Managing Risk and Money

Launching and running a publication is hard. Consistently generating enough revenue to pay your expenses is harder. But the next step in a news business’ evolution isn’t exactly easy either. Now that you’ve managed to get up and running, save a little money and start looking ahead, what’s your next step? And what if you make the wrong choice?
With growth comes uncertainty, and with uncertainty comes risk. That risk can be financial, operational, reputational, market or legal — especially as you add employees, face more oversight and increase your visibility. Yet the risks of running a news business are actually fairly predictable. The key is learning how to manage them so you can more confidently plan for the future.

Why is this important?

If you’re a founder, it’s critical to manage risk to guard your personal assets in the event of a lawsuit. And it’s every news leaders’ responsibility to build the operational infrastructure to limit legal and financial exposure, protect the organization and sustain its growth. 

In this module, we’ll address three of the most common risk areas for news businesses on the cusp of growth:

• Legal: A news business must demonstrate it has the appropriate foundational business documents and governance structures in place to stay compliant with relevant regulations.
• Operational: A news business needs internal systems and processes that protect it from human error, fraud, systems failure or any other event that disrupts operations.
• Financial: A news business should understand how to produce a budget, project costs and cover its operational expenses.

How to mitigate these risks

Many journalists think about risk in the context of First Amendment legal rights. And while that’s an important lens for your editorial processes, there are other aspects to consider when you’re running a business. The good news is that addressing these risks is largely a matter of creating documentation and policies and then following them. If you know what you need and take the time to put it in place, you’ve come a long way toward averting potential disaster. Here’s what you need:

Foundational business documents

There are a number of tax structures that have become commonplace across the independent journalism ecosystem. Whether you structure your news business as an LLC, a nonprofit, an S Corp/Public benefit corp or other option is entirely dependent on what’s right for your organization. Not sure if your model is right or considering a change? This article outlines a few things to consider. 

Whatever your tax structure, you need to know which entities regulate your model, what kind of governance structure you need, what documentation is required, how you manage accounting and how you handle profits. But more importantly, you have to have all the documentation in place to stay in compliance.

	What you need	What to think about
All businesses	-A business licence/registration in the location where you operate -An Employee Identification Number (EIN)	Most news businesses are licensed wherever they are physically located, but it’s not uncommon to register with a state or local government that offers business-friendly incentives. You’ll need an EIN before hiring your first employee.
LLCs	–Articles of organization and an operating agreement	Not all states require an operating agreement, but it’s still important to have one. It forces you to think through how your business will operate and guards against any internal disagreements that may arise as your business grows.
Nonprofits	–Articles of incorporation and bylaws -IRS Determination Letter–Registration as a charitable institution-Board-approved good governance policies-List of board members with roles and contact information-Board meeting minutes	When starting out, you might register as a charity in the place where you and your donors are located. As you grow and your stakeholders become national, you might register in more and more states. At that point, many nonprofits turn to lawyers to handle the filing because it’s no longer worth the time and effort to manage it yourself. Creating good governance policies and publicly listing board members isn’t required but is important — especially for journalism organizations that seek to model ethics and transparency. Build off of available templates when creating your policies. No need to reinvent the wheel.  Board minutes are essential as a document of record, but keep them simple. Use them to capture key financial, administrative and strategic decisions rather than as an exhaustive account of the meetings.
Corporations (S Corps and Public Benefit Corps)	–Articles of incorporation–Shareholder agreement-Good record keeping and governance tracking	S Corps and Public Benefit Corps are held to a “double bottom line,” which means their performance is measured in terms of fiscal responsibility and positive social impact. For that reason, good governance principles should be incorporated into your foundational business documents. The B-Corp certification rules and this checklist are good places to start.

Other important documents/policies/procedures

Business insurance: This is different from media liability insurance, which covers you in case you slander someone, violate a copyright, etc. General liability insurance covers you against claims of physical harm by a third party. Other types of insurance to seriously consider:

• Directors & Officers insurance, which shields board members and the leadership team from being personally liable for employee claims of wrongful termination, harassment, etc.
• Workers comp for employees and independent contractors. This is very inexpensive.
• A cybersecurity policy. You are more at-risk if you store your data on a private server rather than the cloud.

Internal fiscal controls: These are financial workflows and procedures that protect you against fraud by creating accountability checkpoints in the accounting process. There are many ways to incorporate them into your news business, but two great places to start are:

• Building them right into your financial policies and procedures. Examples include separating duties for who handles the money (like having one person open the mail and a different person process the checks) or outlining who has spending authority and up to what dollar amount.
• Creating a RACI Chart to make it crystal clear who is in charge of which steps in your financial workflows. 

Access to legal help: The sophistication of your legal needs will depend on your budget size, number of employees, audience reach, volume of your reporting and your geographic scope. The greater your scale, the greater the potential legal exposure. You’ll also want to take into account the focus of your journalism. For example, hard-charging investigative journalism may create more exposure for your news organization than other types of reporting. Here are the main categories of legal support you’ll need to build over time:

Type of legal need	How a lawyer might help
First Amendment Law	Review sensitive or high profile stories to protect against libel and privacy violations
Intellectual Property	Articulate ownership rights for content, photos and independent contractorsCreate republishing policy; terms of service; privacy policy Review NDAs and partnership agreements requested by media companies Develop and continuously refine business templates Consultation when issues arise
Routine business transactions	Review contracts and agreementsTemplates for partnership agreements, NDAs, MOUs, service agreements, contracts, grant agreements, sponsorship agreements
Strategic business transactions	Consult on a merger/acquisition of another news organizationAssess the merits of a high-profile partnershipStructure reporting projects or collaborations with other news orgs
Employment	Develop HR policiesGive advice on how local legislation affects your responsibilities toward employeesConsult on performance and separation issues
Real estate	Review leases, subleases, co-working space agreements
Board governance	Review bylawsHelp with policy adoption and resolutionsAdvice on conflicts of interest
Tax filing	File 990sFile charitable solicitations

Data security: There’s a lot that can keep you up at night here, so over time you’ll need to develop an increasingly robust approach to how you protect digital information. In the meantime, we recommend you start by addressing how public data gets used by your organization through the following:

• A legally required privacy policy to articulate how your news business will collect, protect, store and use information collected from your stakeholders. 
  • An explainer
  • An example
  • How to write one
• Terms of service, which is the agreement between a service provider and those using that service. In the journalism world, that usually means the agreement between your news business and those who use your news website. 
  • An explainer
  • An example
  • How to write them

Strategies for gathering documentation

Overwhelmed yet? It’s true that there’s a lot to think about when it comes to mitigating legal and operational risk. It’s the rare independent news businesses that has everything in place from the get-go, and the reality is that many news entrepreneurs are initially so focused on the demands of the journalism that it takes awhile to build the operational infrastructure to protect against these contingencies. What’s most important is that you work steadily toward these goals —  and meet them before you take a big step forward.

Financial planning with confidence

Many news organizations bootstrap in their early years. They spend as they go, focusing mainly on cash inflows and outflows. After all, cash is king when you’re running a business. But eventually, you’ll need to look beyond the next dollar and start planning for the future.

The discipline that comes with forecasting and creating a detailed budget will help you take things to the next level: you’ll put a stake in the ground for what you think will happen over a one year period in terms of expense and revenue. Then you can start tracking what actually happens against this plan. You’ll gain a far deeper understanding of how your assumptions stack up against your plan, how funding seasons work and what your spending and revenue patterns are. If that weren’t enough of an incentive, consider this: you’ll be asked to submit a detailed budget If you access grant funding. This way, you’ll already have it done.
Ultimately, predicting revenue is an art, not a science. But there are tools you can use to track your expectations and manage against them. As you gain confidence with one-year projections, you’ll be able to project over a longer time horizon so you can make sound decisions about not just affordability today but the long-term sustainability of your staffing and investments.

For help with financial planning, view our courses on Financial Management for News Entrepreneurs and The LION Financial Planning Workbook.

Key questions to answer

Creating a budget is a process, not a task. There are several decisions you’ll have to make and information to gather before you’re ready to dive in. Start by answering these questions:

How will you manage your accounting? You may have launched your business with a spreadsheet-based budget, but you’ll need to transition to a more robust accounting system as you start to grow. Quickbooks is widely used among small businesses, and you might consider hiring a bookkeeping service — especially as your business grows in complexity or if you’re a nonprofit dealing with restricted funds.

When is your fiscal year? Many organizations map their fiscal year onto the calendar year. But there are times when it might make sense for your fiscal year to be different depending on the context in which you work and the rhythms of those who interact frequently or deeply with your news business. For example, if you are a publication that focuses on education coverage, it may be wise to start your fiscal year in July to match the schedules and funding cycles of others in the field. 

How will you organize your budget? Sure, you’ve got revenue and you’ve got expenses, but you’ll need to get more granular with your budget categories to get a clear view of what’s going on. 

• Revenue: Many news businesses organize their budgets by revenue stream. Common categories include grants, major donors, individual donors/membership/subscriptions, sponsorship/advertising, events, etc. If you’re a nonprofit, you’ll want a separate category for restricted funds that carry over from one year to the next. Some organizations go even deeper and create a program-based budget.  This means they break their revenue out into what dollars are coming from which program/project. Then they add them up to ensure they have enough unrestricted dollars left to cover “overhead” that might not be covered by the project funding.
• Expenses: Your expense categories should also reflect the different buckets of costs that your news business incurs. Common categories include personnel (ex. salaries, benefits, payroll tax), professional fees (ex. freelancers, technology) and facilities (ex. rent). It’s also typical to have an “other expenses” category to capture all the things that don’t fit into a category. If this category becomes too unwieldy, it’s time to rethink your categories.

Ultimately, your budget categories should reflect the specifics of your news business, and you should customize your budget to your situation.

What are your 12-month costs? Think about your budget as your obligations for the next year. Which costs are recurring and which are one-offs? It’s worth taking the time to analyze these, since you’re on the hook for your recurring costs. You’ll also want to think about annualized costs, which are costs that are spread out over the course of the year, and include them in your future budget projections.

What is your projected revenue by source? Now it’s time to dig into the numbers. Plugging revenue projections into a budget can sometimes feel like a wild guess, but there are ways to slow down this process and be more intentional about how you arrive at those numbers. 

Covering your operating costs

First things first: you’ve got to cover your operating expenses. Here are a few steps to the process:

• Step One: Figure out what costs you need to cover.
• Step Two: Figure out which revenue you can use to cover those expenses. 
  • Nonprofits should start with any sources that are restricted and apply them to the relevant costs. It’s often easiest to cover the direct costs of reporting and community engagement, but harder to cover back office and administrative costs.
  • You should always make sure you know your funders’ policies on covering overhead costs. Many establish a cap, such as 10-15% of your project budget. Others may allow you to build more “overhead” into your budget if you can demonstrate that it directly supports your reporting.
• Step Three: Now that you have a clear sense of what’s left to cover, you can make sure you have flexible enough revenue to make it happen.

Projecting revenue

Projecting your revenue needn’t bring on an existential crisis. The key is to break it down into categories of likelihood to suss out the difference between what you know, what you think and what you hope will happen. Use the following categories:

• Committed: The money is in the bank or an agreement is signed by the entity giving you money.
• Likely: There’s an 80 percent likelihood this money will either be in the bank or an agreement will be signed imminently. 
• Possible: The money is on the horizon or is still a bit “pie in the sky.” These are the big opportunities you’ll chase after getting your “commitments” and “likelies” through the door.

Once you calculate your potential revenue based on these different scenarios, you’ll have a better sense of what kind of spending is reasonable to plan for. Your next step? Go through the whole process again with your expenses. This will give you the ability to game out your options and understand if you really can hire that team member or upgrade to that software. And if you find that you can’t, you know what it would take to get there. 

Sometimes you might want to include something in your budget that you’re not sure you will be able to afford. If you think it’s a safe enough bet but want to hold yourself accountable for raising the money before you spend it, label the expense as “contingent” in your budget, or decide on the trigger for when you’ll spend on certain things. Make sure you put both the revenue and expense in the budget. That way if it doesn’t happen, it won’t impact the bottom line. 

One final note: it’s critical throughout this process to track your assumptions. After all, your projections aren’t valuable if you can’t remember why you made them. This is especially important because, barring major shake-ups, your budget shouldn’t change throughout the year (though you can create a forecast mid-year based on updated assumptions). As you continue to refine your projections with more precise information, your assumptions will start to feel less like shooting in the dark and more like an educated guess.

Important financial documents

A budget isn’t the only essential document a news business needs. Below are some legally required and best-practice financial documents to maintain.

What you need	Also known as	What it tells you/others	Who needs it
Profit and Loss Statement (P&L)	Income Statement Statement of Activity (nonprofits)	If your business is profitable and sustainable	Every business
Balance Sheet	Statement of Financial Position (nonprofits)	The status of your assets and liabilities, and for nonprofits, how much of this is restricted	Every business
Cash Flow Statement	Statement of Cash Flows	How much cash is actually flowing in and out of your business and whether you can pay your bills (and for how long)	Every business
Annual audit	N/A	That your financial practices are accurate, complete and meet required standards as evaluated by an independent auditor	Nonprofits. In some states, nonprofits with revenue beneath a certain threshold are not required to have a full audit. But you might opt for a less-rigorous audit to send to funders, who will appreciate the transparency and useful information.
Form 990	Return of Organization Exempt from Income Tax	A publicly available snapshot of your activities, governance and financials for the year	Nonprofits
Form 990N	e-Postcard	A publicly available  account of your basic information	Nonprofits with an income less than $50,000 or who have filed as a 501(c)3 but use a fiscal sponsor
Income tax returns for three years	N/A	Your income, expenses and other tax information	LLCs
Employment tax information for four years	N/A	That you’re paying your share of income, Social Security, Medicare and unemployment taxes	LLCs who have at least one employee

It’s worth noting that an accounting software can generate a P&L Statement, Balance Sheet and Cash Flow Statement with the click of a button. Another reason to graduate from spreadsheets!