January 26, 2011, 5:00 am

Costs of Running My Online Business

by: The Financial Blogger    Category: Alternative Income,Make Money Online
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Since I have opened up the doors to my online business, several readers have asked me about the cost of running online business. Since I run a different business model than most bloggers and internet moguls, considering all the costs of this venture is important. Making 125K in revenue in 12 months is amazing… unless it cost 100K to run it, right? This is actually a good exercise since I haven’t done it for a while now 😉


Are you ready? Here’s the list of my business costs (on an annual basis):


Accounting: $3,200


My accountant charges me $180 per month to take care of my books, filing sales tax reports and to make sure everything is in order. Then, it costs about $1000 per year for my income tax report, updating the company’s minutes and producing my financial statements.


Virtual Assistants: $35,000


This is not a “real” cost in my financial statement yet since we just hired a full time VA 2 months ago. So I am obviously expecting to make more money in the upcoming 12 months in order to cover these costs ;-). You can basically see it as:


–          Being a huge investment for not working more while assuring the company’s growth

–          Being the start of something a lot bigger


In fact, $35K per year seems pretty high. Especially since I expect to make about the same income in 2011 (125K). The difference is that I won’t be selling any web properties and  in 2010, I benefited from a one time opportunity by brokering 2 advertising deals. However, when my company income increases from 125K to 200K, I will pay about the same thing in salary while putting 75K more in my pockets and not working any more. This is the plan ;-).


Writers / Editing: $9,800


This has been stable for the past 6 months. We have a great group of writers and we will probably add one or 2 writers for other projects in the upcoming months (so if you are looking for a freelance writing job, contact me 😉 ). I like having several writers so I am not left with a big problem if ever one of my writers moves on to other things. I’m looking for high quality content so I don’t mind paying for it. I am also paying someone to go over my own articles. Since English is my second language, he helps me big time to correct grammatical errors.


Banking and Interest Fees: $6,000


We pay roughly $30 per month for our banking operations along with access to a line of credit. We also have to pay for wire transfers when we purchase web properties. Along with that, we just contracted another loan to make another purchase (I’ll keep it hush hush for now ;-P ). While it seems like a lot in fees and interest, then again, we do it for growth. Last year, we paid less than $1,000 in this category!


Hosting and domain renewals: $1,500


We currently have 3 servers and a huge load of domains to renew from time to time. For security and efficiency purposes, we are going to move all our sites to our own server in 2011. In the meantime, we are using Phatservers, GoDaddy and HostGator services.


Software investments: $1,000


This is the first time ever that we are investing in specific software to grow our business. I don’t know how much we will actually spend this year but I’d say it will probably be close to $1,000. So far, we have bought the following:


Market Samurai (we should have bought it a while ago!)


The Best Spinner (to create more articles)


Instant Article Wizard


Article Marketing Robot


Telecommunications: $7,000


Internet, Cable, Blackberry, Landline…. all times 2 since we operate from 2 different locations. Definitely a must for our company ;-). The good news is that we can use Internet and our Blackberry for personal use at the same time. So I am actually taking those expenses off my personal budget to switch it over to my company’s budget.


Prizes and Promotions: $2,000


We spent about $2K in prizes and promotions annually. This is good for contests, visibility and to gain readers through our newsletters and RSS feeds. I don’t know if this expense is necessary but I like saying thank you to my readers nonetheless ;-D.


Life Insurance: $1,200


This is one of the most important expenses we have: protect our partner’s value. Starting in 2010, we have a universal life coverage of $250,000 first-to-die insurance policy.


Total Expenses: $66,700


I must put a small comment on the total expense. First off, when we made 125K from July 1st 2009 to June 30th 2010, we didn’t have most of those expenses. We had no VAs, half of the budget for writers and very low interest charges. However, we had several expenses in computer equipment (which won’t be part of our expenses this year). We can also amortize the value of our websites in order to reduce our company income for income tax purposes. The last point we included last year is that I was giving myself an income since I am working 1 full day a week on top of my normal hours in the company. This is how we went from 125K revenue to 40K net profit and 9K to pay in taxes.


We now forecast significant expenses (67K) in the upcoming year but also expect to bring our monthly income to more than 10K without considering any one time deals or the sale of a website. I could technically sell one of my big blogs and bring my company income to 200K easily this year. But we are seeking long term growth right now, not short term results. It’s a good thing to be privately owned, isn’t?

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Comments

by: Future MoneyBags | January 27th, 2011 (5:48 am)

It is very interesting to see the exspenses associated with a business venture such as this!
I never imagined a ‘blogging company’ to generate such a large amount of expenses. I know you are more than just that, but it goes to show how much you are growing your business.

When you first started blogging, did you ever think you would be spending $67k in overhead?

Also, you have a $250k UL policy which you pay 100/m for. I know you are aware you can get a much larger face amount for less, due to your posts in the insurance section of your blog. Why do you choose UL First-to-Die, when a simple Term 20 would suffice?

Keep up the great posts, I look forward to learning more about how you run your online ventures, and get closer to not having to work a J.O.B anymore!

by: The Financial Blogger | January 27th, 2011 (9:17 am)

@Future MoneyBags,

Until recently, we never thought we would grow our expenses that fast! The truth is that we could have kept our expenses around 10-15K per year and still make 6-7K/month. However, we are aiming to grow our business to 200K-500K per year.

The good news is that we will keep a similar expense budget when we will hit the 250K mark.

As for the UL, we will still need insurance in 20 years. The purpose of this insurance is to buy back the shares of the deceased partner so that our wifes get something out of the company. This is why we opted of a UL.

Thanks for sharing all of this. I’m interested to see how the VA thing goes for you. You may have already shared this, but where did you find your VAs? I have about $1,000 planned for VA expenses this year so far and will be looking to slowing outsource things and increase that number.

[…] The Financial Blogger: Costs of Running My Online Business […]

by: The Financial Blogger | February 2nd, 2011 (11:49 am)

@PT,

I actually have 2 VA’s (so I am not running out of options if one quits!). I found the first one among the blogger community. It was easy as little trainning was required (the guy already knows how to run a blog and how it works).

My second VA is my sister-in-law. I have hired her based on the following factor:
– loves to write
– quality worker
– passionnate

She didn’t know much about blogs and internet marketing but those things can easily be teach… quality, passion and writing skills are harder to find 😉

drop me an email if you want more details!

Fascinating stuff mate! That’s a big payroll jump for your VAs, but certainly potentially worth it.

All these expenses are expenses in your company which are used to offset your revenue so that you only pay TAX on that $40,000 right? Could you help explain what is the amount you pay tax on if not?

Thanks!

Sam

@FS,

Those are my projected expenses for the current year. Last year, I didn’t spend much on VA. However, we were giving ourselves salary and we used the amortization of our websites to drop our net income before tax to 40K and pay 9K in taxes. I know that rules are different in US but in Canada, we are allowed to make a paper loss (amortization) from our websites over time. Since it’s considered as a techno asset, the amortization drops quite fast.

This year, I guess we won’t pay much taxes since we have more expenses. However, I think that over the long run, I’ll be able to make way more than 125K/year in revenues. If not, I would not be spending so much money in VA’s and other stuff!!!!

I basically had 2 options:
– continue to make roughly 125K per year working as I do
– increase my expenses to grow my business and make way more than 125K in 2-3 years… that’s the goal ;-D

[…] The Financial Blogger: Costs of Running My Online Business […]

Got it TFB – No, that makes sense on amortization. I’m allergic to taxes and want to pay the least possible! You’ll be proud of me, as I have something up my sleeve in a month or two 🙂

Wow, I’m a little surprised how high your expenses are, but it seems like a lot of that is with the expectation that revenues will increase accordingly (like with writers creating content for you). I’ve kept my expenses to a much lower percentage of income but I’m realizing that if I really want to grow the business I need to invest in it more.

Agree with you about Market Samurai! I picked it up recently and cursed myself for not doing so sooner.

by: The Financial Blogger | February 10th, 2011 (8:34 am)

@Mike,
I could have actually keep making 100K per year with my blogs and not hire anybody and keep the cost to a minimum. Remember, I don’t work more than 20 hours per week on this.

The plan is to keep the same level of expenses but increase our income to 250K+ in the upcoming years.

[…] Costs Of Running My Online Business.  Mike’s online business is getting huge, and it’s amazing to see the costs associated […]

Have linked back in my latest. Thanks for highlighting this cost map. Helps me think ahead too. Cheers

Fascinating stuff. I always appreciate it when bloggers invite the readers into their pocket books. It’s informative and instructive. I’m sure your investments will pay off. Best of luck in your future blogging businesses.(I’m putting this one in my next round up)

[…] Interested in running an online business, read about the costs at The Financial Blogger […]

good stuff TFB – was hoping you would release a post on the cost structure. having said what you have, where do you expect the net income/profits to be when it’s all said and done? are you comfortable that your income streams are passive/residual that would sustain themselves if you were to cut out most, if not all of your costs? what about the time investment that is currently required setting up and maintaining/growing the empire?

by: The Financial Blogger | June 22nd, 2011 (6:45 am)

@Sunil,
If I was to cut down my expenses, I would create a solid income stream for both my partner and I. I guess we could make about 3K each in profit per month while working about 15 hours/week each. That’s about $50/hr… not bad 😉

But I would like to keep growing… this is why the cost structure is so big!

Mike – Is your hosting $1,200 for the year or for the month?

If for the year, I think that’s AWESOME! Why am I paying $250/month then for a dedicated server? Part of the reason was due to a 60,000 two day surge in traffic which slowed down Yakezie.com….. but still.

What are you using? Thx, Sam

by: The Financial Blogger | August 6th, 2011 (2:00 pm)

@Financial Samurai,

it is per year. I actually use 3 different servers (not dedicated). I’m preparing a post on servers in a few weeks, stay tuned!

[…] his sites.  In 2010, Mike wrote that he generated some $125,000 in revenue.  However, he also had $66,700 is expenses, leaving him with a profit before tax of $58,300.  I’m not sure how much Mike has to pay in […]

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