When you start selling your writing, you are going into business so it pays to get into good business habits straightaway. Then they’ll already be in place as your sales grow.
Decide on a business structure
In the UK, the choices are sole trader, partnership or limited company. Like many authors, I’m a sole trader, but which is right for you will depend on your individual circumstances and your future plans so explore the alternatives before you make your decision.
Start a separate bank account
This is essential if you set up a partnership or limited company. But even if you decide to be a sole trader, it’s much easier to keep business and personal finances separate if you have two bank accounts.
Tell the tax man what you’re doing
You have a legal duty to report all taxable income you make so you’ll need to tell the Inland Revenue and complete the appropriate tax return.
These don’t have to be complicated, but they do need to exist. You’ll need them to keep an eye on your cash flow and to report your income and expenses to the Inland Revenue. Make sure you keep all your receipts and invoices. Experience has taught me that stuffing them willy-nilly into a carrier box bag results in a muddle and that ring binders tend to spring open at inconvenient times. So I use a lever arch file to store my receipts and invoices, punching holes directly into the large ones and sticking the smaller ones onto bigger sheets of paper.
I use cardboard file dividers to create sections in the lever arch file: drawings (that’s the money I take out of the business), bills, invoices, sales receipts and petty cash. I number the papers in each section and record that number by the relevant entry in my accounts so I can match the two together easily if I need to. I also keep bank statements and credit card statements and reconcile them regularly (which means checking that what the statement says matches your other records). Don’t skip reconciling – it’s a good way to spot mistakes.
At the end of your accounting year, you have to add up all your income and expenses to work out your profit or loss and complete your tax return. But don’t throw away the records when you’ve finished. You need to keep your accounts for several years in case there is a query or tax investigation in the future.