do that
0:05:08than when I first started out, it was just something,
0:05:10I ran through my own personal stuff,
0:05:12but it was a mess and definitely wanted to avoid that.
0:05:15So definitely, what I would strongly recommend
0:05:16is you create a checking account
0:05:18and probably get a credit card for your business.
0:05:21Like I said, depending on where you are,
0:05:24it will depend on how easy it is
0:05:25to create your own business entity, an LLC, or an S corp,
0:05:29or all the things that you can do.
0:05:30I don't really want to get into that.
0:05:31really up to your own situation and financial planning and things.
0:05:36But however it is, even if you're just a sole proprietor, if you're just doing your business
0:05:40on your own as yourself, create separate accounts for your business that lets you manage and
0:05:46more clearly have visibility into your financial situation.
0:05:51Second, and this is perhaps just as important, is the importance of keeping good records
0:05:57for your business.
0:05:58It's one of those things that your business is, especially from a tax compliance perspective,
0:06:04but just generally, the level of care you need to do with record keeping is, I feel,
0:06:10just higher than it would be in your own personal finances.
0:06:12No one really cares where you had lunch and how much you spent and so on.
0:06:18But for businesses, and especially for tax compliance reasons, it's very important to
0:06:22keep track of all your receipts, all your records, have all that in place so that you,
0:06:26When it comes to your taxes at the end of the year, when you're kind of looking through
0:06:30things, you have really clear documentation for this.
0:06:34Certainly it really helps that a lot of things are, you know, I do online now, and so I just,
0:06:39you know, I have a collection of receipts and things, and for me, like I've said, someone
0:06:44else does my books for me, and so I just email her all of the receipts whenever I get them,
0:06:48with a little category, with a one or two word description of what it was, if it isn't
0:06:52obvious.
0:06:53And that helps me sort of try to collect all the receipts.
0:06:55The goal is that for any transaction that the business has, you have a record of exactly
0:06:59what that is, when it happened, and often who was there, what it was about.
0:07:04And that really helps with your tax compliance when you're trying to justify a business expense.
0:07:10The whole concept of a business expense is a funny thing.
0:07:13I definitely hear a lot of people who have this mindset, "Oh, I want to start a business
0:07:19because then everything's a business expense," as though somehow that makes everything free.
0:07:24It certainly helps and the government picks up a portion of a lot of the expenses I incur
0:07:29as a business, which is great and I appreciate that.
0:07:34But it's sort of like mortgage interest.
0:07:37It's not free, that's tax deductible.
0:07:39It's cheaper.
0:07:41The way that works out practically is if I make a purchase for something that's business related,
0:07:44say I purchase a thousand dollars worth of widgets,
0:07:50the government is essentially going to be paying for a portion of that.
0:07:55And in the sense of a portion of that's not counted against my taxable income.
0:07:59And so the government is chipping in part of that.
0:08:03And so it's better to think about it as a discount.
0:08:07Essentially everything is whatever, 30% off, 40% off,
0:08:09depending on what your tax rates are.
0:08:12But that's how you think about it.
0:08:15It's a discount.
0:08:16It's not like the business is buying it so it's free,
0:08:17or the business is buying it so that you can go crazy.
0:08:17It's still your money. You're just purchasing that at a discount.
0:08:22That's just something that a lot of people I hear, you'll get to the end of a year and be like,
0:08:27"Oh, man, I got this extra money I don't want to have to pay tax on."
0:08:30And that's perhaps one of the most silliest things you can hear.
0:08:33It's sort of the old phrase, buying something because it's cheap that you don't need is no deal at all.
0:08:35Because something's on sale doesn't mean that it's worth buying unless you would have bought it otherwise.
0:08:42And so that's the other thing you want to keep in mind, is that your business is still your money.
0:08:47or it's you and your partner's money that you're spending.
0:08:50And so be mindful of that.
0:08:51And don't get too carried away of thinking,
0:08:53oh, it's a business expense.
0:08:54It's a business expense.
0:08:56It's still coming out of your pocket to some degree.
0:08:58And then next, I just want to talk
0:09:00about budgeting and salary and this type of thing.
0:09:04So for a while, I used to think I really
0:09:06needed to be careful about budgeting.
0:09:07And ultimately, I found that it didn't really
0:09:09fit with the way I work and the way I think
0:09:12to have a very detailed budget.
0:09:13Some people, that works great.
0:09:14Some people, it doesn't.
0:09:16You want to find what works well with you.
0:09:18But the real goal of a budget is to have
0:09:20a sense of where you are on a cash flow
0:09:23basis from my perspective.
0:09:26My goal is to say in a typical month, I spend x.
0:09:31In a typical month, I make y.
0:09:33And I'm trying to make sure that those two offset so
0:09:35that I have a profit and that that profit is going
0:09:37to be roughly what I can do.
0:09:40And so budgeting for me, I find, is
0:09:41most helpful in the sense of helping
0:09:43to determine if something is worth,
0:09:45if I can afford to do something.
0:09:47If I'm thinking about doing an advertising campaign,
0:09:48or I'm thinking of buying a new device,
0:09:50I can look at it and say,
0:09:52how's the business doing compared to
0:09:54the money I want to make?
0:09:56And this leads into probably the second,
0:09:58or I guess now it's up to the third,
0:10:00key thing that I find,
0:10:01is as soon as you can,
0:10:03if you're trying to do a business at all seriously,
0:10:05if you want this to replace your income,
0:10:06if you want it to be your main job,
0:10:08I think it's very, very wise
0:10:10to start paying yourself a salary from your business.
0:10:13rather than just sort of doing the somewhat simplistic version of,
0:10:18you get to the end of the month and you just write yourself a check for whatever is left at the end of the month,
0:10:23every month or something like that. I used to do that and that was kind of the way I used to do.
0:10:29I first worked it out when I was a business, but I found that on the personal side,
0:10:33that was very stressful and challenging to have these massive fluctuations. If I have a good month,
0:10:37you 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.
0:10:43And then you get this nice check, okay great,
0:10:45we're doing our personal stuff based on that,
0:10:49and you have a few dry months,
0:10:50and things get tricky and tight,
0:10:53and it's more difficult to balance that.
0:10:56I definitely found that it was a lot less stressful
0:10:58being independent when I started to just take a salary
0:11:01from the business and to gradually build up
0:11:04a buffer in the business to pay me that salary.
0:11:08And obviously that's still my money in the business,
0:11:10and I could take it out at any time,
0:11:12But by leaving it in the business and paying it out to myself in a measured way, it sort
0:11:19of smooths out all the ups and downs of the business and makes my life much simpler. It
0:11:25makes things like budgeting much easier on the business side because I know what my expenses,
0:11:29from a personnel perspective, including my own costs, are going to be every month. And
0:11:33that's what I'm basing it on.
0:11:35And then I think what I do is quarterly, I take out any extra profit that's left above
0:11:40and beyond what I need to operate the business, a reasonable cushion and margin.
0:11:44I take out quarterly as a bonus, if that makes sense.
0:11:48But I've just found that to be a tremendously helpful thing for simplifying my expenses
0:11:54and simplifying the difficulty on a personal side of being self-employed.
0:12:00As soon as you can do that, I'd highly recommend it.
0:12:03It's one of those things that certainly takes a little discipline.
0:12:06And really what you're looking for is you're hoping to find one of those nice bigs, and
0:12:13capitalize on a big spike in the business.
0:12:16Most of these businesses that I talk about here, selling apps or doing consulting, are
0:12:20very bursty.
0:12:21There tends to be good months and bad months.
0:12:23And so whenever you get a good month, try and leave something in the business, and leave
0:12:27something in the business, and leave something in the business every time you have a good
0:12:30one, and then you'll be taking it out evenly over the course of the year.
0:12:35And I said that really, really, really helps.
0:12:38Especially on a personal side with your spouse or family life,
0:12:42it's sort of like you have a job again.
0:12:44It's sort of like you just have a regular job
0:12:46that you're making an income from.
0:12:47And you can plan accordingly, and you
0:12:48can work out your mortgage, and you
0:12:50can do all those things in a way that makes a lot more sense.
0:12:53For me, I found it was really difficult
0:12:55if I had one of these big burst months,
0:12:58or I have a consulting client who finally catches up
0:13:01on their invoices or something, and I'm
0:13:04this large influx of money, to treat that as though it
0:13:09essentially needs to last a couple of months, if it wasn't actually paid to me that way.
0:13:15So 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.
0:13:20Probably the last one is just to make sure that you--
0:13:26and 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.
0:13:31will. And what I mean by that is that you have to take your finances very seriously
0:13:36when you're a business. It's a different level of responsibility. It's a different level
0:13:39of accountability. And often the amount of money that you're talking about is more than
0:13:45what you would typically have to deal with if you were a salaried employee. A lot of
0:13:48the overhead costs, the benefits, expenses, taxes and stuff your employer was paying for
0:13:52you that you never saw, it's your own company, you're responsible for that. And the classic
0:13:58example is you're going to be responsible for, you know, sort of payroll taxes and stuff
0:14:03often, depending on your situation, whatever. But you know, there's often times when you'll
0:14:08have money in the business that isn't actually yours, that'll ultimately be owed to the government
0:14:12or ultimately owed to some regulatory body or whatever. And you have to be very careful
0:14:17as you don't get sloppy about that and take money out that turns out wasn't actually yours.
0:14:22All right, so that's it for today's show. As always, if you have questions, comments,
0:14:26concerns or complaints, I'm on Twitter @_davidsmith, I'm on AppNet @davidsmith, and otherwise I
0:14:31hope you guys have a great weekend, happy coding, and I'll talk to you next week. Bye.