Frictional games was properly started 2007 (although part of the team has worked together before that), meaning we will celebrate 3 year anniversary next year. During this time we have paid salary to all employees ranging from 2 - 4 people. As far I can recall, we have never missed a month (jens: as the one that pays the salaries - no we have not!). We have been very lucky in this regard as the income can be quite unstable, with periods of very meager cash flow. Our salaries have not been all that good, often around what we had as students (right now I am below that!), but I guess that is what you have to deal with when running your own game company.
During the entire duration of the company we have always been working at home and so have all employees. Even though we have this very bedroom-coder approach, I do not think we live up to being "indie". This because we have relied on publisher support to some extent, especially with Black Plague and Requiem. However, now we have managed to be get enough funds to become completely self-supporting and will finance the upcoming game Unknown all by ourselves. Does this mean we are indie now? I have no idea.
Now a bit on the cashflow and a brief explanation on where we get our income. In the past we have gotten most of our income as pre-payments from publishers. The reason why one wants to get advances is because it can take a long time before publisher money arrives from the actual sales of a game (at least 6 months) and it is also a proof that the publisher is serious.
For Overture, we got the money a few weeks before release of the game and a bit afterward. A great deal of the money never reached us (the bit that did was thanks to the "give us the promised cash or you will not get the promised game" method) because of the not-so-honest Lexicon Entertainment (now out of business I think, go figure). But that is another story.
For Black Plague and Requiem we got a good deal of the payments several months before release and the money acted as a kind of funding. It is important to point out that an advance is more like a loan though, and must be paid back using royalties before we get anything more. So far we have not reached this limit even though it has been over 1.5 years since release (we are very close though). By not having pre-payments you can usually get a higher royalty rate, but in the case of Black Plague and Requiem, it would not have been possible to create the games without being paid in advance.
Another source of income are the online sales. The major part of this are the titles that we own digital rights to (all mac/linux versions and windows version of Overture). In the past this have not been a huge amount of income but have still made it possible for us to keep alive during some harsher months and we would probably not have survived without it.
Recently with the weekend sale on steam, and later in our own shop, this have changed. These sales have shown us just how lucrative online sales can be and is also the reason why we are now able to finance the upcoming game ourselves.
Apart from the income of online sales and publishers we have also had a few other lucky extras. Last year we were awarded funding from the Nordic Game Program. This was something arriving just at the right time and kept the company alive. Another stroke of luck was our cooperation with Reachin and the development of the haptic version of Penumbra. This project was a financial boost right when we needed and also a very exciting thing to be involved in.
Looking back at the past I think we have been very lucky and it still feels a bit strange to be able to make a living out of making games from my living room. Sure we have had our bad times too and there have been plenty of times when I thought it was time to look for a "real" job. We are still alive and kicking though and are extremely excited in seeing what the future holds.
Finally thanks to everybody that have supported over the years! It would be fun to hear what company aspects you are interested in hearing more about.
