By Mitch Rice
Almost every aspiring musician has fantasized about starting a band and becoming popular. The odds of becoming rich and famous are against you, but as long as you manage your money properly, you can probably make a reasonable profit.
The question is, how do you “manage your money properly”?
Consider Training to Become a Bookkeeper
If you have formal education or training as a bookkeeper, managing finances is going to get much easier and more intuitive for you. You’ll develop a keener familiarity with financial management processes and systems, and you’ll know what types of reports and statements to generate.
If your band is still small and not making much money, formal training in bookkeeping may not be a necessary option, but as your finances scale and your band grows, that bookkeeper training is going to become even more valuable.
If you and your bandmates don’t want to become bookkeepers, your next best option is to hire a bookkeeper. This is going to cost you some money, of course, but it might be worth it if it saves you time and keeps your finances organized.
Start With a Plan
Before you begin, put together a plan. How is your band going to manage finances from a high level? What are your financial goals?
For example:
- Will this band have a business structure? Are you going to treat this band like a business? If so, are you going to create a formal business structure for this band? Certain organizational structures will confer tax advantages to you while minimizing your liability.
- How will you share (and cover) expenses? How are you and your bandmates going to share and cover expenses? For example, if you need to purchase new sound equipment, is everyone going to contribute to purchasing that equipment equally?
- How will you share (and distribute) profits? On the flip side of this equation, how will you share and distribute profits? Once all your expenses are covered and you have extra money on hand, does everyone in the band get an equal share? Is this structure different for different types of income like merchandise sales, direct music sales, and money from gigs?
Formally Organize (If Applicable)
Though it’s not very anti-establishment, the best move for most bands is to formally organize a business. Depending on your goals, your internal priorities, and your vision for the band’s future, you may want to form a simple partnership or something slightly more complicated like a limited liability company (LLC). However, complexities can arise because LLC requirements vary by state. It’s beneficial to research and choose the best state to form an LLC, as state-specific regulations can significantly impact your decision.
Establish a Dedicated, Shared Account
Ideally, if you’re treating this band like a business or if you’re all going to share expenses and profits, you’ll establish a dedicated, shared account exclusively for the band. Each member can contribute a small amount of money to this starting pool, then you can tap into this pool whenever the band needs to purchase something. When the account gets above a certain amount, you can distribute the profits easily.
Create a Spreadsheet (or Purchase Accounting Software)
If your band is still relatively small and you’re not making much money, you can document all your income and expenses with the help of a simple spreadsheet. As your finances become more complex, and as the band grows in popularity, you may eventually be in need of an upgrade. Fortunately, there are plenty of accounting and bookkeeping software options available to you.
Plan for Taxes
Remember that even if you’re only making money on the side with this band, you’ll still owe taxes on your income. Keep careful track of how much money you’ve made and be prepared to pay taxes on behalf of the business (if you have an LLC or a corporation in certain areas) and as an individual if you’ve distributed profits.
Analyze and Refine
Finally, dedicate some time to analysis and refinement. Over a given quarter, or a given year, you can take a look at your band’s income and expenses and come to a conclusion about how you’ve managed the money. Did you spend too much money on a specific category? Which income sources were the most profitable for you? You can then use this information to better plan your financial strategies in the future.
This information is also valuable when it comes to auditing your own bookkeeping processes. For example, did you deviate from your organization system at a specific point during the year? Did the books become messy and complicated when you hired that freelancer to help?
Managing finances for a band isn’t easy, and it’s certainly not the funnest part of being in a band. But it’s a necessary step if you’re serious about making money as a musician.
Data and information are provided for informational purposes only, and are not intended for investment or other purposes.
