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Proper accounting is to recognize the revenue and costs of a sale in the same period. So you don't get to claim any profit until you complete the work you were

Proper accounting is to recognize the revenue and costs of a sale in the same period. So you don't get to claim any profit until you complete the work you were paid to do. How do you plan on finishing the apps fast enough to consider this a win? To me this is the opposite of a good side project. You want your projects to generate passive income, not income that requires a non-trivial amount of work to recognize. If you can write apps, you should write apps yourself and generate ad revenue or sale revenue. You should definitely reconsider this idea before you have oversold yourself to the point of never being able to meet your responsibilities.

chimeracoder 15y ago
> Proper accounting is to recognize the revenue and costs of a sale in the same period. > So you don't get to claim any profit until you complete the work you were paid to do. Correct. For anyone who's rusty on their financial accounting and interested: Assets - Liabilities ≡ Stockholder Equity This is the fundamental identity in financial accounting, and most financial statements are really just different ways of breaking this identity down. Usually it's written as A ≡ L + SE, but I find A - L ≡ SE to be easier to explain. If you receive a cash pre-payment, you record an increase in the assets, but you also record an increase in 'unearned revenues' - a liability account. Your profit is, essentially, the difference in stockholder equity from one period to the next, so you've had no profit or loss so far (as far as the books are concerned, you're right back where you started). You also record all costs associated with the revenue in the same period as the revenue payment. This is separate from the 'unearned revenue' liability account. That prevents people from boosting their bottom line in a given period by getting a lot of pre-payments, without recording all of the costs that will eventually be incurred by following through on the service itself. (And the prepayment creates an obligation to follow through, which is a liability). Once you perform the task, you've earned the revenue, so the unearned revenue gets transferred to an equity account. Then you've earned a profit, which is the difference between your cash received (equal to now-earned revenue) and the costs associated with performing the job. So if you've already incurred the costs but have not yet followed through on the service itself, you're actually making a loss on paper so far, because you've earned $0 in revenue, even if you have the cash on hand. (This is highly oversimplified, just in case there are any accountants on HN, but I figure any people who missed the chance to take Financial Accounting 101 may appreciate understanding how some of this works. Even if you hire someone else to do the finances of your startup for you, it really helps to have an idea of why two actions that have the same 'real' outcome can have very different effects on your financial health on paper!)
- orenmazor 15y ago
  unless the 'work' in this case was to trick somebody into sending him money. in which case, its definitely profit now :) (that said, good post. not enough people think about A=L+SE when they do business)
  - jwwest 15y ago
    Ha ha. Absolutely not. I actually do run a registered Texas LLC http://www.treehousemobile.net/ http://www.treehousemobile.net/ You do bring up a good point about trust and validation, especially online. Freelancers have to deal with this all of the time when we ask for money up front for a job. Trust is everything in business.
deleted 15y ago
[deleted]
jwwest 15y ago
Passive income is definitely a goal of mine. Getting there requires a lot more work than just 'making an app' and throwing it at the app store and hoping someone gives me their dollar. As I mentioned in the post, I want to learn more about making money: what motivates people, what can I sell my labor/ideas for, how to make conversions, etc. It's definitely something I think I can pivot on later once I've gotten enough attention and traffic. Alternatively, maybe I'll figure out how to optimize the workflow. You're right, it definitely has a scaling problem. :) Lot's of people spend upwards to $99 for a startup weekend/hackathon to create apps over the weekend for nothing more than a chance at prizes and fun. Why not sell roughly 4 hours of my time for $99?
- gravitronic 15y ago
  It's an interesting idea at least that will have no problem finding customers, and you seem to understand the problems. My only strong suggestion is to only take on 3-4 of these projects before completing them 100%, then doing a complete retrospective assessment of how it went. Keep everyone else in a queue. Do not accept money from everyone. Maybe you'll hit a formula for "local business news feed & map view to locations for $99" where you can put out these apps in 1/2 an hour instead of 4.
  - jwwest 15y ago
    Great idea. I've got several different points of data I can use, it would make for an interesting blog post next week. Thank you.
woohoo 15y ago
Yep - this is bookings and not revenue. Ah, takes me back to the good ol' days of channel stuffing...

chimeracoder 15y ago

> Proper accounting is to recognize the revenue and costs of a sale in the same period. > So you don't get to claim any profit until you complete the work you were paid to do. Correct. For anyone who's rusty on their financial accounting and interested: Assets - Liabilities ≡ Stockholder Equity This is the fundamental identity in financial accounting, and most financial statements are really just different ways of breaking this identity down. Usually it's written as A ≡ L + SE, but I find A - L ≡ SE to be easier to explain. If you receive a cash pre-payment, you record an increase in the assets, but you also record an increase in 'unearned revenues' - a liability account. Your profit is, essentially, the difference in stockholder equity from one period to the next, so you've had no profit or loss so far (as far as the books are concerned, you're right back where you started). You also record all costs associated with the revenue in the same period as the revenue payment. This is separate from the 'unearned revenue' liability account. That prevents people from boosting their bottom line in a given period by getting a lot of pre-payments, without recording all of the costs that will eventually be incurred by following through on the service itself. (And the prepayment creates an obligation to follow through, which is a liability). Once you perform the task, you've earned the revenue, so the unearned revenue gets transferred to an equity account. Then you've earned a profit, which is the difference between your cash received (equal to now-earned revenue) and the costs associated with performing the job. So if you've already incurred the costs but have not yet followed through on the service itself, you're actually making a loss on paper so far, because you've earned $0 in revenue, even if you have the cash on hand. (This is highly oversimplified, just in case there are any accountants on HN, but I figure any people who missed the chance to take Financial Accounting 101 may appreciate understanding how some of this works. Even if you hire someone else to do the finances of your startup for you, it really helps to have an idea of why two actions that have the same 'real' outcome can have very different effects on your financial health on paper!)

orenmazor 15y ago
unless the 'work' in this case was to trick somebody into sending him money. in which case, its definitely profit now :) (that said, good post. not enough people think about A=L+SE when they do business)
- jwwest 15y ago
  Ha ha. Absolutely not. I actually do run a registered Texas LLC http://www.treehousemobile.net/ http://www.treehousemobile.net/ You do bring up a good point about trust and validation, especially online. Freelancers have to deal with this all of the time when we ask for money up front for a job. Trust is everything in business.

deleted 15y ago

[deleted]

jwwest 15y ago

Passive income is definitely a goal of mine. Getting there requires a lot more work than just 'making an app' and throwing it at the app store and hoping someone gives me their dollar. As I mentioned in the post, I want to learn more about making money: what motivates people, what can I sell my labor/ideas for, how to make conversions, etc. It's definitely something I think I can pivot on later once I've gotten enough attention and traffic. Alternatively, maybe I'll figure out how to optimize the workflow. You're right, it definitely has a scaling problem. :) Lot's of people spend upwards to $99 for a startup weekend/hackathon to create apps over the weekend for nothing more than a chance at prizes and fun. Why not sell roughly 4 hours of my time for $99?

gravitronic 15y ago
It's an interesting idea at least that will have no problem finding customers, and you seem to understand the problems. My only strong suggestion is to only take on 3-4 of these projects before completing them 100%, then doing a complete retrospective assessment of how it went. Keep everyone else in a queue. Do not accept money from everyone. Maybe you'll hit a formula for "local business news feed & map view to locations for $99" where you can put out these apps in 1/2 an hour instead of 4.
- jwwest 15y ago
  Great idea. I've got several different points of data I can use, it would make for an interesting blog post next week. Thank you.

woohoo 15y ago

Yep - this is bookings and not revenue. Ah, takes me back to the good ol' days of channel stuffing...