Why You Should Treat Yourself as a Business
This guest blog comes from Steven Gerein, founder of SongShop, a platform for songwriters to advertise their song catalog and for artists to find songs to record.
THE BACK STORY
I started my band with me and five others back in 2012. There was a drummer, bassist, guitarist, utility player, me on guitars/keys, and the lead vocalist. The first thing we did (literally before our first paid show) was purchase a sound system large enough to fill a community skating rink - We live in Canada - that’s a unit of measurement here. Me and one other guy fronted the money, and the band would pay us back like a loan payment each show. This basically bound all six of us together in a verbal agreement. It sort of kick-started us into getting set up as a legitimate business. One of the guys worked at a bank, he could open us a business account, but we needed a legal business name. So we registered our band name, signed some documents, and became a legitimate business.
So what does running your band as a business mean? Well it can mean few things - You could charge tax for shows, claim all kinds of business expenses on tax returns, it makes you look more professional which can give you a leg up over other bands for show bookings, and maybe most importantly - it makes band operations and member feuds very easy to resolve.
One of the first things we did after registering as a partnership was get a lawyer to draft us up a band partnership agreement. This is something that outlined how finances would be handled, who owned what, what was expected of everyone, royalty splits -EVERYTHING. The partnership agreement came in handy down the line. Right before we started to pursue music on a commercial level there was a falling out with two of the members. Although it was emotionally intense and a difficult situation - the actual logistics were seamless because we had all signed a legal document outlining what was to happen if this situation arose.
Setting up a band partnership agreement can be one of the first steps to running your band as a business. You don’t need to go and get a business name registered right off the start, but having the agreement in place between the members will take care of pretty much everything that can come up during your time as a group. This is also the first step in getting yourself set up as a legal business. . I realize that some of you might not have access to an entertainment lawyer, or the budget for it - so I’ll do two things; At the bottom of this blog is the framework of a partnership agreement that you can take and basically fill in the blanks to. If you want something a bit more tailored to your individual needs I have linked you to one of the best entertainment lawyers in the business - and a guy I’m proud to call a friend!
TO BUSINESS - OR NOT TO BUSINESS?
Lots of people wonder if/when you should register your band as a business. There isn’t really a clean cut answer to this as lots of factors come into play. If you are going to go as far to sign a partnership agreement, you might as well go ahead and register as a business. If there is a lot of money or assets at stake, or if there is constant arguments or drama over profit splits and who owns what - it might be a good thing to consider. Being registered as a business also has a few perks:
You are able to purchase insurance for gear, liability, etc.
You can write off business expenses
You can charge tax to customers/venue’s (I’ll explain why later)
You can open a business bank account under the name of your band and get business loans (you can finally buy a tour bus!!)
It gives everyone equal ownership OR makes it clear who is running the show and who own what
Roles and responsibilities will be clearly defined
You can be more attractive to record labels
Moving along now! Opening a bank account specifically for your band is important. To open an account under the band name/business name you will most likely need to be registered as a legitimate business (I say most likely because I’m not sure of the rules in other countries - do your research!). If you’re not into doing that quite yet one of the members can just open an account online under their own name - this should probably be the person everyone trusts the most and not the one who likes to gamble!!
All of the money you make and spend NEEDS to go through this account. All money made goes in, and the expenses go out. If you get paid in cash don’t just split the money five ways and be on your merry way. That can get messy when you're trying to update your accounting down the line. Here are five REALLY GOOD reasons to open a band bank account.
You can easily see what you can and can’t afford (gear, recording, marketing)
You can easily track how much you actually make
You can easily track how much you actually spend
You can pay for things like meals, hotels, and fuel with the account debit card - no one has to front the money and be paid back later
You can link your bank account to accounting software and have all your ducks in a row when tax times comes around
NOW THE BORING STUFF - SORRY ACCOUNTANTS!
When it comes to tracking your money there are basically three main ways you can do it.
Run an spreadsheet that you dedicate one member to consistently update
Hire an accountant to do your bookkeeping
Connect your bank account to some accounting software
This is BY FAR the best option as long as all income and expenses are going through your account
There are tons of free options available - I would recommend Wave or Zipbooks
However you decide to do it make sure that you are keeping on top of categorizing your income and expenses. Setting up your chart of accounts properly at the beginning and keeping things up to date will save you some headaches come tax time. Trust me - when your playing over 50 shows a year trying to track expenses back 6 months can get a bit interesting!
When it comes to taxes -first and foremost - You have to do it right! But don’t worry, if you have been on top of tracking everything all year, keeping your receipts, and consistently updating your books it will be a breeze! So I had mentioned previously that being set up as a business has some tax perks. Well here they are!
You can write off gear purchases! BUY THAT GUITAR
You can write off vehicles and fuel
Make sure you are keeping a mileage log
Make sure you are keeping fuel receipts
You can write off hotels - We’re staying at the Ritz tonight!
You can write off operating expenses
Distribution costs, accounting fees, merchandise expenses, graphic designers, etc.
You can write off studio expenses - L.A. Here we come!!
You can write off haircuts and clothing purchases
Really?? Yes. You as an artist are a brand. Your brand has an image. You must keep that image and consistently portray it for marketing purposes. So you NEED to look a certain for your business branding. Clothing and haircuts keep your branding on point.
You can write off a portion of your mortgage or rent, and utilities
What?! Yep. If you have a portion of your house or apartment that is specifically and strictly set up for your business (a home studio, jam space, etc.) you get to use a portion of your mortgage or rent as a business expense
How Does this work?
Let’s say for example your house is 1000 square feet and your home studio/jam space is 250 square feet. You are using 25% of your space strictly for business use - therefore you can write off 25% of your home expenses!
So how do you do all this?? Hire an accountant. Unless you are 110% confident you know what you’re doing when it comes to taxes, hire an accountant. Doing taxes the wrong way can make for a messy situation down the road. Make sure you do your research about how things work in your country/province/state, because everywhere is slightly different.
So that’s about it! Not much to it - right?? I hope this has been valuable to you and you are inspired to start running your career as a business owner. I was once told it’s 80% business and 20% music. I’d be more inclined to say it’s 90% business and 10% music. If your planning on having a successful career as a band or artist, you NEED to start thinking like an entrepreneur. You are selling yourself and your music as a brand, and need to treat it as such!
ONE FINAL - AWESOME - TIDBIT
If you made it this far, thank you so much for reading!! You clearly have the drive to do what it takes to become a successful artist. So to reward you, I’m giving away a totally free band partnership agreement. This is a fill in the blanks type document and will be enough to get you started on your path towards running your career as a business! This was drafted by an entertainment lawyer and is 100% legit. Simply click the download link to grab it and use it as your own!
Thanks for reading!!
Let me know what you think in the comments section!!
Steven is a musician, ocean lover, and entrepreneur. With a passion for business and all things music he hopes to bring the two together to create a community that helps move everyone forward!