Kickstarter Accounting Lesson

written by Creston


A short while ago, War Balloon Games, maker of Star Command, published a revealing Kickstarter update.  While looking at this update, I was struck by some accounting deficiencies.  Let us take a look at this Kickstarter project in more depth.
 

Kickstarter Goals

The goals for their Kickstarter project were:

- Hire extra talent for things like music, sound effects and additional platform development like Android
- Promote and market to help sell the game and fund future expansions and possible sequels
- Localize the game to other regions like Europe and Asia

Looking at their update, they did pay for the music and I assume sound.  They also paid for marketing and promotion with the poster art and the trip to PAX.  But, where is the additional platform development?  Where is the localization?  Is there enough money?
 

$20,000 Goal

Even worse, what if they did not raise ~$37,000 but only raised $20,000 (their original goal)?  What would their accounting look like?

$20,000 Total
- $1,000 (~5% credit card fees)
- $1,000 (~5% Kickstarter fees)
- $1,000 (~5% unfulfilled pledges)
- $6,000 (approx. ratio of rewards at $20K)
$11,000 Remaining

So, $11,000 is available to spend.  Yes, if they structured their rewards differently as they suggested, they would have had more money to spend.  However, let us assume they used the same reward structure and have $11,000 left.  How would they spend it?  Well, in their Kickstarter update, they spent $16,000.  Interestingly, the thing they regret the most was spending $4,000 on the lawyers to establish their business and operating agreements.  So, let us assume they would not spend the money on that and maybe the iPads or something else to get down to $11,000 spent.

Half of the items they listed in their goals would still be missing.  
 

Accounting 101

When I look at their Kickstarter update and the data provided, I see an accounting problem.  I do not see evidence that they determined the costs of everything they wanted to accomplish and perform a budget projection.  That sounds fancy, but it doesn't have to be.  Just do some research into the costs of Kickstarter and the costs of what you want to accomplish.  You could do it on a napkin if you wanted.  The fact that they raised nearly twice what they were asking for but could not fund all of the things they specified indicates an accounting problem.  

I find it interesting that the costs they most regret paying were for legal and accounting professionals.  Perhaps if they had spent some money upfront on some accounting professionals (or at least took the time to educate themselves) they could have had a more productive Kickstarter.  By productive, I don't necessarily mean more money, but productive in terms of setting a goal amount that would allow them to accomplish all of their goals.

Indie game developers using Kickstarter need to learn the accounting lessons from this project and apply it to their own.  If more Kickstarter projects meet or exceed their monetary goals but fail to achieve their stated objectives, I fear that backers' trust of indie game projects will weaken.  I think we would all be sorry for that.

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