Why personal finance matters (and why we tackled it first)

When we started to discuss The GameDev Business Handbook, we developed pillar concepts about our mission and tone, the content we wanted to tackle, how it would flow, and most importantly, who we were writing for. We came to consensus quickly on a number of these:

• The GameDev Business Handbook is a book-length explainer about fundamental business concepts, and it most definitely isn’t a “get rich quick book.”
• Our primary audience consists of students and developers new to the workforce, many of whom have not received any formal business training. We knew that keeping things accessible was crucial.
• Therefore, we knew we needed to begin our discussion not at the point someone is forming their studio, but at the stage when they are first thinking about doing so.

Before you even begin thinking about starting your business, hiring employees, and building your first game under your brand new name and logo, you need to get your own house in order. If you have aspirations of owning a successful business, you’re likely going to have employees and contractors depending on you to get paid.

There are a number of parallels between running a business and keeping your personal finances afloat. Implementing good habits early is crucial. Here are a few things that you can do in your personal life that transfer well to operating a business.

Understand how invoice timing works

When you receive a credit card or utility bill at home, chances are you’re given a specific date upon which payment is due. When working with vendors in a business, you may not see specific due dates. Instead, you’ll see terms like “Net 15” or “Net 30.” This means you must pay within 15 or 30 days respectively. You may also see, “Due Immediately,” which indicates that payment is due as soon as possible after receipt.

It’s up to you to track when those payments are due and choose the time to pay them that best fits your financial situation. You can practice for this by using personal accounting software like Quicken. Input all the bills into the software, set up reminders, and you won’t miss a payment. When you start paying your business’ bills, you’ll be a pro already.

Use credit wisely

Use credit wisely. If you’re in the United States, credit and credit scoring is an integral part of your life. The effect of credit can vary dramatically by country. Take some time to understand how credit scoring works in your particular region. While you may have heard advice that having a credit card is the path to ruin, that isn’t the whole story. Abusing a credit card can lead you down a dark financial path, but having and using one judiciously will help you build your credit score. This is necessary for when it’s time to get business loans, equipment rentals, or office space leases.

Credit can also help when it’s time to invest in your professional efforts. Can’t afford the computer you need for programming or art? It’s going to be harder for you to practice your craft. Credit can get you the equipment you need when you don’t have all the cash on-hand to pay. These are the same conversations had in businesses every day, just at larger scale.

 

Keep track of your spending

It’s not just bills that personal accounting software can help with. You should be filing and classifying all your expenses in the software (or using a debit/credit card that will download many of these details automatically). There will likely come a time when you need to divert personal money into your business. Knowing where you can afford to cut back can help make hard decisions easier.

Categorizing and tracking becomes crucial when you’re in business for yourself. Strategic business decisions are driven by knowing which of your expense categories are driving revenue, which are necessary underpinnings of your broader business, and which are holding your company back from greatness.

 

Take into account all of your expenses

It’s all too easy to overlook some of your expenses, leaving you puzzling out where the money went. For instance, if you’re a caffeine junky that ends up in a coffee house multiple times per week (and aren’t we all now?), those coffee fixes can add up. If you pay in cash and don’t input the transactions in, that money will disappear in a cloud of steam from the milk frother. Paying with card helps, but you still should link it to some software that can pull the data for easy tracking.

The same goes for future transactions. Knowing what you’ll be spending in the coming months will help you plan those larger, necessary expenditures (perhaps your own espresso machine?). It’ll also reveal your cash flow situation (the timing of money flowing in and out of your account). This only works if you input everything and brainstorm all of your possible expenses. It’s better to plan for something you don’t spend then spend something you haven’t planned for.

We discuss cash flow extensively and how it impacts the video game industry in The GameDev Business Handbook.

 

Prepare for surprises

When you’re trying to make ends meet as an individual or a small business owner, your emotions are likely going to be tied to your bank account. When times are tight, you might feel your anxiety rise and watch every penny closer than might be necessary. Likewise, when you’re flush with cash, you might feel a deceptive sense of safety. It’s when you have extra money on hand that you should be most careful.

If you’ve input all your transactions into your accounting software and forecast expenses, you can already see where that money is going. If you still have some left over, squirreling a bit away is wise. There are always surprises lurking in the shadows. It’s how you prepare that can be your saving throw. We’re not saying you shouldn’t treat yourself when things are good, just that you should do so responsibly. Keep that savings account stocked up a little at a time. If you manage to build it up, it will come in handy when starting your own business. But that’s a story for another post…

You can read more about personal finance in The GameDev Business Handbook by Michael Futter. Read more about the book or click to order the digital version or hardcover direct from Bithell Games.