When I was a child my parents would constantly remind me that I had a poor concept of money. Thankfully my overhead was low enough that spending all of my paper route money didn’t leave me out on the street. Insert rent, car payment, food and a wireless phone bill and suddenly, I had BIG problems. Unfortunately, many musicians still don’t know how to create an effective budget or sucessfully balance a check book. Musicians are not alone on this. Its very common for workers who have a STEADY source of income to live paycheck to paycheck, or worse, carry a negative cash flow.
In an attempt not to overwhelm you in my previous post, I intentionally left of the last and arguable the most important document in your Music Business Financial Statements. This post will satisfy this comment raised by a reader of my blog.
Cash Flow - is the amount of money you need to carry over every month in order to pay the bills due before your next pay day.
Use these three steps and the worksheet attached to point your cash flow in a positive direction.
1.) Create a Budget - I touched on this subject in my post on Preparing Music Business Financial Statements. Take some time to re read this post, itemize your expenseses and create your own budget. Use the Sample Cash Flow Statement as a starting point and see how fast you can blow through $50K.
2.) Trim the Fat - There are only two ways to achive a positive cash flow. a.) Sell more product or b.) Decrease your expenses. Take out of the Projected Income & Cash Flow Statement everything you or a fellow band member can do yourself or find an intern to do it for college credits. Needless to say, its probably a not a good idea to buy that $120 vintage Stones shirt you’ve had your eye on. You have better things to do with your money now that you have concrete a budget.
3.) Carry Over Money Every Month - This is easier said then done. However, when planning your business you will need to forecast (your best educaed guess) as much as possible so as not to get halfway through your release schedule and run out of money. I’ve used this amount of $50k as an arbritrary Opening Balance, so this should be customized to match your perosnal financial situation.
As an artist, your paychecks will most likely be few and far between. While you are waiting for that royalty check to clear, the next paying gig, or studio session work to be invoiced, you will need to be able to move forward with your daily and monthly business plans. The amount of musicians I encounter with a finished album or EP, that have no budget for marketing and promotion is astonishing. Some of us are still live in the mindet where any minute now, a label rep in an Italian suit and a pair of Bathing Apes will show up at the door with a check to cover OUR living expenses. The honest truth is that creating music is a job and turning that music into a business is a way of life. If you are consistently borrowing every month from a different source, without return, sooner then later the well will run dry.