Small
(but Important) Business Practices for Musicians©
The Colorado Music Association
Denver, Colorado
November 2002
I. Introduction.
Musician must be well-prepared
to do business; know proven business methods and practices; set priorities
and assess (and reassess) goals; get very organized; know a little about law
and accounting; and as importantly--have an entrepreneurial spirit. This outline
discusses developing a business plan, determining which business entity to
use and also why good accounting practices can be valuable to your business.
It also touches on how to get organized by setting up appropriate office systems;
how to effectively market your music; and surround yourself with the right
people at the right time.
Musicians and those involved
in the music business are generally highly creative and energetic people.
As such they need to constantly be aware how they are directing their energies.
If they neglect good business practices they will miss out on opportunities
for long-term success. The music business is highly competitive and fast-paced.
It demands effective communication and organizational skills. Knowledge and
use of proven business techniques and strategies will complement the creative
side of the business.
II. Business Planning
and a Business Plan.
A. Business Planning.
Set down your short-term
and long-term goals in writing. The process of doing so focuses attention
on your strengths and shortcomings. As well as a yearly calendar for logging
events and deadlines, you should engage in long-term planning. Plan a specific
time every month to sit down and review your goals and accomplishments.
How about the first Monday of every month from 7:00 p.m. to 8:00 p.m.? Schedule
an appointment for yourself to plan for success.
B. A Business Plan.
A business plan can
be a very long and detailed document prepared by a start-up business to
seek capital investors. Or it can be a one page document. However, it should
be in writing with specific goals and objectives detailed out with time
deadlines: six month goals, one year goals, five and ten year goals. Put
these goals maybe on a wall calendar such as "Have we played a festival
yet and if not why not?" Frequently review your goals, accomplishments
and failures. You will know you are on the right track when you can face
your failures and take corrective action.
The exercise of preparing
a business plan is very important. It gives you a frame of reference and
keeps you focused. Would you start a long journey without looking at a map
or checking the weather report? Why do you think you will be successful
in a very competitive business without a written game plan? Can you keep
all the details of your business plan in your head?
Periodically review
the business plan and revise it; but keep the original so you have a frame
of reference as to how it changes over time.
III. Business Form.
A business form must
be decided upon. If you operate your own business (such as accepting money
for playing music) you are a sole proprietor. If you form a band it is a general
partnership. Corporations and limited liability companies are more complicated
business forms.
A. Sole Proprietorship.
This is a business owned and operated by one person. Even so, the state,
county or local municipality may require it to be registered. In Colorado
if you are doing business other than under your own name the business needs
to register with the state at the Colorado Department of Revenue by the
filing of a Trade Name Registration and payment of a nominal yearly fee.
B. General Partnership.
This business form must also register with the
Colorado Department of Revenue. A general partnership is two or more people
joined together to carry on a trade or business for profit. A band, unless
it is incorporated or another specific business form, is a general partnership.
The partners equally share profits and losses unless otherwise agreed to
in a partnership agreement. Such a partnership agreement is not legally
necessary to carry on a general partnership; but advisable, especially if
there will not be an equal division of profits and losses.
C. Corporation. A corporation
is a business entity which must be registered
with the state to exist. Numerous legal details and requirements must be
met for a corporation to be properly formed and for it to continue to exist.
(.e.g. preparation of by-laws, the holding of corporate board meetings,
filing of reports with the Secretary of State, etc.) Corporations can be
for-profit or (like C.O.M.A) not-for-profit. All corporations have officers,
directors and shareholders and some of these rolls can be held by the same
person in a small corporation. For tax purposes the IRS recognizes several
types of corporations. In a "C corporation" (or "Subchapter
C corporation") the number of shareholders is unlimited. In a "S
corporation" the number of shareholders is limited to 75. The S corporation
is a simpler corporation than a C corporation; but there are less tax deductions,
and health and retirement contributions are greatly limited.
D. Limited Liability
Company (LLC). Colorado was one of the first states to adopt this hybrid
business form in the early 1990's. An LLC is an unincorporated association
of two or more members who own membership interests based on their capital
contributions. A LLC must be registered with the state like a corporation
and the members operate the business under an operating agreement similar
to corporate by-laws. The LLC has the flexibility of a general partnership;
but the members have limited liability as do the directors, officers and
shareholders of a corporation.
IV. Office and Business
Management.
A. Office Tools,
Equipment and Work Space.
1. Office Tools: paper,
envelopes, file folders, stamps or a postage meter, calculator, paper
bins for mail and project sorting, hand calendar, wall calendar.
2. Office Equipment: computer, fax machine, file cabinet, telephone with
head set, cell phone, Rolodex, book cases.
3. Work Space: Find a work space which is private and which will remain
as you left it. If you share an office with family then set aside an area
for your "stuff" which will not be disturbed.
B. Banking and Accounting
Practices.
1. Open a business
checking account and a savings account. When you are paid, pay your business
a portion of the income into the savings account for an emergency or project
fund. When you have several months of working capital in your savings
account then switch funds to money markets, certificates of deposit or
other secure investments. Build your cash reserves. A checking account
builds a credit history for your business. The cash-under-the-table approach
will not work for the long-term growth of your business.
2. To establish a banking account other than in your name you need to
register your business tradename with the state or incorporate or otherwise
form a business. Call your bank and ask them what they require. In Colorado
a sole proprietor or partnership needs a trade name registration from
the state to open a business checking account and a corporation or LLC
needs articles of incorporation or articles of organization respectively.
3. Set up an accounting
method which you can use and will use. Accounting software such as Quicken
if fine if so long as you use it. Establish a hand-written accounting
method if you know you will not use a computer accounting package on a
regular basis. Whatever method you adopt, get in the habit of logging
your income and expenses. Many of your business start up expenses and
operating expenses will be tax deductible.
4. Typical tax deductions
are: travel, meals and entertainment; continuing education; business use
of the home; dues and subscriptions; gifts to clients; legal and accounting
fees; musical equipment and supplies; demo and master recording costs;
rentals; distinctive stage clothing. See, T. Myers, Business Tax Deductions
for Musicians, www.coloradomusic.org/tips-taxdeduct.html. Study this area
and consult with an accountant. Your time and effort to familiarize yourself
with the tax laws will be repaid over time in legitimate tax deductions.
C. Tradename, Trademark
and Copyright.
1. A tradename is
registered with the state only (no federal registration). A sole proprietor
or partnership registers the tradename (e.g. doing business as Big Wow-Wow
Band) with the Department of Revenue. A corporation or LLC registers the
tradename with the Secretary of State. Tradename registration protects
the musician's right use a particular name exclusively.
2. A trademark is registered with the state and can also be federally
registered through the United State Patent and Trademark Office. A trademark
is a word, group of words and/or artwork which is distinctly associated
with the origin or ownership of merchandise and legally reserves the right
to reproduce the trademark to the owner. If a band intends to go national
with their music they should seek federal trademark registration of their
name and logo. At the very least, they should register their tradename
and their logo/artwork with the state.
3. Copyright law is complicated. Basically, your music should be federally
copyrighted (there is no state copyrighting) by filling out the appropriate
forms, paying the fee and submitting the demo and/or copies of the master
recording with the filing. Mailing a tape to yourself certified mail deprives
you of injunctive relief, attorneys fees, legal presumption of creation
and other rights afforded under federal statute. Do it the right way and
register the music yourself.
D. Insurance.
Do not assume that your
musical equipment, business inventory (such as pressed cds, stickers, t-shirts,
etc.) will be covered by insurance if they are lost, stolen, damaged or
destroyed. Most homeowner's insurance policies and renter's policies exclude
business equipment and
inventory. Keep your fingers crossed or better yet get an insurance policy
to cover your gear while in the home and out of the home (and even on the
road). The cost of such coverage is probably reasonable.
V. Marketing Management.
How you effectively market
your music will partially determine who will contact you and be interested
in your "product." Always present a professional image.
A. Promo Kit.
Prepare an impressive looking promotional kit. Look at other examples for
inspiration. Have clear and interesting photographs taken. Have all the
contact information available in the kit. Put it in a file folder and be
original. Include press clippings or excerpts from articles written about
you. Enclose a business card.
B. CD-Demos.
Compact discs are the standard in the music industry now.
They have higher fidelity than tapes and particular tracks are easier to
access.
Limit your demos to 3-4 songs-the best songs. It may have taken you years
to carefully develop and hone your sound and particular songs and months
to properly record and produce them; but a venue owner or a record executive
must be impressed in about 20 seconds of listening. Also, label the disc
and put the copyright notice any restrictive use on it such as "Copyright
2002 by The Rock and Roll Band. All rights reserved, for demonstration purposes
only, and not for resale."
C. Business Cards
and Letterhead. Don't ignore the marketing potential of
business cards and letterhead. They should have all your contact information
such as address, phone and fax numbers and email address. A creative letterhead
sets the tone and style of your correspondence.
D. Internet Marketing.
At a minimum you need to set up an email account
and communicate by email. With email you can communicate with your audience
and business contacts. If your business is promoting yourself or your
band then you also need a website. You can put up a simple web page yourself
or have a web page or website designed for you. Design your website to work
for you by creating your own press releases, posting tour schedules and
performance dates, adding sound clips and song lyrics, creating order forms,
and providing links to other sites.
VI. Music Business
Allies.
Learn when it is appropriate
to seek out a manager, agent, producer, lawyer, or accountant. Each have a
different role in assisting you.
A. Artist Manager.
A musician or band will self-manage their business affairs until they reach
a certain level of success and growth which will then require that they
hire an outside manager to continue the growth. A manager will only be interested
in artists who have a professional attitude and potential to make significant
gains in the business. This means they have to be good to great songwriters
and/or performers. The manager's role is varied: career planning, artistic
development, image coordination, dispute mediation, tour and booking coordination,
business liaison.
B. Booking Agent.
An agent books performances for the musician for a fee (usually a percentage
of the performance income). It may or may not make sense to retain an agent
to book venues that the artist or band can book themselves. Agents are especially
helpful in booking tours because of the long distant contacts they may have.
They can open new performance opportunities to the musician. Tour booking
to new territories is extremely time-consuming and an agent may assist with
this task.
C. Record Producer.
Musicians can of course self-produce their own recorded music; but at some
point they may get a better product by hiring an outside producer or co-producing
recorded material with a producer. Producers may also have deeper music
business contacts to ultimately interest a record album in "signing"
the musician.
D. Lawyer. Lawyers
review and negotiate contracts, draft agreements, litigate claims and disputes
and assist the musician navigate through copyright, trademark, tradename,
business formation and other relevant legal issues. Lawyers should help
you build your business as well as protect your rights and settle your disputes.
Some lawyers will agree to "shop" your demos for a percentage
of your royalties if they have the right music business contacts and your
music is of a high quality.
E. Accountant.
There are several types of accountants which can assist you in your business:
tax preparers, bookkeepers, and certified public accountants. You should
at least consult with an accountant when you form your business and as your
business progresses. An accountant may be able to save you money on your
tax obligations to finance their expense.
VII. Contracts.
This is a vast area with
many thorny legal issues. There are some simple things, however, to keep in
mind in dealing with contracts generally and specifically.
A. Contracts Generally.
A contract is a oral or written agreement which mutually obligates the parties
to perform or do something in exchange for something (e.g. perform music
for money). It is not necessary that the contract be in writing; but there
must be a "meeting of the minds" as to the terms of the agreement
for it to be enforceable. The term "meeting of the minds" means
that the parties must agree to and understand the essential terms. For example,
a musician and venue owner may agree that the musician will play at a particular
venue on a particular night for an agreed amount of money for a specified
length of time. If the parties misunderstand each other (e.g. did not agree
on the payment compensation or the location to play) there would not be
a meeting of the minds and it would not be an enforceable contract. The
essential terms of a contract refer to its most important elements; but
every detail. For example, how much will be paid for a performance is absolutely
an essential term; but whether a 15 or 30 minute set break will taken or
not for a 90 minute performance is not an essential term. Disagreements
over non-essential terms do not generally break or "breach" a
contract.
B. Performance Contracts.
Performance contracts can be oral or in writing. Point in fact, many club
owners will not agree to sign a performance contract unless the musician
or band can guarantee a large audience. However, it never hurts to ask.
At this level of performance the contracts need not be long or detailed.
A simple one or two page agreement setting forth the material terms will
suffice. At a minimum the contract should include the date it was entered
into, the venue address, specific date and time of the performance, the
amount to be paid, whether the pay is guaranteed or based on a percentage
of the door (or a mixture of both), the penalties for cancellation, and
it should be signed and dated by the parties. Any extras would be in a "rider"
or "amendment" initialed by the venue owner. If a venue owner
refuses to sign a performance contract then the musician can achieve a somewhat
better result that a simple oral agreement by writing the venue a confirming
letter or email which recites all the material terms and requests that the
musician be contacted in the event of any disagreement. If a venue owner
"breaches" the contract (oral or written) then the musician can
pursue legal remedies; but probably should try to work out the matter with
the venue owner such as a rescheduling, preferred date, additional increased
pay, etc.
C. Other Contracts.
Musicians may run across a myriad of other contracts;
especially if they achieve some commercial or long-term success in the music
business. Here is a list of only some. You are advised to seek legal
advice if you are asked to become a party to any of these contracts:
1. Management Contract:
Sets forth the responsibilities and
compensation of a manager. Usually a multiple year contract
based upon a percentage of the musician's income;
2. Agency Contract: Like a management contract, an agency contract
obligates the musician to pay a percentage to the agent if and when the
agent books performance opportunities for the musician.
3. Music Licensing: A third party sells, plays, distributes your
music and controls the method of distribution; but musician retains the
copyright.
4. Producer Contract: This is sometimes called a "demo deal"
in which a producer will agree to produce a quality demo for the musician
and in exchange will get a percentage of the record royalties if a record
company signs the musician. The producer will attempt to "shop"
the demo to record companies.
5. Record Contract: An agreement by a record company to manufacturer,
sell and distribute (through distributors) a master recording for a large
percentage (usually at least 80%) of the royalties. The record company
usually absorbs all the costs of recording, manufacturing and distributing
the record and may pay the musician an advance against the royalties and/or
tour support.
VIII. Daily Business
Practices.
Good business practices
are a way of life, a lifestyle.
A. Keep in Touch.
Return telephone calls/emails as soon as possible and in any event within
24 hours (even if others do not). Let business contacts know when you will
be unavailable for an extended period of time. Get voice mail or an answering
machine and use it. Write thank you cards/letters and you will be remembered
in a big way. Thank people constantly and communicate frequently. Repair
miscommunications with your business contacts. Hold regular business meetings
with your associates.
B. Keep Organized.
Keep your office organized, documents filed and in good order. Keep a "to
do" list on a daily/weekly/monthly basis. Keep your business contacts
at hand. Update your contact management files. Organize business cards/contacts
in a Rolodex, address book, or use a management software program like Microsoft
Access. Your success in the music business will in large part be determined
by the personal contacts you make and keep.
C. Keep it Ethical.
Always under promise and over-deliver. Keep your promises and if they are
complicated, get them in writing. Don't burn bridges with fellow musicians,
venue owners or anyone with whom you come in contact. Work toward a win-win
situation in every circumstance. Don't gossip. Follow the Golden Rule (not
he who has the gold rules; but do unto others as you would have them do
unto you.) Don't make important business or personal decisions without much
forethought or when you are tired. Know when it is best to say nothing,
or say something later. Personally commit to help make the music business
a business to be respected.
IX. Books and Web Sites.
Here are some books and
web sites which will assist you. Some particularly pertain to musicians and
the music industry and others are more general:
A. Books.
W. Krasilovsky and S.
Shemel, This Business of Music, Billboard Books (The bible for the American
music industry. Some of it is very technical; but the material is well presented.
Must be read).
M. Halloran, The Musician's
Business and Legal Guide. (Prentice Hall) (Good forms and general legal
advice).
T. Horton (editor) Songwriter's
Market (Writer's Digest Books). (Comes out every year with articles about
the business of songwriting, marketing and specific contacts).
J. Mancuso. How to Start,
Finance and Manage Your Own Small Business.
(Prentice Hall Press). (Good resource guide on small business practices)
B. Web Sites.
www.taxi.com
(Weekly online music business articles from managers, agents, etc.)
www.smbiz.com
(Small business taxes and management, lots of links)
www.coloradomusic.org
(Of course!)
www.irs.gov
(IRS on line: forms and advice for small business owners)
www.sos.state.co.us/
(Colorado Secretary of State on line. Business advice and downloadable business
forms.)
www.uspto.gov
(Patent and Trademark Office website. You can even search for available/taken
trademarks yourself through the TESS system.)
© Copyright 2002
by Todd Myers and The Colorado Music Association.
Todd Myers
Law Office of Todd Myers Todd Myers Artist Management
4610 S. Ulster Street Suite 150 2763 Irving Street
Denver, CO 80237 Denver, CO 80211
303.221.3975 720.855.3830
toddamyers@hotmail.com tmyerstmam@msn.com
