Author Topic: Mustachian writers: Big or small advance  (Read 3604 times)

Oliver

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Mustachian writers: Big or small advance
« on: April 13, 2012, 10:29:30 AM »
Hi folks,

I have the opportunity to revise a guidebook. Payment is in royalties from book sales, with an advance payment on the royalties upfront. The advance is small and the book is for a fairly well known guidebook company, so it is nearly certain that the book will sell out the advance.

There's two routes open to me: I can take a big advance payment or a small advance payment. With the bigger advance, it will likely be a few extra years before I start getting checks in the mail from royalties.

The smaller advance appeared better to me at first because I like the idea that of getting more money in the mail while I'm no longer working on the project. However, it will be the same amount of money overall and the quicker I get the money the quicker I can do something to with it to earn more money, (or at least put it in a savings account) and the more it can earn for me over the long run.

Does that make sense? So what would you do, fellow stachers? Money upfront, or money spread out over time? Does it even matter? Is there something I'm missing? Also, it is possible but highly unlikely that the book won't sell out the advance, so that should be a consideration.

I realize this is a fairly specific issue, but I think there are other situations where the same question applies: money now versus money later. Thanks for the help.

pastymage

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Re: Mustachian writers: Big or small advance
« Reply #1 on: April 13, 2012, 11:17:43 AM »
Is the advance-vs-royalties on a one-to-one basis?  Meaning, the royalty percentage doesn't change *at all* with either choice?  If that's really the case, getting more up-front is 100% better (unless this would hurt your tax situation, but that's a lot more complicated), because you get the same amount of money over-all, plus whatever returns you can earn on it, as you suggested.

But I have a hard time believing that they're offering you a one-to-one choice, exactly since it *is* so much better for you.  Normally, getting more up-front would mean some kind of trade-off for you (like accepting a smaller royalty?)...so then it becomes a comparison between the return you think you can make investing and the amount they'd be discounting the royalties by.  Similar to the lump-sum vs annuity decision if you're lucky enough to win a lottery.

-Dave

arebelspy

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Re: Mustachian writers: Big or small advance
« Reply #2 on: April 13, 2012, 03:44:43 PM »
Absolutely take it up front if you get the same amount of money either way, for the same reasons you don't want a large tax refund.

Anyone who understands the time value of money knows money today is worth more than money in the future.

Heck, if you like the idea of getting a little at a time, get it now and trickle it out to yourself (while it earns some interest).
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zinnie

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Re: Mustachian writers: Big or small advance
« Reply #3 on: April 13, 2012, 05:39:16 PM »

EDIT: I didn't read;they're giving you an advance on the royalties and could recoup it. If that's the case, I might just wait to have the money roll in.
« Last Edit: April 14, 2012, 04:19:42 PM by zinnie »

arebelspy

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Re: Mustachian writers: Big or small advance
« Reply #4 on: April 15, 2012, 09:17:54 AM »
Will you have to repay back the larger advance if it doesn't sell and there aren't any royalties?

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Sparafusile

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Re: Mustachian writers: Big or small advance
« Reply #5 on: April 16, 2012, 08:43:58 AM »
Will you have to repay back the larger advance if it doesn't sell and there aren't any royalties?

Usually it's an advance, but you wont have to pay it back. The balance due will roll over to your next book and keep accumulating until your royalties exceed the advances. At which point you'll start getting checks in the mail.

arebelspy

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Re: Mustachian writers: Big or small advance
« Reply #6 on: April 16, 2012, 08:49:38 AM »
Will you have to repay back the larger advance if it doesn't sell and there aren't any royalties?

Usually it's an advance, but you wont have to pay it back. The balance due will roll over to your next book and keep accumulating until your royalties exceed the advances. At which point you'll start getting checks in the mail.

That's what I'd figure, but want OP to confirm.

If that's the case (don't have to pay it back), absolutely take it now, because what if the book doesn't sell as well as expected, despite projections, and royalties don't ever equal that advance amount?  You're throwing money away.
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Oliver

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Re: Mustachian writers: Big or small advance
« Reply #7 on: April 16, 2012, 10:04:31 AM »
Thanks, everyone, for confirming what I suspected. Now I just have to figure out what to do with the advance to make it work for me.