The parts in this series so far are How to Write an Ebook: The Guide, Why It’s a Good Idea, Choose a Sellable Topic, Preparing to Write, Writing Tips from a Non-Writer, Editing and Naming and Formatting.
Disclaimer: I’m not an accountant, a lawyer, a tax expert or any other professional of the legal type. This is not financial or legal advice I’m offering, just my own $.02.
So, now you need to set yourself up to sell the ebook you've just created. There are a bunch of things you'll want to be sure to have in place before you actually start making money. Some of these you may already have in place, so I won't go into great depth about them but if all of these are in order before you launch, you'll be grateful.
I will assume that most of you have already completed the steps to start you own business, but I thought I'd throw in these first few resources for those who might not. I didn't do things in this order, but if I had to do it all over again, this is how I'd go about it given the laws in my state. Check how things work in your state before you dive in.
Got a business address?
You'll be asked for a business address in lots of places, so having an address to use other than your home address is a good idea. You can apply for a P.O. Box online (price depends on size and length of contract but it's pretty reasonable), find a box at a UPS Store (or similar store) or use another offsite address where you can collect your business mail.
As for a name to go with your business address, if you don't already have one, verify that you can use your own name at first and add your business name later. The other option would be choose a business name right at the beginning, but if you do, be sure to do a search with your county/state first so that you don't use a name that's already taken (see the next step).
Establish your business.
Here's the first place you can use that new address. Consult your local Small Business Association (SBA) office for rules and regulations regarding business setup in your state. (Sorry for the U.S.-centric info here. No offense to my non-U.S. readers.)
Consider getting an EIN.
This will eliminate you having to use your Social Security Number on business-related documents. You can get one at any time but here's a chart to know when you definitely need one. You can apply for one easy peasy and get it instantly here.
Get a business bank account.
This is just a good idea no matter how you make business income, online or otherwise.
Think about income tax.
It's likely you will have to pay income taxes on your ebook income. Keeping records from the start will make tax time a lot less stressful. Also, check with an accountant or estimate what your income tax will be and set aside that amount for taxes. Find out if you will need to pay quarterly estimated taxes (here are the dates they are due — might be good to mark these dates on your calendar). You might also sign up for eftps to make your estimated tax payments online. You can also pay by phone. I do our own taxes using TurboTax which makes personal and business taxes easy. Good resource: Tax Tips for Bloggers
Determine whether you'll need to charge sales tax.
Your state may require you to charge sales tax on your ebooks (mine does) so make sure you check on this before you start selling. I was a bit late in the game to this so I had to do some catch-up which wasn't so fun. To find out whether or not you'll have to charge sales tax, find your state here.
Set up a PayPal account.
It's hard to imagine doing business online these days without a PayPal account. So many people use PayPal and are familiar with how it works. I use a Premier Account which is free. (Here are all the types of accounts.) A Premier account works fine unless you are working with others who will also need access to the PayPal account, in which case you should go with Business.
Link your bank account to your PayPal account.
I believe this step is outlined in the setup process in PayPal, but make sure you link your business bank account to your PayPal account so you can transfer funds between the two.
Don't keep money in your PayPal account.
This is sort of a sidenote, but I don't keep money in my PayPal account. Not only would it be goofy since my business checking account earns interest and PayPal doesn't, but PayPal has been known to freeze funds if they suspect suspicious activity (definable by them), which can lead to major headaches (here's an interesting post on that topic).
Set up a way to track your money. Then TRACK IT.
Use whatever works for you, but the main thing is to be able to track what goes in and what goes out. Many people use QuickBooks for their business accounting. You might also try Outright which automatically links to your PayPal account. (Outright used to be a free service but they are now moving to a paid-for model.) Or, you can use a simple ledger (any spreadsheet will do). Personally, I use a simple spreadsheet ledger to keep track of income and expenses and I use something called Budget (for Mac; also available for Windows) to balance bank accounts and I LOVE it. It's a computerized version of the envelope system.
Decide how you'll spend your money before you make your first sale.
When you start making income, it's easy to be dazzled by the numbers and forget that much of that income is already earmarked. I suggest you make a list of your expenses related to the ebook sales. For me, they are:
- Affiliate Payments
- PayPal fees (these are automatically deducted from each transaction).
- E-junkie fees. (I'll talk about how to set up e-junkie a future post, but for now, know that it'll cost you to use the service. Thankfully, it's only $5 a month if you have less than 10 digital products.)
- Set aside income taxes.
- You might also consider taking some off the top for things like tithe or retirement.
In order to keep a handle on your finances, I highly recommend you map out a spending plan before the money starts coming in. This will help you maintain a realistic and smart approach to your income and will prevent you from finding yourself in a predicament when a payment comes due.
Anyone else wanna chime in here? What'd I miss?
Read the next post in this series: How to Write an Ebook: Pricing.
Disclosure: There are affiliate links in this post.
Other posts in this series
- How to Write an Ebook
- How to Write an Ebook: Why It's a Good Idea
- How to Write an Ebook: Choose a Sellable Topic
- How to Write an Ebook: Preparing to Write
- How to Write an Ebook: Writing Tips from a Non-Writer
- How to Write an Ebook: Editing and Naming
- How to Write an Ebook: Formatting
- How to Write an Ebook: Setting Up Accounts
- How to Write an Ebook: Pricing
- How to Write an Ebook: Distribution
- How to Write an Ebook: Creating a Sales Page (or Site)
- How to Write an Ebook: Preparing for Affiliates
- How to Write an Ebook: Taking care of your affiliates
- How to Write an Ebook: Paying your affiliates
- How to Make Your Ebook Available on Kindle & Nook
Thank you so much for all your advice!
I had one question. How do you pay your affiliates? Do you pay via paypal or cut a check? I'm curious as to how you organize the payments.
Thanks!
E-junkie makes paying affiliates via PayPal very easy so stay tuned. I'll explain exactly how.
Thanks for your quick reply! I look forward to hearing bout e-junkie. I have never heard of it….which is why I'm here!
You could also look into Rapid Action Profits. You won't have to actually issue any affiliate payments. It just alternates who gets paid depending on your commission structure. It does cost a little bit up front though. Ejunkie does do this like Amy said though, so I'd wait to see her instructions first.
I second not keeping money in PayPal. My clients use that to pay me, and I've definitely had issues with them freezing my account for absolutely no reason!
No, not fun at all.
Hi, Amy! I just want to thank you so much for your website! It has helped me tremendously!
Do you use Budget just for your business account? Or do you also use it personally? I looked at it just a little bit — and I'm trying to figure out what kind of software to use for my new website. Anyway, I was just wondering how that works!
We've been using Budget for years for our personal bookkeeping so when I started the business, it was easy to add the business account. So, we do use it for both and it works great, but for 2011, I also created a simple ledger (a Google Docs Spreadsheet) in which I set up a few basic columns: date, description, income, expense. It's working sorta like a running tally. Anytime someone pays me, I enter it as income and any time I pay money out, it goes in the expense column. Simple. I found last year that because I transfer things out of PayPal as quickly as I can and because I'm getting paid from so many sources, all the payments and transfers between PayPal and my business account can get a bit crazy to keep track of. This way, I'll have everything in one spot and I can see at a glance where I'm at financially. It will also hopefully make entering my business expenses easier next year for taxes. I kept track of all my business expenses this year, but they were in a few different places. So far, so good. I often revert back to the very basics and find that although I'm a geek with an unhealthy love for cool tools, simple is often better.
Thanks, Amy! I just looked through the software, but I just wasn't sure exactly how it would work for business stuff. I think it looks great for personal finances though!!
I found a spreadsheet over at SavvyBlogging — which would probably be good for me — because, unlike you, I'm not very tech-savvy!! So, simple will be a good start!
Great post as always. I must again applaud you to seeing a big hole that no one was filling and taking it on with this whole series!
I have a question…I have had a paypal account for years that I use for personal stuff as I am sure most of us do. Did you set up a completely separate one for just this? I don't even know if they allow you to do that, but I think that it would allow me to track my ebook/blog related earnings a lot better.
I had the same situation and I opened a Business PayPal account. Keep in mind that it takes a few days to verify a new PayPal account so the sooner you can get it set up, the better.
Thanks so much Amy, I will set it up tonight and stop putting that off!
Amy, I am curious as to why you recommend getting a P.O. Box. You say it's a "good idea" — why??
Going to the P.O. is rather inconvenient for us so I have hesitated to get one…
Secondly — I don't fit any of the criteria for needing an EIN, and most likely never will. Is there any real reason to not just continue using my SS number for the misc. income I have?
Hi Tammy,
The reason I suggested a P.O. Box and an EIN is so that your personal information isn't floating around unnecessarily. For example, when you register your business (as a sole-proprietor, a DBA, etc., LLC, etc.), you must list an address. Whatever address you use (like your home address) becomes part of public records, oftentimes published online and available to anyone at the click of a mouse. In the case of your SS#, an EIN is completely free and takes only a few minutes to get, so may be worth having just to add an extra layer of privacy to your personal info as well. Having said all that, one could probably argue that if anyone really wanted to know where you live or wanted to know your SS#, it wouldn't be hard to get their hands on that information with a little bit of effort. So, for that reason, as always, you gotta do what works for you and what you feel most comfortable with.
Great question!
Where do I get the Budget software? Searching for it brought up a lot of responses. And do I have to have Microsoft Office to run it. I have OpenOffice on my laptop which has word processing and a spreadsheet program like excell, but it was free for the downloading.
Amy,
Love the tips!
However, from my understanding, the ING Electric Orange account is not designed as a business account, and from my understand is not to be used as one. We've used ING for years and absolutely LOVE it, but I have to keep my business accounts elsewhere. Do you have different information than I do? I'd love to transfer it all over to them, but I don't think it's possible to run a business account off of their personal checking.
I hope you're right, but if not, your readers should know that they can be subject to penalties for using an account in a way other than stated.
Alicia,
Thank you so much for saying something! This I have not heard and I'm really curious to know why it couldn't be used as either a personal account or business. I'd love to know more about what you've heard (maybe you've got a link?). In any case, I'm off to research.
Thanks again!
Hey Amy – I'm curious if you ever followed up on this ING issue. I too am an ING customer and about ready to set up a business account, LLC, etc, so this is very timely.
I've also just started my first eBook, so I'm sure I'll be coming back to your site frequently over the coming months to keep reminding myself of your tips.
Great meeting you at Relevant this year!
Sami
Hi Sami. No, I haven't followed up yet. I'm still a sole proprietor in the throes of figuring out what the best option is for me as my state charges LLCs a levy franchise tax. (I found this article by Saving for Someday helpful.)
I can't find a direct link stating you can't do it, but I can't find anything stating that you can either. They do not offer a business checking, the Electric Orange is a personal checking. Some personal accounts will allow you to add a DBA to it, but I cannot find any way to do it with ING.
I'm a former accountant, and it's never a good idea to keep a personal account for business use.
Alicia, I'm so curious about this so I'm glad you brought it up! OK, you're going to have to excuse my ignorance, but if a checking account works the same way whether it's dubbed a personal or business account, why would it matter? I'm not trying to be difficult here — I hope it doesn't come across that way.
But if all my account activity is strictly business-related in that account, I'm having a hard time figuring out what would make it a bad idea. I'd love to hear your thoughts.
A personal account is intended to be used solely for personal expenses. While it's not 'illegal' to do so, it can open you up to a whole host of problems. The FDIC is currently changing the way banks are to handle funneling business funds through personal accounts. There's a big difference between a business and a person from the tax and government perspective.
On the back end, business accounts are categorized and charged differently. Very few places offer free business checking. There are a couple of online banks that offer free small business checking but not many. Banks will also all you to open up a D/B/A on your personal account, which shows your business name (if you have one). If you are just using your name as the business it's not as big of a deal, but if you are paying taxes on said business, expect it to fall under direct scrutiny.
Did you get the email I forwarded you from ING? I am under the impression that their bank itself does not support the idea of business for personal.
Here are the reasons NOT to use a personal account as a business account:
If necessary, the IRS will use your account type to determine whether your business is a hobby or actual income. Businesses linked to a personal account will fall under more scrutiny.
Funneling additional money through a personal account may increase your chances of audit (definitely not worth the risk! Even if you've accounted for everything, being audited is NOT fun)
If for any reason you are subjected to legal action, your personal assets can/may be frozen.
If a bank charges a different fee schedule to personal accounts and business accounts, you may be subjected to the recapture of fees and additional penalties and interest.
There are major reasons on the bank's back end for this, too. But since I'm not a banker, just an accountant, I can't speak for them.
Thanks so much, Alicia. I really appreciate the information — very helpful!
Aloha Amy,
I just "found" you while searching how to write an eBook. SO glad I found you!!! You are a wealth of helpful and beautiful information. My dream was always to write a book(s), and now that I am being exposed to the endless possibilities of the web, I am on fire!!
I have many businesses – though not necessarily making much income from them – and I set them ALL up with a registered business name in the State of Hawaii or Nevada (for asset protection advantages), have EINs, and always use our PO Box to avoid having our personal address in sight. I also juggle a lot of different checking accounts in order to not co-mingle funds from personal to business or even business to business accounts.
It is quite a hassle and a lot of filing, but well worth it when it is time to file our taxes. I was told to treat a business like a business, and doing so has saved me a lot of headache.
My question to you is what type of entity would be best for income from internet eBook sales as an author? I will also ask my attorney. I want to protect myself from liability as well as get the best tax benefits and operating as a sole proprietor rather than an LLC, LP or corporation is not what I want to do at this point (and age) of my life.
Mahalo again for such a fantastic learning experience that you provide to anyone wanting to learn about writing an eBook! You are a wonderful and kind person.
Aunty
Amy, if you could kindly get back in touch with me… I'd like to set up an affiliate program for my ebook but I am pretty confused about what taxes I have to charge. I don't believe my state charges sales tax for ebooks. Do I charge self employment tax and federal on the overall price of the book, or just what I earn (not affiliate pay).
Samantha, I would call your local SBA for more info. Everything differs from state to state. I'm sure they'll be able to help you. Or you can google "how to set up a business in [state]" and that might give you direct phone numbers to state offices. That's what I did. I hope that helps!
Thank you for posting all of this info on ebooks! I've got my work cut out for me. This is so helpful to us newbies! Since this post is about a year old and you sent a newsletter out stating how much you made in 3 months time, can you either forward me that newsletter or tell me in an email how much you made? I just signed up for your newsletter and got it but it is about blogging, which is very helpful. Just curious how much was made. Have a good day!
You're amazing!!! Thank you so much for all you do!!