Not everyone has been trained in financial reporting, I get it. So I'm not expecting everyone to have some formal U.S. GAAP-Compliant income reports that they share on their blogs.
However, I do expect income reports to share useful, accurate, and honest information. Whether you write income reports or read them, it's so important to understand just how these income reports can go wrong.
If you write them and you're just winging your reporting methods, you're presenting misleading information that can do more harm than good to your readers. Sometimes, the motive behind an income report is affiliate link-dropping. But most of the time, the motive is pure; to help and inspire your audience.
If the latter is true, you should care about reporting correct information, yes?
If you read income reports for inspiration, motivation, or behind-the-scenes tips, you have to be able to filter information. Blogger income reports aren't regulated like publicly-traded corporation financials, so they can write whatever they want to and call it a day. And the truth is, yes, a lot of people lie or exaggerate. Other times, they simply don't know that they're making certain reporting mistakes and are misleading you.
In either case, it is ultimately up to you to filter the information that you allow to influence your business.
So no matter where you're coming from, let's take a look at the three most common reporting mistakes I see on blogger income reports (because I'm addicted and have read a lot of them).
Disclaimer: I truly believe there are more well-intentioned income reports out there than not, so this post is in no way an accusation. This post is titled "3 Mistakes," not "3 Deceptive-Practices." My first assumption is always that a blogger made one of these mistakes purely because they didn't know any better, and I'd really prefer you do the same. Please do not use this post as an excuse to go out and start shaming bloggers who publish income reports. If you'd like, when you see one of these mistakes, you can kindly email them a link to this post. Otherwise, innocent until proven guilty, ya'll.
Mistake 01: Reporting accrual-based income.
This is the most common mistake I've come across, so let's knock it out first.
In accounting, there are two big reporting methods used most often: accrual-basis and cash-basis.
Accrual-basis is when you report income when it is earned and expenses when they are incurred. This does not necessarily mean you record them when the cash moves.
One example in the solopreneur world is invoicing for service-based businesses. A client hires you for a project, you perform the project, you send them an invoice, they pay you. In the accrual world, you'd record the income the moment you invoiced the client - the project is complete, so the income has been earned. Later on, you'll record the cash received once the client pays, but it won't be counted as income again.
Another example is when you earn affiliate income. Siteground, for instance, has a 30-day payout policy. So when someone signs up with my Siteground link, I've earned my commission. But I won't see that cash until 30 days later when it's approved for payout. Under accrual-basis accounting, I'd record the income as soon as someone signs up. Then I'd record the cash received once Siteground transfers the funds.
Sound confusing? That's fine, because bloggers should use cash-basis accounting. This means recording income and expenses as the cash moves. Much simpler! Instead, using my earlier examples, you wouldn't worry about recording anything until the client or Siteground pays and the money is sitting in your bank account.
- The problem?
Most bloggers aren't aware that these are two distinct accounting methods. Most are aware that there are two ways to record the income, and they usually rely on common logic to figure out how they want to track it. And sure, in the end, you get to choose your accounting method (though cash is almost always going to be the better answer for bloggers!).
However, they almost always use cash-basis for expenses, recording them whenever they pay them. You can't use both! You've gotta choose one or the other.
Oftentimes, you'll see a blogger offering some sort of explanation/disclaimer before they report their numbers (kudos to them for doing so!): "The income I'm reporting isn't necessarily the income I've received yet. Ads and affiliates have delayed payouts, so I won't see some of this income for another month or so." If you see an explanation like that, that's accrual-basis accounting: recording income when earned, not received.
Especially in the blogging world, this usually inflates income numbers and makes revenues look a lot higher than they really are, which can be frustrating to readers who aren't getting those same results. And besides that, it's not the optimal reporting method for your business' internal records.
I have an upcoming blog post about the further differences between accrual-basis and cash-basis, but for now, know that you should report your income and expenses only when the cash moves.
Mistake 02: Reporting income for separate business activity.
In the solopreneur/freelance/online-business world, we tend to wear a lot of hats. Not just in the intricacies of managing your individual business (content creation, marketing, analytics, finance, etc.), but also in your income streams.
It wouldn't be a surprise to find someone who blogs about social media marketing, does freelance copywriting, offers social media management services, is a Life Coach, and runs an Etsy shop on the side.
You're an entrepreneur, this is completely fine. However, you need to operate your business within separate segments. Whether this means how you've formally organized your business legally, or in creating separate categories on an Excel spreadsheet for your finances.
If I'm a new fitness blogger (ha) and I came to your blog income report titled "How I made $27,893 last month with my fitness blog," I'm going to want to see how you did it. But if the income you're reporting on your fitness blog was almost exclusively from your social media consulting services, that doesn't help me.
- Department Mentality
You need to clearly define your blog's business and income streams. Think of those major brands with a million different product segments like Dove or Johnson & Johnson. Or even just your favorite department Store! They have to segment and define their business' departments so that they can focus on what works best within each niche.
So just like Target has fashion, office supplies, grocery, home decor, and electronics, your entrepreneurship activity should be clearly segmented depending on the activity. (And not just for income reports, for yourself!)
So be clear and honest about where your income came from. If your "blog income" isn't actually BLOG income, be transparent about it. It's okay to offer freelance services as a supplement to your blog's ad revenue, but don't disguise that. If anything, that'll help your readers who want to generate income quicker to see what needs to be done.
Mistake 03: Not reporting all of your expenses (or the right ones).
Not everyone shares their expenses on their income reports. Usually, it's because they'd still like to leave some mystery regarding their ultimate take-home pay, which is completely understandable. These people will usually say something along the lines of "Keep in mind that I still have blog expenses and taxes, so this number is not the actual amount I get to pocket this month."
However, some people choose to share their expenses. As I mentioned earlier, almost everyone will use cash-basis expenses (accrual-basis expenses would look like someone claiming a 1/12 of their prepaid annual subscription each month, which is expensing as the product is used over time - See why this isn't common practice?).
The problem is that a lot of people tend to miss reporting some expenses or claim expenses that don't classify as business-related.
Sometimes, this line is easy to see. Web hosting? That counts. Your family vacation? Doesn't count.
Other times, it starts to get a little blurred. Your groceries don't usually count, but what if you're buying groceries for a recipe to share on your food blog? Your gym membership is a personal expense, but what if you're paying for a gym membership to provide a review on your fitness blog? What about the new Erin Condren planner you just bought that is used equally for personal use and business?
(If you're wondering, the food blog groceries and fitness blog gym membership count, and you could theoretically split the planner cost 50/50 if you can prove that it's half-business-use.)
If you're going to report your business expenses, make sure you're being honest and accurate with those numbers. And be transparent with your readers so they can see the real costs of operating a business like yours.
The Purpose of Accounting
I know most of you don't like the word "accounting," but we all need to acknowledge that accounting is the heart of all these blogger income reports we're addicted to. And believe it or not, accounting was not placed on this earth just to spite you and your attempts to run a business.
The ultimate purpose of accounting and financial reporting is to provide information.
Accounting for a solopreneur business does not have to be complicated, and I'm not trying to suck the fun out of income reports. I am, however, trying to make sure these income reports are reporting information accurately so they can do what they were originally designed to do: Inform, motivate, and inspire other bloggers.
I've made it my business to educate you with your business' finances. So, if you feel ready to face your numbers and organize them the right way head on over here so you can to learn more about how I can help you!
Additionally, you can learn more about creating your own income statements here:
RELATED POST: Mastering Your Blog's First DIY Income Statement
Have you seen any other mistakes or weird reporting techniques used in blogging income reports? Share them in the comments below so I can address them in a future post! Otherwise, feel free to ask any questions about proper reporting in a comment or an email to me at email@example.com
Until next time!
- Katie Scott