There have been a number of recent blog posts about the doom and gloom of being an indie developer especially in the iOS world. The theme of these posts are basically the same. A developer spends some time building an app. The app is released into the wild, and sales are much lower than expected. Some developers give up while others will try again.
The problem as I see it after reading these doom and gloom posts is that the developer has no strategy for building and running a business beyond releasing an app. Releasing an app should not be your only plan for building a business. Releasing an app is just one part of being an indie developer. Another part, a much bigger part of being an indie developer, is being a business owner. And as a business owner you must have a plan consisting of short and long term strategies for building and running your business.
Have a Plan
Running a business, even as an indie, requires much more than building and releasing an app. For starters, you need a business plan. Even if it’s not something you write down, you need to know what your plans are for making money and surviving the dry spells. Your plan should change and evolve over time as your business changes and grows.
When I started White Peak Software, I had no plan. I was fed up with others controlling my life and career. I knew I wanted to control those things, so I started my company. In some ways taking control of my life and career was my initial business plan but that didn’t help pay the bills. And at the rate I was going using that plan I knew my company would not last twelve months with me as a full time employee.
After six months of having no real plan or strategy for building my business, I hired a small business coach. A small business coach is like a life coach or therapist for your business. The coach doesn’t necessarily tell you what to you do. Instead the coach gives you the steps and guidance needed to help you figure out what your short term and long term plans are for your company.
For three months, my small business coach and I met once a week to talk about my business. During these talks it became clear to me that I wanted to write and sell my own software, but more importantly I wanted to write software that I could be proud of, software that I could call my baby. These talks gave me short and long terms goals for my company, and a plan for how I will make it happen.
With the help of my coach I came up with a 3 month plan, 6 month plan, 1 year plan, 5 year plan, and a 10 year plan. I’m coming up on the end of the 10 year plan, and I admit I’m not likely to reach my goals from my 10 year plan. But that fine because before I had these plans the likelihood that I would still be in business for myself in 2014 looked grim.
Have a Structure
Another key component to running your own business is having the right company structure for your situation. Should you operate your business as a sole proprietor, an LLC, an S-Corp or even a C-Corp? Picking the right structure for your situation is key if you want your company to last. The company structure effects how and when you get paid, how and when taxes are paid, how much money you can stash away for retirement, and much more.
Talk to an accountant when deciding on a company structure. An accountant will look at your current financial situation, your short and long plans, and help you decide what company structure best suits your situation. And like your business plan, your company structure might change over time. It might be best for your business to start out as a sole proprietorship, then when revenues hit a certain amount change to an S-Corp. Or maybe your company should be a C-Corp on day one. Your accountant can help you decide what is best for you.
I made the mistake of setting up the company structure for White Peak Software without talking with an accountant. White Peak Software is an S-Corp, and I made that choice without consulting anyone else. Turns out I might have been better off setting up White Peak Software as a C-Corp, but even after all these years I still haven’t converted my company.
While being an S-Corp would not have been my accountant’s first choice for my business, it has worked out fine. Still, I wish I had gotten advice on the best company structure for my business when I first got started.
Speaking of my accountant…
Hire an Accountant
You need an accountant, a really good one! A really good accountant is the virtual CFO of your company. Your accountant should do more than just file your taxes for you. You accountant should provide you with advice and direction on managing cash flow, handling and paying off debt, and all other financial areas of your business (and personal life).
The one thing that sticks in my mind after reading Jared Sinclair’s post about Unread’s first year is that 40% of his first years net revenue went towards self-employment taxes. I don’t know Jared’s particular situation or the type of company structure he was operating under, but I believe a really good accountant could have brought the amount he paid in taxes down sufficiently, maybe even down to 0%.
For the first three years I spent working full time for White Peak Software, the company took huge losses. Now this didn’t mean revenue wasn’t coming in - revenue was certainly coming in. It just meant company expenses were greater than the income…on paper. “On paper” is key here.
When I started my company I had a bedroom dedicated as my company office. White Peak Software paid me rent for the space, and this counted as a company expense. Did I actually have more money because my company was paying me rent? No. But on paper the purpose of that money impacted how much, or how little, I paid in taxes.
As my accountant likes to say, “Tax evasion is illegal. Tax avoidance is not.” Because the company took a loss those first three years, I was able to avoid paying incoming tax.
Now I don’t know Jared’s particular situation, but from reading that one blog post I can’t help but wonder, had Jared had the right company structure in place and a really good accountant, could he have kept 100% of that net revenue. It’s possible and that would have given him a better chance at staying indie longer.
This is why it’s important to have a really good accountant. And the earlier you get your accountant involved in your business the better.
Always Seek Advice From Others
My accountant isn’t the only person who helps advise me on financial matters. I also have a financial advisor who helps oversee my money.
My financial advisor is responsible for managing my retirement plan and other investments, but he is also involved with what is going on with my business. He provides a kind of “check and balance” with financial decisions and suggestions my accountant will make. If, for example, my accountant suggests a strategy for saving money or paying off debt, I run the suggestion by my financial advisor to get his feedback. And I make sure my accountant and financial advisor talk at least one a year to make sure everyone is on the same page.
A Tip That Has Saved My Ass More Than Once
And speaking of financial advice, one piece of advice that has saved White Peak Software on more than one occasion is having a business line of credit with my bank. My accountant suggested this years ago. I was against the idea because 1) at the time I was debt free and had no need for the line of credit, and 2) I saw it as an easy opportunity to potentially go into debt. But White Peak Software would not be in business today if not for this outstanding piece of advice.
During long dry spells when cash isn’t flowing, I have access to a large sum of money that will help me weather the storm. However, I should note that I must be very diligent to pay back the borrowed money as quickly as possible once cash is flowing again, and this is sometimes not an easy thing to do. So having a business line of credit may or may not be a good thing for you and your business.
It’s About More Than the App
Being an indie developer, nay a business owner is not for everyone. It takes a lot of hard work. It takes planning and requires not only strategies for making money but strategies on how to survive when the money isn’t coming in. For the software developer turned business owner, writing the app is the easiest part, but it’s about more than the app. To survive, you need to give the business side of your company just as much attention as you give your app. Your company’s survival depends on it.