Are you taking care of music business? Do you have a business or have you ever been in a music business or company?
We’ll get into this slippery little subject, including music business structures and agreements, in this episode of Indie Confidential.
Let me start off by saying, this is a really dry subject. No sex, drugs, and rock’n’roll. No bells and whistles, I’m afraid.
So, you’ll need to sit tight and ride through the drab details because this is one really important subject. Inability to understand and embrace business is often the main cause of failure for many great bands.
History is littered with stories of blissfully ignorant and carefree musicians being stitched up by shonky managers and ruthless record labels.
I implore you to get your head around this one, and get in control of your band and your life.
Keep It Simple Please
Now there could be dozens of episodes on the subject of business, and this episode is by no means fully comprehensive.
But it’s an introduction and a place to start. If you’re interested to know more on this subject, hit me up, and if there’s enough interest I can dig deeper into the details.
I’ve been involved in many businesses and have a diploma in small business management. I come from a family of business people and I’ve owned scooter shops, recording and graphic design studios, and managed many bands.
I really like the foundation, structure, and protection business can give your project or band. You’ll also be treated with respect if you can talk the talk about business matters, when needed.
Somewhat like our last episode of niche, you are most likely in business, whether you realise it or not. As soon as you and your colleagues start performing live for money, and selling digital or physical products, you’re a business.
Certainly in the eyes of the government, anyway. Now that’s nothing to be afraid of, and you don’t need to go out buy a suit and tie or hire an office.
Running your musical project as a bonifide business – whether as a solo act or a 10 piece brass ensemble, has huge benefits, and should be embraced and understood as soon as possible.
In doing so, you don’t need to throw the creative aspects out the window and become Richard Branson. Although that would help, let’s not forget Virgin Records!
If there are genuine signs that your band is actually coming together and has some kind of future, I suggest broaching this subject with the others, as early as possible.
You’re sure to be confronted with suspicion and resistance because most muso’s just don’t have their head in that space.
But, you can help ease them into it. Organising and agreeing on a structure is best done now, before you blow up into the next One Direction.
I’ll get into structures shortly, but it can be quite simple and straightforward. I apologise to international listeners because this applies to Australian residents.
You will need to register your band name, apply for an Australian Business Number – otherwise known as an ABN, that includes all active members names, open a bank account in the band’s name, keep records and a log book, and have a basic band agreement.
Most territories around the world will have some kind of similar arrangement. There can be huge tax advantages for the band as you’re most likely to be operating at a loss earlier on.
And there is some internal protection with a band agreement. I’ll include a band agreement from one of my bands as a free download when you sign up.
From the early 2000’s, I began to use band agreements. We never actually needed to execute any clauses in the band contracts, but having the terms agreed to and signed by all , gave each of us piece of mind, in case things did go pear shaped.
Bands often encounter problems, such as financial mismanagement and contract disputes, and this kind of partnership agreement can help reduce these sorts of issues.
A band or partnership agreement will cover things like: financial input, voting rights, members leaving, dispute resolution, name and brand ownership, etc. There may also be a small legal cost to structuring the agreement.
The good old days of wads of cash handed to bands in dimly lit car parks, behind venues at 3am, are over. It seems the introduction of the Goods and Services Tax, introduced in Australia back in July 2000 has, as the government planned, pretty much put an end to the black market. It’s kept nearly all venues and acts on the straight and narrow.
But, back to music business. There are a number of ways you can set your band business up. Initially, it can be quite simple as a hobby and when the money begins to roll in, you can change your business structure to suit.
Disclaimer: the following structures vary across all states and territories in Australia. International listeners will need to source their local info on this, and you should always seek professional advice before entering into any agreement or contract.
1.Hobbyist or hobby act
A hobby is a pastime or leisure activity conducted in your spare time for recreation or pleasure. You are considered to be in business, if your activity is commercially geared with an aim to make a profit.
It’s important to understand the differences between a hobby and a business for tax, insurance, and legal purposes.
Some of the things you might need to consider:
- Is the activity being undertaken for commercial reasons?
- Is your main intention, purpose, or prospect to make a profit?
- Do you regularly and repeatedly undertake your activity?
- Is your activity planned, organised, and carried out in a businesslike manner?
If you conclude that you’re indeed a hobby, you won’t need an ABN.
Therefore, you’ll need to use a Statement by a supplier form – sometimes called a hobby form, for each time you perform. So, who’s the supplier? Well, you are the supplier, whether you’re supplying a live performance, a t-shirt, or a CD.
The form can be downloaded from the business.gov website and you should print out a bunch of them, and fill one out each time you play, then hand it to the person responsible for paying you.
On the most recent Statement by a supplier form there are no less than nine reasons for not quoting an ABN to the venue and you need to select one.
Some are a little far fetched, but the one mostly selected by a hobby band is the one that reads: The supply is made by an individual or partnership without a reasonable expectation of profit or gain.
This is essentially qualifying you as a hobby and not seeking a profit. You must also date and sign the document.
If you don’t supply an ABN or Statement by a Supplier form, the venue can withhold up to 47% of your payment for tax purposes! You won’t want that!
2. Sole Trader
As the name implies, the sole trader is applicable to the solo act. A sole trader is a person trading as the individual legally responsible for all aspects of the business – easy!
This is the simplest, and most relatively inexpensive business structure that you can choose when starting a business in Australia.
As a sole trader, you’ll generally make all the decisions about starting and running your business, although you can employ people to help you.
Often you’ll see somebody operating as a sole trader, and hiring a band as their backline. In this case, the sole trader is carrying all the business responsibilities and paying the band a salary.
A partnership is a business structure that involves a number of people who carry on a business together, and is the structure you’ll most likely be using in your band.
You may choose to establish a partnership if you’ll be jointly running the business with another person or up to twenty people – that’s a big band!
There are two types of partnerships – general and limited, and each state and territory have laws relevant to partnerships. A partnership requires a separate tax file number (TFN) and you can apply for an ABN, however it isn’t compulsory.
In a partnership, you and your business partners are personally liable for any business debts.
A partnership tax return will have to be lodged each year, and if you have an annual income of $75 000 or more, you must be registered for the GST.
I’m currently involved in a GST registered business and have to complete a business activity statement (BAS) every three months and an annual tax return.
It can be a nuisance doing the quarterly BAS, but it allows you to get the GST you’ve paid in that quarter back into your pocket if you happen to be running at a loss, which can be a huge help.
You could also consider a company structure when starting or growing your business.
But with the accounting and legal fees associated with setting up and running a company, in my opinion, it’s better left until the cash flow is growing and things are getting financially serious.
A company is a separate legal entity, which is unlike operating as a sole trader or being in a partnership structure. A company has the same rights and liabilities as an individual trader, so the company can incur debt, sue, and be sued.
Using a company structure limits the personal liabilities of the owners of the company – the shareholders, who are not personally liable for the company’s debts. That’s a very attractive option for some people.
However, a company is a complex business structure, with higher set up and administrative costs, and there are additional reporting requirements.
Among other things, you will need to register the company with the Australian Securities and Investments Commission (ASIC) and comply with legal obligations stipulated in the Corporations Act 2001.
Like the other business structures, your company must be registered for goods and services tax (GST), if the annual GST turnover is $75,000 or more, and you must lodge a tax return each year.
Flat Tax Rate
Another benefit of a using a company structure in Australia is that companies pay a flat 30% tax rate (current as of September 2018).
This may change in the future, so you will need to check what rate applies if you decide to set up a company. Paying a flat 30% on income AFTER outgoings can be a huge bonus.
There are stacks of great online resources available to help you understand and set up your business. I’ll leave some links for you, and I’d highly recommend spending some time educating yourself.
The Australian business.gov website even has a special tool that helps you to determine as an artist, whether you’re a hobby or a music business.
So we’re near the end and you’ve managed to get through all the drab details. Congratulations! You’re a little closer to getting a handle on your music, and the business that is inextricably linked to it.
There are only benefits from getting your head around this, and when you go on to sign deals and contracts, you’ll be better informed and less likely to be taken advantage of. And we don’t want that.
But remember, this episode is but an introduction, and you’ll need to keep up with legislation, policy changes, and evolving business structures.
So, keep reading. Keep learning. Encourage your colleagues to do the same. There are some really smart, educated, and shrewd bands out on the international stage that have their careers in check, but still manage to be highly creative, rock out, and get paid. Sounds good, doesn’t it?
Go off Like A Cracker
Back in July 1998 my band at the time Alcotomic, were asked to appear on ABC television Recovery Show. We were performing along Ska Punk band the Mighty Mighty Bosstones from Boston USA. What really struck me about these guys were their business-like professionalism.
They were well dressed in suits and were organising their live performance and interview in a very serious and business like fashion, yet when the camera’s were on they went berserk and slammed around like a bunch of teenage nutcases!
Great to watch and a truly brilliant live band BUT they had the back end down like a well oiled machine and I have seen this a lot over the years.
We’ve all seen Spinal Tap one too many times and I’m afraid and that kind arrogant, drug fuelled, gullibility doesn’t really exist in successful bands nowadays.
Do you have any stories about your band business? Have you ever been taken advantage of by some of the crooks in the music business?
I know I have! Let me and others know of your band business stories!
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I’ll catch you soon.