Artist Development 9
Finance & Funding
by John Latimer
We all know the entertainment business is project based. So, when looking at the long-term career of Artist, it is important to look at the success of each project. Projects may include: recording, touring or selling merch. Whatever the project is, the finances, funding and budget should be addressed prior to starting the project.
One of the best projects in the music industry doesn’t take any money to accomplish. That being songwriting. However, as soon as the song has been completed, there is cash needed to bring it to market. Even recording a demo has a cost of the recording equipment.
Consider who is going to fund the Artist and the project(s). Usually, in the early stages of an Artists career, it is the Artist themselves who does the funding. Even prior to that, parents often enroll their child in classes to learn an instrument or how to sing.
If the Artist is not funding the projects then who is? Enter the Project Funding Request.
The Artist should review the proposed projects and estimate the funding required to complete each project. The financial plan should generate ideas for the person, persons or company that will assist with the funding of the project or projects. Many times a record company will fund a recording session as well as the pressing and distribution of the product. Yes, record companies are like banks. They fund projects and basically loan the money to the Artist. Most record company contracts state that the funds invested in the project must be repaid before royalties to the Artist are distributed.
The funding request should include the following information:
- The current funding requirement
- Any future funding requirements over the next five years
- How the funds will be used. Is the funding request for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.
- Any strategic financial situational plans for the future, such as: a licensing, capital investments, debt repayment plan, or merging of businesses. These areas are extremely important to the Artist and any future creditors, since they will directly impact the ability to repay the loan(s).
When outlining the funding requirements, include the amount needed now and the amount needed in the future. Also include the time period that each financial request will cover, the type of funding, equity or debt, and any terms of the deal. Funding a recording session may be expensive but promoting the result may be cost prohibitive.
To support the funding request be prepared with historical and prospective financial information. This is where the Artist Business Plan comes in. The business plan of the Artist should investigate many financial topics such as
Use of Funds
Key Financial Indicators
Break Even Analysis
Projected Profit and Loss
Projected Balance Sheet
Independent Account Report
Forecasted Balance Sheet
Forecasted Cash Flows
Forecasted Operating Expenses
Return On Investment
Once the funding request has been completed, begin working on Financial Projections.
Artists should develop the Financial Projections section after they’ve analyzed the market and set clear objectives for the project. That’s how the Artist may allocate resources efficiently. The following is a list of the critical financial statements to include in an Artist’s business plan.
Historical Financial Data
If an Artist has an established business, they will be requested to supply historical data related to the company’s performance. Most creditors request data for the last three to five years, depending on the length of time the company has been in business.
If the Artist’s business is not up and running, perhaps the Artist should investigate self-funding or funding from friends and family to begin.
When putting together the historical financial data, include the company’s income statements, balance sheets, and cash flow statements for each year that the company has been in business. This is usually up to three to five years. Often, creditors are also interested in any collateral that the business may have that could be used to ensure the loan, regardless of the stage of the business. This collateral may be equipment, instruments, vehicles or copyrights.
Prospective Financial Data
All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what an Artist expects their company to be able to do within the next five years. Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. If this is the Artist’s first year, they should supply monthly or quarterly projections. After that, stretch it to quarterly and/or yearly projections for years two through five. Perhaps an Artist may want to consult with their business manager or accountant during this phase.
Make sure that the projections match the funding requests; creditors will be on the lookout for inconsistencies. If assumptions are made in the projections, be sure to summarize what is assumed. This way, the reader will not be left guessing.
Finally, include a short analysis of the financial information. Include a ratio and trend analysis for all of the financial statements (both historical and prospective). Since pictures speak louder than words, add graphs of the trend analysis (especially if they are positive).
Next, you may want to include an Appendix to tghe plan. This can include items such as credit history, resumes, letters of reference, and any additional information that a lender may request.
Plan a budget for each project that the Artist is planning such as gigs, tours, recordings or merchandise. Include everything that is a planned cost for the project as well as expected sources of revenue. This information should be shared with the Artist’s team as well as the Artist’s bookkeeper and /or accountant. This way, everybody on the Artist’s team is on the same page.
Financing of artist projects is much like financing other types of projects in terms of the calculus of investors, the drivers of costs and revenues, and the amount and sources of subsidy. That said, performance and studio projects are regarded very differently, and typically have different costs, revenues, and subsidy profiles, than do performance projects.
Working in music can mean an almost constant struggle to find the money to keep things going. Whether you’re a band in need of money to tour or a label in need of cash to press some CDs, it seems like it is ALWAYS something. Music business funding is never easy, but there are options. Find out how to uncover the cash needed to fund each and every project.
Time Required: Ongoing
- Identify Your Needs
We all k now we need money to get a musical endeavor or entertainment project off the ground, but one of the most important steps in getting the money is figuring out just how much of it is going to be required. Hint: the answer is not “as much as possible.” Figuring out a realistic budget for the planned project will help keep everything running smoothly and will help when it’s time to start applying for loans/grants. For instance, Artists don’t need $100,000 to do an indie release – ending up with more money than needed, leads to bad spending. Start each project off right with understanding of the costs involved.
- Write it Down
If you’re going to apply for a small business loan or for a grant from an arts council or other funding body, you’re going to need a business plan. Even if you’re planning on financing your music project with your own credit cards, writing a project plan forces you to think about the potential for achieving the goals and objectives. The project plan shows how to make it happen. Your project plan should include:
- Overview of the project
- Project manager
- Project dates – begin / end
- Details about the market/consumers/similar businesses
- How much will it cost
- Projected returns (including how long it will take to see returns)
- Marketing plan for the project
- Investigate Your Sources
The available sources for music business funding vary from location to location to location. For instance, people in the UK are lucky enough to have a network of arts councils who are a first stop for grants to get musical projects under way. In the US, there are few grants in place and most people have to try for traditional small business loans. The best way to learn about what is available is to ask around among your fellow musicians and check out your local government website for more information.
- Approach Your Sources
After you’ve identified the people most likely to come through with funding for you, it’s time to start making your pitch. One thing Artists should keep in mind here is that yes, they’re trying to work in the music business, which can be a bit more laid back and casual than a traditional industry – but the people whose money is needed will almost always be more “business-y” types. Showing up late to a meeting wearing last night’s clothes and smelling like you bathed in lager? Not so good. Be professional and give the impression that you are capable of pulling off your proposed venture.
- Get Ready for the Long Haul
Getting funding for any business can be tough, and the creative industries are a special case (largely because the people who control the purse strings are secretly convinced that Artists can’t be trusted to manage the money). Finding money can take a long time, and Artists may have to apply for money from several sources to fund one music project. When planning the project, make sure to build in plenty of time to tap into the right funding sources.
Artist Funding Tips
- Look for the RIGHT Funding Source
Sure, when an Artist wants to get their project off the ground, it can be tempting to take an “I’ll worry about that later” attitude towards loans and debts that are being racked up. In the long term, if funds are spent unwisely at the beginning, there won’t be anything left to make sure the project gets the push it needs. High interest loans and credit cards might seem like a fast and easy way to get things rolling, but they should be the last resort. If an Artist has take on some debt, take the time to make sure it will be manageable enough for it to be paid off and keep the project going.
- Get Help When You Need It
Even where there are no nice arts councils or arts grant sources, there usually are groups to help small businesses get their stuff together. If you need help writing a business plan or coming up with a budget, do a quick internet search for small business assistance groups in your area. You may be able to get free (or very cheap) assistance in putting together a professional proposal that will help get the cash needed.
- Do Your Homework
This is especially important if you are looking for funding to start a business like a record label – make sure you REALLY understand your market and what you are getting into. Just because you’re a music fan and read a lot of music magazines doesn’t mean you really know how the business side of music works. If you don’t have any specific experience in the part of the music industry you want to get into, investigate before you take the plunge. Seek out other people who are doing what you want to do and get their input so you have a clearer picture what’s required and who your customers will be.