Business Plan – Essential Elements-3.B.

Essential Elements of an Affiliate
Marketing Business Plan – 3.B.

There are four essential elements for an Affiliate Marketing Business Plan. They are:

  1. Goals & Objectives
  2. Market Research & Analysis
  3. Financial & Legal Documentation
  4. Promotion & Marketing

This post will deal with item number three; Financial & Legal Documentation

You want to treat your Affiliate Marketing Business, like a real business, because it is. When starting a new business, if you are anything like me, you probably cannot afford to pay an accountant to keep your books straight for future expansions and tax liabilities. So I thought I would give you an example of what your spreadsheets should look like, and a crash course on Accounting 101.

Accounting Formula

The accounting formula that is used universally by all companies follows:

ASSETS = LIABILITIES + EQUITY

What is an Asset?

Assets are usually financial, but may also include physical assets such as property or equipment. The word “asset” is derived from a Latin word for ‘whatever has been put under one’s control,’ and there can be tangible and intangible types of assets. An asset often refers to something that will give the company future benefits, like cash on hand or copyrights in an unpublished article.

In affiliate marketing your assets could be;

Training
Business Model
Email List
Computer
Desk you use as your office

What is a Liability?

Liabilities are debts that a business, person or government owe to others. Liability is the opposite of equity. A liability typically falls under one of three categories:

-Long term liabilities – The amount due in 12 months or more
-Current liabilities – The current amount owed and expected by the following year
-Total liabilities – Sums up all long term debt as well as current

In affiliate marketing your liabilities could be;

What you owe on training program
What you owe on business model software
A portion of your mortgage or rent for your ‘corner’ office

What is Equity?

Equity represents the remainder of assets once all liabilities are paid off. Owners can increase their share by contributing money or decrease equity by withdrawing company funds. Likewise, revenues increase equity while expenses decrease equity.

In affiliate marketing your equities could be;

What you own outright due to paying off your training program
What you own outright due to paying off your business model software
Your website

Accounts

An account is a record of all changes to an asset, liability, or equity item. It’s like a notepad in the sense that it documents all increases and decreases to this specific item over time. For instance, the asset account records all of the changes in assets over time like asset purchases and sales. Accounts are typically named and numbered in order to categorize and keep track of them.

All accounts are kept or recorded in the general ledger. You could think of this as a folder that you keep all of your account notepads in.

Types of Accounts

All accounting in the chart of accounts or general ledger fall into three main categories: asset, liability, or equity.
Asset accounts have a debit balance and represent the resources a company has at its disposal.
Liability accounts have a credit balance and represent the money that a company owes to other entities.
Equity accounts also have a credit balance and they represent the owners’ stake in the company.

Account Format

The most common way to maintain accounts on a ledger is by using T-accounts. On these types of account balances, debits are shown on the left side and credits are shown on the right. The overall account balance then calculates at the bottom of each column. T-accounts also have a title or heading that displays what type of account it is (e.g., asset, liability/expense, equity).

Because we, as affiliates don’t have the usual capital outlay for manufacturing our products, labor costs, rent or mortgage on our building, major machine assets and inventory to track, (one of the attractive aspects of Affiliate Marketing) we can keep to an Accrual Cash Receipt & Disbursement system. The first spreadsheet we need to create is a Chart of Accounts. (see below)

Cash Receipt Journal

The second spreadsheet we want to create is the Cash Receipt Journal. Here is an example:

The term used for this type of system is Double-entry Accounting because first you list your event in either the debit or credit column, then you post it to it’s T-account so that you can perform statistical reporting by type and it helps to finish your Income Statement and Balance Sheet. This first part of the posting works like your checkbook.

You will notice the first column has numbers in it. These are referred to as line numbers and are common when using accounting paper or when creating spreadsheets. The ‘date’, ‘to whom’, ‘for’ are self explanatory, the account number you take from your chart of accounts. Sometimes you will want to expand on your chart of accounts to include other cost categories.

A general rule is; if you have a category that you see more than once in a month, start an account number for it. For example I would probably create an account for Training so that I could track the amount of money spent on just training. Right now I have it lumped in with expenses, other.

The debit column is represented as a (-) negative because it is taking from your cash on hand or bank balance. The Credit would be a deposit or like here a balance forward. So it would be represented and function as a (+) positive.

I have a running balance, similar to a checking account so that I can track my cash flow. Note I have two numbers on the end of the last column that are the same because one represents the sum of the column, (the top one), and the other is the sum of the row. This page is now in balance.

Posting to T Accounts

Part two of this system (why they call it double-entry) you will post to the General Journal or Cost Code Journals. So we create the third spreadsheet we will need. Below is an example:

Because the accounting formula is ASSETS = LIABILTIES + EQUITY, you list your assets or income first, then your liabilities &/or expenses, then third would be an equity T-account. I have placed each of the items on it’s line number here though in a different set of columns. Cash Account, 1-401 Line #2, Debit (+) amount and then carry over to the Revenue Totals of the Row, and so on. Note that I keep to the same line number I post to on the Cash Receipt Journal.

Note: all my assets are posted in the debit column, (debits are always on the left) and all of my liabilities/expenses are listed in the credit column. (credits are always on the right) The sum total of columns and the sum total of rows should balance with the Cash Receipt Journal and each other. Also the (+) positive and (-) negative signs change position as the debit becomes a positive and the credit becomes a negative, when posting to the T accounts in the General Journal.

This system keeps it simple and ensures that everything is in balance at all times. If it is not, you must find out why not. That’s when it gets fun. The more detailed you keep your books, the more detailed you will be able to report on your statistics. You will want to develop your own S.O.P.’s (Standard Operating Procedures) for completing your bookkeeping daily, every other day, or weekly and then, month end try to run your Balance Sheet and Financial Statement. Those two items are more complex than just tracking where your money is going, so I will not cover them in this post. Remember to keep every receipt in a file folder or craft envelope so that you can read them and can keep an accurate accounting of your money at all times.

Please tell me what you think?

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