Business Plans and Budgets

Posted by Japheth Campell | October 17th, 2010  

I recently participated in a couple of online workshops offered by the SCORE Association. SCORE offers free counseling and advice for America’s small businesses and entrepreneurs. The workshops were titled Developing a Business Plan and Preparing a Cash Budget. I’ll take a few of the points presented in the workshops and apply them to the music business.

Business Plans

The first major point made in the workshop was that “business planning is considered an oxymoron to the free flowing business style of the entrepreneur.” This is especially true for musicians, as an artist is generally considered an entrepreneur.

Most aspiring music artists do not have a business plan. The usual “plan” is to write some songs, record some tracks, promote the music on the street, and hope for success. Because the majority of aspiring artists have this mindset, the majority never succeed.

The lack of planning is not exclusive to artists. There are even those who form a “record label” without having a clear plan. Spend any time as a musician on MySpace and one will discover a number of individuals claiming to be “CEO” of a record label that they recently formed. These are labels in name only and are not legitimate businesses since they lack a plan.

As the workshop presented, “Planning is a critical component of a successful business.” If an artist or label wishes to have a chance in the industry, then a clear business plan needs to be laid out for success. A plan should be formed before writing the first song or recording the first track. The following are a few items that the plan should cover:

Financials
Gather together various financial information concerning the music industry. You will want to know the cost for studio time and the average spent for a complete project, including mastering.

If you will be selling CDs, you will want to know the cost for manufacturing a CD at various volumes. More than likely you will need to purchase the lowest volume amount unless you already have 1,000 fans ready to purchase your album. Also, find out the cost for distribution unless you will be direct selling your product.

Customer Base
Many times an artist knows their target audience, or at least thinks they do. Be sure to research to find out who will more than likely purchase your product. A hip hop artist could assume that hip hop fans will be their customer base. It however takes a little more research and specifics to be successful with marketing your music.

Perhaps your target audience is located in a specific region. Perhaps they are avid MySpace or Facebook users. Perhaps they only purchase music within a certain price range. By discovering who the audience is that will actually purchase your music, you will be a step ahead on marketing.

Competition
Your potential fans only have so much money for purchasing music and so much time to listen to it. There will be other artists vying for your fans. Research to discover what advantages you will have over competing artists. Then plan to capitalize on your advantages and use them to become successful in a competitive market.

Operations
This can be summed up as what is required for running your music business from day to day. Most musicians really don’t think about the daily tasks or routines they go through for managing their music career. Take time to make a list of of the tasks needed to operate, and consciously plan and improve upon those actions to increase success.

Future Plans
Ask a musician their future plans and they more than likely will tell you, “I want to have a full time career as a musician.” That is a great goal, but it is not a plan. A plan is a path for reaching that goal. Put in place tangible plans of action that can empower you to reach the future goals that you have.

According to the workshop, it is estimated that 90% of businesses fail in the first 2 years. Usually the failure is attributed to the lack of planning. Determine to be the minority of artists that succeed by creating a business plan today.

Cash Budget
Every music artist or label should develop a clear plan for both cash intake and spending. This is known as a Cash Budget or Cash Forecast. A budget helps to determine “short term credit needs” and the “ability to pay debt/expenses.” It is a “written account of cash inflows/outflows.”

Earlier I discussed the financials of a business plan. This is where those numbers come into play. You will want to figure in profits from music and merchandise sales. Also, over time you will need to readjust the amount of income you expect as you begin to collect data on the sale of your product. As you begin to have a visual of your overall cash flow coming in and going out, you can effectively plan for expenses and determine your financial needs.

The workshop suggests that all businesses calculate a cash reserve, which is a “minimum balance of cash” to always have on hand. They further suggest the amount be “large enough for operating costs for several months.” This may seem daunting to an aspiring artist. I would suggest that if the artist is maintaining a job while building their career, they consider their employment income as part of the cash reserve until their music career fully kicks off.

For a more in-depth look at business plans or budgets, view one of the many helpful workshops provided by SCORE.

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