We all want the same thing as everyone around us. Health, wealth and happiness. I can help you with two of the three. Understanding that the happiness you feel when playing your instrument, whether it be guitar, drums, piano or vocals, is something that can be turned into a viable business. Don’t get me wrong, we all have thoughts about being a rock star and using our talent to make money, but what we are talking about is something much different. I’m talking about using your talent to make a product, and then using that product to make money. Every business has something for sale. You, your music and your talents are the products you’ve always needed to obtain wealth, you just don’t know how to apply it. Monetizing your music has many levels and if you only have your sights set on the highest level, then you will be really disappointed when things don’t work out for you. Those who can look at themselves as a product of value can start to gradually make money, in small amounts, in a short amount of time. Eventually you can grow that into a sustainable living. You have half of the battle already fought. You are talented, you know that you are talented and you know that talent has value. So what’s missing? You don’t know anything about money and how to make it, or how to run a business. You’re in the right place. Let’s find out more about why your music is a business, and how to turn it into a money making machine like you’ve never imagined.
Let’s start with the basics. Knowing what type of businesses there are will really help you figure out where you land in the world of entrepreneurship. Most musicians are in this for the music and really don’t consider the fact that everything they spend money on to further their music business can reduce their taxable income. These normal expenses can be write offs that save you tons of money. Remember that record you wanted to make in the awesome studio? Now you can.
If you operate on your own, you are a sole proprietor. If you have a partner, you are most likely going to file as a general partnership. These are the most basic types of businesses you can become. Either a sole proprietor or a general partnership don’t run you a lot money to start up. The paperwork can usually be filed in a hour and be recognized by your county government within a month. Make sure you check out our next eBook on setting up your business to get details on exactly how to set this up. Let’s take a closer look at these two types of businesses and how they work.
This is pretty basic stuff. You can either just call yourself John Doe, or you can be John Doe “Doing Business As” John Doe Music (for the sake of clarity, just replace John Doe with your name to help it make more sense to you). Filing a DBA, “John Doe Music” is necessary when you want to be recognized by your county as someone who is operating a business in that county. This is also necessary for someone that wants a business checking and savings account. Unlike every other type of filing, Sole Proprietors use their social security number for both personal and business needs since they are considered to be the same person/entity. This type of business is only recognized within your county, and yes, someone outside of your county can also be John Doe Music and the only way to change that is to file your business as an LLC or Corporation, which we’ll talk about in a second.
If you and your friend or friends are in this whole music thing together, you’ll want to form a General Partnership. This isn’t much different from a Sole Proprietor as far as name protection or benefits, but it does allow you to get a debit card with your bands name on it. I know….that’s awesome. So let’s just say Paul, George, John and Ringo are in a band called “The Beatles”, they can either go on contributing to the band as individuals, taking their cut when they make money, or they can form a General Partnership and be recognized in their county as “The Beatles”. Now they can get that debit card. Well, almost. In the case of a GP, you would need to file for an EIN number which is essentially a taxpayer identification number to identify your business, just as a social security number is used to identify an individual. Since you have multiple people, this number will be used to identity your business when you file taxes or any other types of governmental forms. Now you can open that bank account in the name of the General Partnership and work on getting that debit card.If you and your friend or friends are in this whole music thing together, you’ll want to form a General Partnership. This isn’t much different from a Sole Proprietor as far as name protection or benefits, but it does allow you to get a debit card with your bands name on it. I know….that’s awesome.
LLC’s and Corporations
This is for those who are really planning on making it to the big show. LLC’s and Corporations cost a good amount to money to start up. You will definitely want an attorney to do all of your filing and help with the many elements it takes to form this type of company. These companies usually have a state tax fee they have to pay annually. In the case of California, that is $800. Most bands and artists just coming up haven’t seen this amount of money from their music ever! Once you start to really earn money, incorporating is definitely something you’ll want to do as this helps to protect personal assets and helps shield personal liability as long as the LLC and corporation are run correctly. As an example, the company’s debt is company’s debt, not your personal debt. This is just one example of why it’s important to get to this level, but don’t put the cart before the horse. Start making money first, then spend it.
The benefits of becoming a business are so great that it can help you change the way you operate your band or solo career. The ability to make money and spend money as a company will ultimately help you grow your business. This helps keep everyone on the same page when it comes to money, scheduling, expenses..etc. When John is John and George is George, money floats around, nobody knows where to be and when to be there, and nobody is really in it for the greater good. They just want what’s best for themselves. Forming a businesses and making it known that you have a job to do, and that your friends/band mates/partners also have a job to do is really fulfilling. It brings purpose to your efforts and allows you to schedule creative projects vs. business projects. It can help in creating a well oiled machine that can start to propel you into that area of wealth we talked about in the beginning. Let’s go over some of the fundamental reasons why and how filing as a business can make you wealthy in more detail.
Proper scheduling helps break big tasks into smaller ones that are more easily accomplished. Having a calendar and sticking to it allows you to grow much faster than you ever thought you could. I like the approach of setting a date in the not so far future where you decide a specific goal needs to be completed and work backward from there. Knowing the end date makes it so much easier to figure out what needs to be done, and when it needs to be done by. Sure, you could do this without forming a business, but where’s the accountability? If you are all on that General Partnership filing, you all have purpose to make sure this business thrives. If you want the tax benefits of being a part of this business, I think you and your partners will be far more inclined to do their job.
Speaking of good old Uncle Sam, TAXES! Another great thing about operating your music business like a business is the ability to write off ordinary and necessary expenses against your income. You can’t do that if the IRS considers your music to be a hobby and not a business. When you form a business, you can continue to write off everything you spend that is an “ordinary and necessary expense” as long as you want, but of course, just like an individual, you will also have to show any income you make as well. When you form your business, you need to keep good records. Not just receipts from purchases, but mileage as well. Did you know that you can write off $.52 per mile that you drive for your business?
Of course you didn’t and that’s why you’re here! That’s a lot of money for any artist or band that goes out on tour. Imagine driving 1,000 miles and being able to get over $500 in tax deduction at the end of the year. Pretty cool, but if you don’t log your miles and you get audited, that’s a whole different story. Keep your records. Know what you spent, where you spent it, what you spent it on, and make sure it’s as accurate as it can be. The better you understand where your money goes, the more you’ll be able to get in write offs at the end of the year. Once you have your Quickbooks, or record keeping spreadsheet organized, you’ll file your taxes. A sole proprietor files a Schedule C to account for profits and losses from a business, while the members of a partnership are given a K-1 form to account for that income and losses and that is then filed with their personal taxes. When done properly, losses can be used to income from wages earned at a regular job. Sweet.
Using only one bank account to handle personal and business income and expenses can be very complicated and confusing. You will have a lot of trouble making sense of what you used for business purposes and what you used for personal expenses. By forming a business entity, you can open a savings and checking account for your business and even get that business debit card we talked about earlier. By dividing your personal income and expenses from your business income and expenses things will be much easier to deal with and understand.
That business account is probably looking really nice right about now. The other thing about money is that it’s the one sure thing that everyone wants to argue about. So, if you are dealing with other people as part of a General Partner-ship, you should work out money issues before you even open an account. As income comes into the account, everyone should know that all expenses for the partnership get paid first and then what is left over can be divided among the partners. If everyone knows the ground rules going in, there will be fewer disagreements about money because everyone will have agreed to it beforehand.
Interns, Interns and More Interns
You know what’s really cool? Interns. If you’re an actual business, you can work directly with Colleges and Universities in your area to find interns that are going to school for things that are in the same field as your business. You don’t want a music intern, you want a marketing intern or a social media marketing intern, or an art major, or a music business intern. These are the types of people that can make your day to day easier, but be careful. There are rules and regulations for internships. The most basic rule of interns is that they cannot do jobs that make you money, so while you can have them help with social media for your music, they can’t go book you a show that makes you $500. Having interns is far more important than just having the extra hand, or someone to get your coffee. It’s all about parallel growth and building up other people while building up yourself. You will probably have more to offer your intern that you think. Having the talent you have is an admirable thing, and interns will understand that. Your interns will see that you had the ability to create and run a full time business which they will want to do for themselves one day. This will help raise their level of respect for you and help get their best level of work for your business.
So here we are. You know know that your music is a business and there should be nothing standing in your way from becoming successful. Your understanding of the basic structure of business, scheduling, taxes and money as a whole should be greater than it was before you started this eBook. And if it’s not, don’t worry, we’ll continue to go over these things throughout the entire lesson. Now that you have this as a starting point, motivate yourself and get off your behind. Do something productive and sign up for my email list to get my free eBook “Setting Up Your Business”. It’s a step by step instructional eBook on how to go from an artist, to a company. After you’ve completed that eBook, you should be a business, recognized by your county, with a bank account and that awesome debit card, so that you can then move onto “Your Business Is Your Baby…..Don’t Let It Die”, a guide to nurturing your business. Until next time.
Although the author and publisher have made every effort to ensure that the information in this book was correct at press time, the author and publisher do not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause.