The Cashflow Quadrant for Musicians

Posted by Japheth Campell | November 30th, 2010  

The Cashflow Quadrant is a concept made popular by Robert Kiyosaki in his book Cashflow Quadrant. The Quadrant is made up of four segments: E, S, B, and I.

E stands for employee, S stands for self-employed, B stands for business owner, and I stands for investor. By understanding the Cashflow Quadrant and applying it to a career or business venture, independent artists and independent record label owners can find success and longevity in the music industry.

Those who find themselves on the left side of the Quadrant as an employee or as being self-employed are, in a way, slaves of money, as they must constantly work for money to survive. Those on the right side of the Quadrant as business owners and investors are in the position of having money work for them.

One of the major goals of many aspiring musicians is to land a contract with a record label. By becoming a roster artist for the label, the musician is in effect becoming an employee of the business. The problem is that the artist is working for money. For most musicians, a career as a music artist is very short-lived. Thus, when the music stops the flow of money stops as well.

There are music artists who refuse to be associated with a record label. These independent artists can be considered self-employed. Although they hold allegiance to no one and feel as though they are in complete control of their careers, they are in fact controlled by the same master as the contract artist. They too have to work for money, and once their career comes to an end, so will their cash flow.

To be able to continue past a personal career and be involved with the music they love, both employee and self-employed artists must seek out ways to become a part of the right side of the Cashflow Quadrant as both business owners and investors.

Business Owner
To become a business owner, people are encouraged to purchase an existing business or use their ideas to create a business. For most, the easiest way to accomplish the business owner task is by joining a direct marketing company. For the musician however, I would suggest using the talents and love for music as a means to build a business within the music industry.

The most obvious example of the above is the music artist signed to a label that forms his or her own record label, which is actually an imprint label of the record label they are signed with.  This gives them the opportunity to discover and develop other talent. These signed artists, or employees, will then generate a source of revenue for the artist-owner of the new label.

Finding an area or music that you excel in and exploiting it to build a business is a great way to become a business owner. If your strength is in recording, perhaps look to building a recording studio. If your strength is in management or booking, seek to build a business in these areas. Perhaps you are great at organizing a live performance. Build a business that helps other artists put together stage plots and plan out the concert. Find a niche and capitalize on it to build a business that can support you once your own music career comes to a close.

Those who currently own an independent record label may think that they are naturally in the business owner category. The question to ask is, “If I don’t work, will my business continue to function?” If the answer is “No,” then the label owner is actually self-employed by their business. They need to work on hiring the employees and building the business in such a way that they participate in the business because they enjoy it and want to, not because they have to.

Being an investor is the exciting part. As an investor, extra funds generated from the business can be invested in various investment vehicles to then allow money to work for the artist. The traditional ways of investing are to put money into stocks, bonds, precious metals, or my personal favorite, real estate.

For the music artist, I would suggest thinking outside the box. Be creative and find ways to invest in music. A prime example is when Michal Jackson purchased the entire music catalog of the Beatles. I’m sure the return on investment has exceeded the amount paid for the catalog. Today, investment companies are purchasing licensing rights to music catalogs in order to make a profit from their use in various media such as television advertising and motion pictures.

By understanding where they are on the Cashflow Quadrant, a music artist can strive to become a business owner and investor, allowing money to work for them. By doing so, they can truly find longevity in the music industry that spans past their personal music career.

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