Treat your music like a BUSINESS

Author

Andrew Southworth
June 26, 2023

Hey friends!

Most music artists start out making music as a hobby. Eventually, if your music is good enough, you start taking it seriously.

This means putting together a release plan, marketing budgets and a content strategy. Chances are if you’re reading this newsletter, you already understand that.

Unfortunately, there isn’t too much information online for how music artists should treat the business side of their music.

This isn’t a sexy topic, but I feel this is 100% necessary for those of you getting serious about your music marketing.

Thats why today we’re talking about…

The business side of your music career

What do I mean by the business side? Specifically i’m going to cover:

  • Do you need an LLC?

  • How should you handle money?

  • How should you handle taxes?

  • Things related to these topics

I do want to clarify up-front that everything i’ve learned in these areas is through personal experience and trial-and-error. I’m not a CPA and I don’t have any formal business training, but I have hired experts to help me figure out my business side.

Another thing I want to clarify… I’m from the USA. Most of you reading this are too, but there will likely be differences if you live in another country. Fortunately the general premise should be fairly similar in most countries.

My hope is that this saves you a lot of headache.

Do you need an LLC?

An LLC is a limited liability company. I talk to a lot of artists that think they need an LLC right away, but this isn’t true.

In the US you can run your business as a sole proprietor, make money with your music and file taxes with no issue.

But is it good to create an LLC anyways? Not necessarily. At least in Massachusetts an LLC costs $500 per year, and you won’t get any tax benefits by doing so.

LLC’s are really there to reduce your liability if things go South. However even in that case people can still come after you personally, and thats where something like business insurance would provide the most protection, but at a cost.

The reality is as an independent artist you likely don’t have much risk.

What you should do is register your business in your city / town so there is a public record of your business existing. You can use this paperwork to file for an EIN, or employer identification number, and then also open up bank accounts / credit cards with that information.

At some point it will make sense to form an LLC or even a Corporation, but when you do so you need to make sure you properly separate your personal finances from the company finances.

Thats where we get into…

How should you handle money?

Whether you’re staying a sole proprietor or forming an LLC, you need a way to keep track of your finances. I’m going to break this up into two categories:

  • Bank accounts & credit cards

  • Accounting Software

Bank accounts & credit cards

With your EIN and paperwork for your business, sole proprietor or LLC, you can open up bank accounts and credits for the business. Once you have these accounts keeping track of your finances becomes much easier, but there is a certain setup I use that I think is very helpful.

Here is the general account structure I created for my business:

  • Checking: Incoming money

  • Checking: Taxes

  • Checking: Payout

  • Checking: Profit

  • Credit Card

You’ll also want a PayPal business account too, possible a Wise account if you deal with international payments. Just an FYI, my structure is a little bit more complicated because I use more accounts to easily track various aspects of my business.

Right now I use an online bank called Bluevine for this account setup. You can create 6 checking accounts for free and right now they’re giving 2% APY.

The ‘incoming money’ account is where I have all payment sources send money. Money from your distributor, YouTube adsense, online store etc.

Periodically I wipe this account by transferring all the money inside of it to the other checking accounts. I’ll transfer 1/3rd of the money to the ‘taxes’ account, whatever I need to cover expenses in the ‘payout’ account, and the remainder in the ‘profit’ account.

I’d use the credit card for all expenses, ideally one with the best cash back and terms. Then I hook up the ‘payout’ account to pay off the credit card each money.

Every so often cash out the ‘profit’ account to your personal accounts, and ideally store money that isn’t needed immediately for personal use in a high-yield savings account or invest it into a stock account (like Robinhood) or retirement account (IRA).

If you’re operating at a loss, then you’ll be paying off that credit card with your personal accounts.

But this brings us to the important topic of…

Accounting Software

You need some type of way to keep track of all incoming revenue and outgoing expenses. Not only will it allow you to keep track of your finances, but it will help you out a TON come tax season.

I’ve been using Freshbooks for a couple years now because of their affordable pricing plans and easy interface. I’ve been testing out Xero recently as well, its much more complicated but offers a lot of time-saving features.

Every month I go into Freshbooks and…

  • Enter all payments, individually

  • Enter all expenses, individually

  • Look at my profit/loss report

Each individual payment you received should be entered and categorized. But perhaps even more important is every individual expense is entered and categorized.

What counts as an expense?

  • Music production costs

  • Advertising and marketing costs

  • Music gear purchased

  • Gas / mileage for driving to shows

  • Audio software purchased

  • Your Freshbooks subscription

  • Physical music & merch manufacturing

  • Your Melodist / DistroKid subscription

  • etc…

Anything related to your music business.

This information is vital come tax season because you don’t actually pay taxes on your gross income, you pay it on the net income.

How should you handle taxes?

If you’re using separate bank accounts, credit cards and an accounting software taxes become a whole lot easier whether you’re doing it yourself or hiring a CPA to do it for you.

Usually before tax season you’ll get a W-2 from your employer, if you have one. But you’ll also get 1099’s from all the places you got paid from above a certain threshold. You’ll get ones from Stripe and PayPal too, and financial institutions for investments.

Personally i’ve been using a local tax guy for several years. In general it costs $250-$500 to hire one (depending on how many tax documents you have), but in every case they’ve saved me more money than i’ve paid them. I found someone that also has other services for small business owners, just in case I needed advice.

I give my tax guy all of my tax documents, and I export an expense report from Freshbooks.

If you made $100,000 from your music last year but had $40,000 in expenses for your music, you only pay taxes on the $60,000 net income. You can kind of think of it like ‘money you spend is worth 30% more than money you keep’, since you don’t pay taxes on money you spend.

It makes sense from the government’s perspective because money you spend is stimulating the economy and someone else is paying taxes on that money now.

Paying taxes

You actually are supposed to pay taxes throughout the year. When you do your taxes if you owe too much compared to last year, you pay a penalty. The standard is to pay quarterly at the federal and state level.

Go to the IRS website and make a payment account, then find your state’s online tax website.

If you’re losing money you of course don’t have to pay throughout the year. If the profit you’re generating is relatively small compared to your income from your employer, then it likely will be fine to just wait until tax season (again, not a CPA, but I got away with that for my first couple years without issue).

New Content

Spotify for Artists is taking some data away and one really cool feature on June 30th, learn more here:

In case you don’t know, I have a podcast! Currently there are 42 episodes and it has about 20,000 downloads.

New episodes!

Recently i’ve been posting some pretty detailed threads on Twitter, here’s one!

News

Here are some music industry news highlights from the past week.

  • Spotify is preparing to launch their ‘hifi’ tier potentially called “Supremium” for $19.99

  • You can make your vocals sound like Drake, Ed Sheeran and many other artists using an AI service called lalals (legality of this still unsure)

  • Massive catalog acquisitions are still happening

  • Live Nation is challenging a court decision between them and BMI giving songwriters a 138% increase in royalties. Their argument is “concertgoers attend concerts for the experience of the staging, videos and lightshows, as opposed to the actual songs and music being performed.”

Quote of the Week

❝

“People often ask me if I know the secret of success and if I could tell others how to make their dreams come true. My answer is, you do it by working.”

Walt Disney

I’m a pretty Disney fan, I go to Disney World at least once a year and sometimes twice. Walt was not only known for his big ideas, but also his incredible work ethic in pursuing them.

Many people look for secrets to success, especially when things don’t go as planned, but most of the time the only secret is that you have to work hard at it consistently for a long time.

Hard work + time = success.

Whenever you’re ready, there are 4 ways I can help you:

  1. My courses. Spotify Growth Machine teaches you how to use Facebook ads to promote your music on Spotify. YouTube Growth Machine teaches you how to grow a YouTube channel organically and how to use YouTube ads.

  2. My ad agency. Forbid Media specializes in running Facebook conversion ads to promote your music on Spotify.

  3. Website / Store / Funnels. MusicFunnels is the best all-in-one platform for music artists to make a website, online store, sales funnels and build their mailing list.

  4. 1-on-1 consulting. You can book 1-hour calls with myself or Alex Bochel here.

My Links:

Discount / Affiliate Links:

If you’d rather just purchase the e-book, or physical book or audiobook you can do so here.

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