You are first and foremost a musician, and your attention should of course be focused on developing your art. But as your career and earnings grow, the financial aspects can become increasingly complex and you’ll need a plan. This should be flexible enough to facilitate your successes and protect your earnings over the long-term. It starts by getting your accounting processes in place from the outset, which can save you an enormous amount of time, money and frustration further down the line. Don’t get caught by the typical accounting traps.
Get Ahead with Accounting
At the start of your career, it makes sense to handle your own business administration, mainly to save on costs. But we also encourage people to develop a financial understanding of their music business from the outset. A firm understanding will help you with making tough business decisions in the future. But more often than not, this gets relegated to the bottom of most people’s to-do-list.
The main reason is that there are always seemingly more important things to do, like making and performing music. It’s hard to argue with these priorities but it’s something that needs to be taken seriously. You will need to decide who is responsible for collecting income and making payments (usually the most organised member). Sometimes your manager (if you have one) may be able to keep business records for you. Make sure you clearly agree what role they will play and make them accountable by regularly reporting back to you.
Avoid These Accounting Traps
Avoid the musician accounting traps and learn how to be better prepared.
- Not doing any organisation of paperwork until it’s too late. This is probably the most common mistake. The work piles up – probably in a shoe box – and you get further and further behind. Don’t let this reach the point where you never have the time to catch up. The more you try to hide from the problem the more it will occupy your thoughts.
- Not using cloud accounting software. There are many electronic and cloud systems that are easy to use for people with no bookkeeping or accounting experience. Cloud accounting systems allow your accountant to take a look at your numbers at any time. This gives them a ‘real-time’ perspective which will inevitably lead to you receiving better and more informed advice.
- Not having a separate bank account. If you mix your business and personal finances you’re just making life more difficult. Not least because you will have to separate it all out when it comes to tax return time. The first thing to do when you’ve set up your band is to acquire a bank account.
- Not filing bank statements in order. It sounds simple, but you’d be amazed how many people don’t do it. What happens? You give your statements to your accountant and they phone back telling you you’re missing statements. This means you’ve just paid your accountant to organise your bank statements, when you could’ve saved money doing it yourself.
- Not have a filing system for your costs. Have two files, one for paid invoices and the other for unpaid invoices. When you pay an invoice, write the date and method of payment on the invoice. Once paid, move it to the paid file. Keep both files organised alphabetically.
- Not paying by card or transfer. Your bank will do most of your bookkeeping for you for free. If you pay by card, direct debit or electronic transfer, a permanent record of the transaction is provided. This will detail the date, amount and the recipients’ name. In bookkeeping terms, that’s a great start. So try and pay with cash as infrequently as possible.
- Not retaining receipts. If you don’t, you risk failing to account for certain expenses, which means paying more tax than you need to. Even relatively modest expenses can mount up, so keep a close record of every penny you spend. Remember to keep receipts for even the smallest costs and record the mileage of all your music-related business trips.
- Not budgeting for tax. Although you may not have any cash at the moment, your accounts may show that you made a profit last year, which means you will need to pay tax. Make sure you budget as you go, so you won’t get any great shocks at the end of the year. Open a deposit or business savings account and put money aside for your tax. Saving 25-30% of all income you receive likely means you’ll easily be able to pay your tax bill.
- Not registering for taxes. If it’s your intention to make money from your music then you have a business. The tax authorities will expect you to register for taxes and file tax returns reporting your income. If you do not tell the tax authorities you are trading, the situation could be serious. This is because you may be charged penalties for failing to report your income and there’s a risk of prosecution.
- Not getting help from a qualified accountant. There’ll come a point when you will need to hire an expert to take care of the legal aspects. This could be registering you with the tax authorities, calculating tax and when to pay it, as well as making sure all documents are filed on your behalf. When hiring an accountant, do your homework and ensure they hold the relevant qualifications and are experienced in your industry. A good music industry accountant will give you much more than you think. They’ll act as a sounding board to your ideas; they’ll be a connector to other professionals, and they’ll quickly become a key player in your team. A good accounting will help you to achieve your personal and business goals.