This actually ties in with an issue I noticed lately with many indie game devs--a lack of bookkeeping and accounting and poor money management.
Many game devs (mostly fledgling ones) either don't keep good enough records, or try to manage all aspects of the business while also making their game.
I think after a while it gets hard to balance all the tasks needed, and that's where some developers get bitten. It's too hard to juggle everything between running a business and making a game.
I recently read this (horror) story:
I am 17 years old and currently develop applications/games for Android and iPhone as well as develop internet websites and code a variety of my own projects. I have been very fortunate and have made a large amount of money and continue to make money online to the point where I do not need a stable job, though I'd like to get one after college.
I've never held a job anywhere, and have never had to pay taxes. I'm coming into a lot of issues and I am quite confused. I get money from MANY sources- 15 different advertisement networks(!), 4 different payment processors, 5 different affiliate networks and a variety of other sources. All of them pay to different places and at different times (checking account, PayPal, reloadable debit card, ect.)
I essentially have a list in a Notepad with names and login information for each source. I have also created a PHP script that uses cURL to grab all the revenue from each service, add it all up, then text me every few hours so I can keep track. It's a mess, but it's working OK, and I can create custom reports (for IRS?).
But enough of that, my questions are about taxes in the US, and how indie developers handle it all. I'm at slightly over $250k so far this year, with negligible earnings last year. I have it all stockpiled in a bank account and haven't touched it, I'm a bit scared to.
Everyone's response to this thread was "get an accountant." After all, with the money they claim to be making, they can certainly afford one. However, despite extensive searches, I've only been able to find one accounting firm that focuses solely on game developers--but they haven't been active since 2009.
It's because of this that I've decided to become a bookkeeper specifically to help indie devs, because I don't want to see this happen to other game developers. I'm also doing extensive research on crowdfunding so I can offer my services there as well. That's my contribution, but I'm don't think I'm going to change things on my own.
The dischan blog reveals exactly where it went wrong for them, and I'm glad for their transparency. It confirmed my suspicions--their heart was in the right place, but it wasn't a place of business. Unfortunately for them, the efforts to keep the individual team members financially afloat backfired on the company.
I believe the minimum cost to make a game is the following formula:
Cost of Living x Time x Team Members = Minimum $ to make a game. AKA a good sum of money.
It looks like dischan might have been following a similar train of thought, but with a team of more than one, it's really difficult to keep up with those costs on a monthly basis. When working with others, especially on a project that is crowdfunded, it is better to go with task-by-task commissions than paying the living wage for an entire team, unless your company is very fortunate and well-off already, which most indie devs are not.
It is definitely a warning to all of us, and many are now discouraged about using crowdfunding platforms. What we have to do is "prove" ourselves as a genre of game by increasing the quality standards of our creations and staying good to our promises. We have to up the ante and our integrity.
This interview by the team working on Backstage Pass covered some similar points:
“Visual novels are such a small niche that it would be nearly impossible to make back the money put into it,” explains Sakata. “MangaGamer has released sales data in the past, and everyone’s been shocked at how few copies actually sell. Add to that the fact that Japanese companies are used to selling VNs at significantly higher prices than most Westerners want to spend, and you find that negotiating a license becomes very difficult. In the end, we vote with our money. The surprising success of localizations like 999 and Dangan Ronpa have proven that there IS an audience for these things, and companies have definitely shown themselves more willing to take risks on VNs in recent years.”
Guo adds, “Not a lot of people know about this genre, and it’s going to take a lot of time for the market to expand. Because the market here is small, there’s not much profit from it, which is why big companies are reluctant to import these types of games (especially when considering the cost of localization).”
Here's the point that really hit home with me:
It doesn’t help, she says, that many EVNs that do get released are low-quality due to budgetary and time constraints. It’s a vicious cycle, and the only way to break it is to up the ante. “In my personal (and quite brutal) opinion, VN developers need to start treating the game development like an actual business instead of a hobby. One has to really push the quality and really be willing to take high risks to produce something that’d be on-par or surpass the Japanese VN standards. I think sakevisual is taking the lead in this – at least, I know the budget that went into [Backstage Pass] is probably higher than any other EVN ever made. It’s a high risk we are taking, but I think the idea behind this is to show the community that English visual novels are just as good and well worth the money.
In the end, dischan has my condolences. The upkeep of a business as well as the cost of producing a game come together to form hefty fees as well as a large investment of time and effort. We can learn from the past, it hopefully keep us from making the same mistakes in the future.
As a side note:
If you are an indie dev, even just starting out, consider talking to a business advisor or accountant and bookkeeper. Many don't charge consulting fees, and even if they do, it's usually hourly and within a reasonable price. (Unless of course they are full of themselves.) Also keep in mind that the average salary for bookkeepers is about $16/hour (USD) and most freelance amateurs (like myself) usually only charge $10/hour and are desperate for the work experience. I believe accountants are about the same. Honestly, I'd get a bookkeeper for monthly record keeping and take it to an accountant or tax advisor at the end of the year. Keep records of everything and be sure to
back them up digitally. Having an actual business and/or financial professional deal with your bookkeeping/accounting/taxes can and will save you a lot of effort, time, money, and heartache. Try to find one who has experience with game developers, though they are few and far between.