Most of us on a journalism career path have little or no experience with the financial management of a news organization. This article is aimed at those of you who are thinking about, or already are, operating a journalism startup and feel that you need to know more about the topic.
While you might not know a lot about accounting, you are journalists, so you know how to ask questions, investigate topics, process what you have learned, organize the material and present it in a clear, understandable fashion. You know how to tell a story. With accounting and financial reports, you tell a story with numbers. A financial report answers the question, “How's business?” The response is a story for you, your employees, your investors or your financial supporters.
Monthly expense budgeting
Let's start by creating a monthly expense budget. A budget is a road map. It tells us where we are going and how we are going to get there. It also marks each milestone of the journey.
Start by making a list of all the things you are spending money on each month, or that you will need to spend. Let's say you don't know what the figure should be for web hosting, or how much to pay a freelancer. Make like a journalist and network: do some research among businesses of a similar size and type.
Monthly expenses might include salaries, employee benefits (estimate 25-35% of salary), freelance expenses, website hosting, web designers, technology consultants, subscriptions to software, internet access, digital storage, rent and utilities expenses (only when you have an established location), etc.
After you make that list, ask yourself, “Are these expenses aligned with our objectives and priorities?”
For example, are you spending a lot of money on web design when there are free tools available to produce an acceptable level of quality? That is, can you produce a minimum viable product that satisfies your audience at this stage of your development without incurring an exorbitant cost? Do you really need an office or can your team meet in a home or a public place with wifi?
Google provides a free online budget spreadsheet. The link is here.
Now put those numbers into a budget spreadsheet. The sooner you start using spreadsheets, the better. They can do the math for you, allow you to sort and organize information easily and produce professional-looking reports that show your financial situation in detail. Google offers a free budget spreadsheet that will help you organize your information. Just follow the instructions and enter the projected expenses each month for at least one year.
Now that you have estimated expenses, you can start to understand the concept of cash flow. Cash flow is the measure of how much you are spending vs. how much money you are bringing in each month or year. Cash flow tells you how fast you are burning the fuel (money) you have in the tank, and how fast you are replacing what you have burned.
I suggest to entrepreneurs that they build their revenue budget (use the same spreadsheet above) around the amount they need to cover expenses. Start using the term "revenues" to mean the total money that you bring in, because “income,” for accountants and business people, means profit after expenses.
On the sample Google budget spreadsheet, let's suppose you enter a beginning balance of $100,000 from the savings of all the co-founders and contributions from family and friends. And let's say your first-year budget calls for one-time expenses of $10,000 (new laptops, smartphones, and audio-visual tools for the team) plus monthly expenses of $5,000. By the end of the year, you will have only $30,000 left, enough to survive for six months, unless you find new revenue sources or reduce projected expenses (100,000 minus 10,000 minus 60,000).
This expense budget lets you then see the challenge you face. You need to start working from the very beginning to find other revenue sources. Or perhaps you can stretch your initial investment further by reducing expenses that don't align closely with your product objectives.
Where should you look for sources of funding? You can find information about potential revenue sources for quality journalism in these posts from journalism.co.uk, the Knight Center and News Entrepreneurs.
Don't assume you can generate significant revenue from standard digital advertising, which was once thought to be sustainable. It is rarely a robust revenue source for a startup. Here's why. Web publishers charge advertisers a rate based on 1,000 page views or impressions (known as CPM, cost per mille). While top news sites can command CPMs of about $8, industry experts say that it is more typical for news sites to get about US$.50 to US$1 per thousand page views (CPM), depending on the type of audience a publisher like you can deliver.
Let's say you were able to charge advertisers US$1 for every thousand page views (or CPM). You would have to generate 5 million page views a month to generate $5,000 a month, the amount of your monthly expenses in the model above. (Of course, you can charge a higher CPM if you can deliver advertisers a preferred audience with greater wealth or education.)
Don't despair. People who support your objectives and mission of public service can be persuaded to contribute even if you do not have a huge audience, but you do have to have an audience, it should be growing and it should be engaged.
Accrual vs. cash accounting
As you learn about the financial side of running a business, you may run across the concept of accrual accounting vs. cash accounting. Cash accounting is like keeping a checkbook, and that is the method we have used with the sample budget above. You record cash inflows and payments as they occur. As a publisher, I felt accrual accounting gave a truer picture of our financial position and cash flows than a cash accounting system would have.
The pros and cons of both are discussed in this article. To quote from it: “With the accrual method, income and expenses are recorded as they occur, regardless of whether or not cash has actually changed hands.” So if a client buys an ad, and the ad is published, the revenue is recorded at that time, even though the client has not yet paid. Likewise, if your business pays salespeople on commission, that expense is recorded in the month the sale was completed, not when the commission is actually paid.
Once you get beyond the basics, you might find you enjoy how accounting helps you look beneath the skin of the enterprise, like an X-ray, to see what's going on inside. You can make better decisions based on facts rather than guesses. You can identify trends and take advantage of the positive ones while reducing exposure to the negative ones.
With spreadsheets, you can easily project the future by changing the variables and assumptions about revenues and expenses. An organization I work with used detailed spreadsheets successfully to develop revenue projections and attract outside investment.
These tools can help you make your news business more sustainable and identify opportunities for innovation and growth.
James Breiner is a bilingual consultant (English-Spanish) on digital journalism and newsroom leadership with three decades of experience on the editorial and business sides of newspapers. His specialty is entrepreneurial journalism, or new financial models for digital media. He is currently visiting professor of Communication at the University of Navarra in Pamplona, Spain.