As the music industry becomes decentralized and musical artists become entrepreneurs, the greater need of financial education for all involved. Today’s blog post isn’t so much as do x and y will result, as it is for informing musicians in financial concept, borrowing money to make money. It is true that all means of money have a cost, even when you work a day job for it (that is the cost.) Competent business managers should advise musical artists on how to build a solid financial plan to help them achieve their goals.
WARNING: Misuse of credit and risk can have adverse consequences on your business (band), and your personal financial situation. Hire a competent business manager to help you with this. – Author assumes no responsibility for actions taken without the consultation of experts.
The Cost of Money:
All of the money that goes into your band has a cost. That cost is the time, energy and effort that you must put forth at your day job to pay your rent or mortgage, lights, food, and your rehearsal space. This is typically called “sweat equity” in the entrepreneurial world. This type of equity perhaps has the highest cost as you are sacrificing your most important asset... Your time! Think about it, that is time away from rehearsing, writing, traveling to the next gig, etc. that you could be putting to use elsewhere. Therefore, do not only look at using “sweat equity” as a means to fund your dream.
Conversely, money borrowed has interest attached. This is because of the savers who pooled their money to lend to you, want something in return for their sacrifice of saving. Everyone knows of the different products available for lending such as: credit cards, secured and unsecured personal loans, but to an even greater degree a business loan issued from the Small Business Administration (SBA) are needed to keep you rolling on down the road. Each lending product is a tool in its own right, and should be put to use in the right situation. Most likely you will have to start with a secured credit card, or loan.
Note: For all the negativity capitalism gets these days think about his for a minute. Good old grandma’s retirement funds are pooled away and given away to people like you, who want to rock! Yes, the caveat is they want a little slice of the profit in return. If your gross margin is larger than the interest rate you are in business. However, many other things must be taken into consideration before doing this. I advise to speak with a competent manager. - Michael Schermuly
The fact is that the money you are investing in your band is an investment in your career. This could be looked at the same as someone who goes to college to get into a specific type of career. They all have to borrow money to make MORE money. Below I’ve given the example of Google. Google paid $124 million in interest payments in 2016. Below is Google’s Recent Profit & Loss Statement.
Click link for the information about GOOGLE: (Marketline.com taken July 18th at 21:46 http://www.marketwatch.com/investing/stock/goog/financials)
Now Google paid these payments through multiple bond, and other financial type investments, but the same thing holds true for your band. Google had to borrow money to make money.
Where to begin:
I advise my clients to get a credit card as fast as possible established in the band’s name. Why? Think about this. Hotels and airfare cost money, and they also put “holds” on your debit cards. This means your funds are on “hold” and cannot be used for other things until the airline, and hotel are satisfied. Multiply this by a month and you can see easily that you need quiet a credit limit. So start now! Also, if you have a credit card for the band, you will be able to better track your expenses and avoid the “hold” on your money. You will also be practicing the most important concept in business, using other people’s money to make you money! Remember Grandma’s retirement fund that’s paying you to rock every night!
This advice also comes with a warning. Just like any tool that is used incorrectly, credit, can damage your career. How much should you borrow? How much can you afford? What is my risk tolerance? How do I budget this in? These are all seriously concerns that need to be addressed by a competent business manager that you should have secured if you are taking this step in your career. Learning how to use credit in your favor will help out your music career dramatically.
What are your thoughts on credit? Do you have a fear of credit? Do you want to improve your credit standing so you can “get to the next level” with your band, but don’t know where to start? If you have any questions about this blog, or other band management questions email me at 3RAMusicConsulting@gmail.com I’ll be glad to answer them.