Investing other people’s money

People invest in your idea, dream, and plan. Paying back those loans should be your first priority when you start seeing a profit from your business.

Whether you find a private investor, a venture capitalist, a record label, angel investor, or take out a loan, understand that they aren’t just giving you money. In most cases, you have to deal not only with the principal amount, but also with interest at possibly a high rate.

Your investors are taking a very big risk on you, so if all goes well, they deserve part of the reward. Whether your agreement with your investors reflects high interest, or a long-term percentage of the profits — or both — go into any meeting with an investor, label, or interested lending party knowing that they need to be paid back with interest.

Set up regular meetings to keep them in the loop about their investment as well as updates to instill additional confidence in their investment in you.

Create a bank account for the investment and expenses, and make it available to your investors. Show that the money is being spent according to the plan and as discussed. Also adding them to the account with login access to be able to only view the transactions helps keep them in the loop and feel that much safer about where their money is going.

Investing your own money

In most cases, you probably don’t have the type of money that many of these larger-scale investors have at their disposal. Investing your own money in your plan will not only help the plan move forward but also show others down the line that you have equity in the game.

Don’t be foolish when using your own money (or anyone else’s, for that matter). Know the best places in your business plan to put your cash.

Investing time and resources

There are connections you can make that that don’t offer financial assistance, but can provide numerous resources, services, and other needs that are part of your plan. Each person and band has different connections, networking resources, and ways to connect and engage with people that may be able to help and either invest their services or potentially barter and trade without money changing hands.

Some of these can include donations from friends who know how to do graphics or web work. Others might own a restaurant and would be able to sponsor or feed you during recording sessions. When you look through the expense list of your music business plan, think of the potential resources, people, and companies that you could contact for services, time, or assistance without asking directly for money.

Certain investments can come in the form of discounted or free musical equipment, along with assistance with touring or even media and promotion support. Again, make sure these are clearly defined as to whether you are going to pay for this down the line in cash, in percentages, or in some form of both. The devil is in the details; the last thing you want is for things to start heading in a great direction, but then have the devil show up and mess with what you didn’t have in writing.

The more resources you can tap from friends, family, contacts, and companies, the easier it is to check off certain items in your expense budget. It may also be easier for some to supply services, products, or support by investing their resources or time, not their money, and it may be easier to gain sponsorship from some through cross marketing.

Time and resources should be treated the same as cash investments, and should be paid back with interest. This respect could lead to sponsorships, endorsements, or physical equipment down the line.

Your 15-, 10-, and 5-year plans

Just as you can approach planning and writing a music business plan backward, it can be effective to write your success plan or your personal 15-, 10-, and 5-year plan backward as well. This goes for your personal as well as your business plan goals. For example, determine what kind of lifestyle you want (homebody or out on the road most of the year), where you want to live (very expensive LA or a small Midwestern town), and what kind of things you want in your life (a new Range Rover SVA or a used Kia Sorento). Using that information, you can figure out how much money you need to make and how much you need to work.

Do you see yourself spending years and years on the road, or do you want to tour for only so long? This is a very personalized approach and should be treated very specifically to you. Don’t let others alter the vision you have for your life. You may find that some ideas or influences can change your direction, but still it’s up to you, if you want to change it or not.

Covering expenses

Figuring out the priciest costs and then dialing it back with the exact details can help you hone in your expense numbers and at the same time enable you to know that you’ve listed every cost you need. Revisit a couple pages back with the 76 key expenses as a guide to build from. Then look to the order and amounts of expenses.

Cutting an expense to make a plan a little cheaper means you have to cut back on estimated profits as well. For example, if you set up a short tour, your profits won’t be as large as a longer tour because less work equals less revenue.

Instead of touring, it can be better to put more money into online marketing, promotion, and advertising. Think about how much it costs for a single day on the road with your band. The food, hotel, gas, tolls, and time away from a day job can add up. Then think about investing that money into a single campaign for a single day to reach a much larger audience. Covering the expenses in the best way to reach the most fans for the most conversions brings you the most profit.

Spreading out the coverage

When you look over all your expenses, break them down by month or by quarter to see what you need. For example, in the first two months you may include several hours of studio time as you record, mix, and master all the music used as part of this particular music business plan. That cost is now covered and for the remaining months of expenses in a plan, it isn’t a cost any longer.

Things like publicity, marketing, promotion, and advertising are costs that run through the whole plan. Again, by breaking down each element and covering what you spend each month and on what, the detail gives reassurance and a reduced sense of risk.

Covering the expenses doesn’t mean listing just them. It means you cover

• The cost for the whole budget
• The breakdown of the cost each month
• The justification for the cost

The details of why this is in the budget, how it helps return the investment and interest to a potential investor, and what it does to make the project successful need to be in every line item of your expenses. Certain items that cause red flags or concerns in either the vague title of the expense or the high price tag can be covered and made much more comforting by the explanation, justification, and reason why that expense is key to the success of the project and why that expense needs to be covered.

Don’t go it alone when it comes to covering the expenses. But get started on the outline by yourself. If you take the list of core expenses and cover them as best you can, then you can bring your expense budget to a music business consultant, producer, or music industry professional who is able to help you finalize the numbers, expenses, and justifications that much quicker. Not to mention, with all the work you do on the front side, you save money with the professional on the back side, because you have all the information prepared.

The expenses and costs section of a music business plan is one of the first items that potential investors look at. They want to see a smart budget that outlines the attention to detail and justifies each expense.

Covering your expenses with the right details and the right costs to ensure the best chance of success for the project connects you with the best people to help your project and plan succeed.

Setting a marketing budget

As I mentioned earlier in this chapter, the biggest part of your business plan is the marketing. It’s one of the first lines on your expense sheet that investors look at to see if you budget enough to get the word out about … you. And if enough music fans learn about you and like your music, the quicker and easier those investors get paid back.

You may want the success, fame, and riches, but the first step is to pay back, with interest, those who paid for this project. It’s a music business plan, you’re being funded like a business, so you need to act like a business and realize that the business side enables dreams, goals, and creativity to flourish.

It’s easier to get a loan for $100,000 than it is to get a loan for $10,000 in most cases. Why? If you have a project or product that you want to sell, it costs $10,000, and that’s all you go after (which is something many bands did in approaching crowdfunding campaigns on Kickstarter or other smaller investors), you have the money to only create the product. But then how does it get sold? You need to budget for marketing and advertising to get your product noticed by those who want to buy it.

Covering and estimating revenues

Many think that revenues come only from CDs, downloads, and concert gigs. But revenues can come from nearly countless different sources. Take, for example, the following list of different revenue sources:

• T-shirts and other wearables such as hats, sweatshirts, tank tops, and so on
• Posters
• Backstage pass product
• Items with your logo such as key chains, coffee cups, tote bags, and more
• Custom merchandise items, such as wine, clocks, jackets, and other special orders
• TV licensing
• Samples
• Sponsored and nonprofit gigs
• Publishing
• Private/ house gigs
• Composing for and selling songs to other artists
• Foreign translations
• Corporate video licensing

When creating the best music business plan possible, it’s crucial that you build as many avenues to revenue as possible. It’s hard to expect all monies to come in from touring or music sales. The more you diversify your revenue options, the better chances you have to make the money.

Buy in bulk! When it comes to the CDs, consider buying a CD burner and printer to create CDs or DVDs yourself. When it comes to ordering T-shirts, add as much as you can to your budget so you can purchase bulk amounts that enable you to make more in revenues on every sale.

In the music business plan, the revenue sources section is often the second section looked at because an investor or backer is going to want to clearly see how they are going to get their investment and money back.

Showcase as many different revenue-generating methods as possible as well as estimate with an extra conservative approach. Your chances of being funded are much better than if you claim you plan to sell a million CDs overnight.

Certain revenues take time to grow and as a whole it takes a while to shift from money spending to money making. It’s crucial to make sure you have the expense budget to market all these different revenues to as many people as possible.

Your new model calendar

Imagine that you have 20 songs in the can, the hat, T-shirt, sticker, bracelet, phone cover, computer skin, shot glass, coffee cup, poster, sweatshirt, vinyl pressing, and a tote bag.

Then you take 10 of the 20 songs and put them on two EPs (extended plays) with 5 songs on each. The first EP launches in month 1 of the project the second in month 7. Then the remaining ten tracks are launched one each month in between the two EPs. For the merchandise, you have 12 items that can be launched once a month, two weeks after the music at the top of the month and two weeks before the music coming the following month. Figure 4-1 shows what your calendar looks like.

This format allows for 24 different times when you get to talk about music and items being new. Then, with each new release, as you send fans to the stores where you have the items for sale, your first pitch is something new, followed by a mention of other merchandise items previously available.

Cross-market your items with exclusivity. For example, one of the songs from your EP, CD, or vinyl small pressing should not be available for digital download. Give the exclusivity that fans need to buy the disc or they won’t be able to get the song. The same can go the other way around that one track is only available for digital download and is not available on any physical formats.

You don’t have to record everything at once. You can set up the budget to allow for an extended releasing format and offer more revenue options that give a sense of constant newness.

The more you spread your revenue sources across a longer period of time, the better the chance you have to make that much more from each product as you continue to gain more and more exposure for what was just released, what’s coming next, and what’s come out in the past. This also helps to estimate more revenue from each of these sources for your music business plan.

Reducing risk for your investors — Failure analysis

The failure analysis comes together to support your list of expenses and explains what you’re doing, why you’re doing it, and justifies how it keeps your plan from going wrong.

The failure analysis is a long list of all the things that could go wrong and how it would be impossible for the investors to get back their money.

Whereas some keep this out of a business plan because they think it’s too negative, this shines a much more positive light on you and your plan because you’re being realistic. You address every possible worst-case scenario and then add how you plan to avoid it. Just like Winston Churchill said, “Let our advance worrying become advanced thinking and planning.”

Numerous failure analysis templates are available online from which you can grab different elements. You can also ask friends, family, and those you know in business to help you with this part. Be the negative Nancy. Come up with every negative you can and how you and your budget can address them.

You can’t cover every single scenario that could possibly go wrong, but plan as much as you can and you take the upper hand in keeping things going right.

Most elements that make a plan fail usually tie to lack of marketing and promotion. Most of your justifications are reinforced with a strong marketing and promotion budget.

As hard as it can be to showcase just how much a project and plan can fail, your failure analysis can be one of the root elements that helps define exactly how you can succeed.

Covering the marketing plan

As you finalize the budget for marketing and add in the reasons, justifications, costs, and failure analysis, you have the outline of your marketing plan. The budget you built for your marketing, promotion, publicity, and advertising is your marketing plan numbers. Now, just add the time frames and the exact details of how that money will be spent, and you have a simplified marketing plan.

For example, say you have $4000 listed for press releases to go out to all the newswires:

Press releases: $4,000

In the marketing plan, you list:

The press release service: Send2Press

Then you show the breakdown of each release:

• Release 1 ($1,500): Press release for EP1 and announce touring information
• Release 2 ($500): Three months later, smaller release focusing on one of the singles released or some kind of special event announcement
• Release 3 ($1,500): Press release for EP2 and announce touring information.
• Release 4 ($500): Three months later, smaller release focusing on one of the singles released or some kind of special event announcement

And finally, you have the justification. Using one of the most popular, professional, and affordable services to get this information out, the press releases give an online presence with four releases continuing to promote the band and the products while assisting the publicist and existing marketing online and off.

Each line item in your expenses for marketing can be summarized to explain why it’s being allocated. At the same time, each item can help reinforce how that marketing prevents something bad from happening in the failure analysis.

With these elements organized in the simplest presentation, it showcases the organization, planning, and preventative maintenance that you have in place. Again, these plans can go on for pages and pages to compare previous sales charts, information on the music industry, and all kinds of forecasts and projections as well as facts about the business, but a lot of that ends up being fluff.

No one can truly create a long-term plan for the music business to forecast a five-year model. It’s impossible and those who claim to know the future are guessing. Fancy charts come more from opinion than fact. A short-term consolidated plan with the best data for right now — and the best estimations that have to do specifically and personally with you — makes for better information and a more personalized plan to give to investors.

Avoiding the after/thens

Try to be the best turnkey type of operation you can. Get out of the mindset of the after/then failure scenarios:

• After I can stop working, then …
• After I have a little more free time, then …
• After I get some money, then …
• After I get management, then …
• After I get signed, then …
• After I have a social media team, then …
• After I get a little more sleep, then …

And this failure list goes on and on and on, lining up the excuses that never allow for the results to be created.

Soliciting for funds

Asking for money is the hardest part of the music business plan, and you better be prepared for a lot of nos. Still, learning how to ask for money and presenting your needs and requests to other professionals isn’t just a great exercise in humility, it’s something you have to learn for the long term, because this won’t be your last music business plan. Even if it’s not asking for money, you are soliciting to media, reviewers, talent buyers, booking agents, managers, venue owners, tour managers, music supervisors, and a wide array of others over and over again throughout your career.

Venture capitalists and angel investors

Venture capitalists (VC) provide startup money to many high-potential startup companies and projects. These investors tend to grab a piece of the equity (so they have a longer-term piece of bigger profits) and can be a little more challenging for musicians to get; however, some venture capitalists and VC firms have branched into entertainment.

Look online and search for entertainment venture capital or music business venture capitalist as a starting point when searching out these funders to see if they have an interest in you.

Angel investors work in a similar way. They’re commonly referred to as business angels, informal investors, or angel funders. They can also provide seed funding for businesses. Angel investors want to see a business plan in motion and moving before being involved. So, again, having those elements of your business plan, branding, and marketing is viewed as a much more positive thing by everyone, but especially angel investors.

Venture capitalists and VC firms are more often than not investing money for a group of people, whereas angel investors tend to be individuals who invest privately, but still expect their money back, plus interest — and many times, a piece of the pie for the long term.

Personal and family loans

Personal and family loans come from people who know and have direct contact with you. Be careful here. Discuss very honestly and openly about what you’re doing, and don’t pressure.

Be generous when figuring terms. Just because they’re family or friends doesn’t mean their loan should include a simple payback. Give them consideration for a return on investment just like you would for a stranger.

As much as families and friends may want to help, make sure they aren’t helping to a point that could hurt them in the short and long term. Be honorable and as you pitch and solicit to family or friends, make sure you ask if they can handle a financial loss if things go wrong or take longer than expected. Make sure they’re loaning only what they can potentially afford to lose or risk not seeing back for some time.

Some family members and friends will do anything for you and not even consider the risk to themselves. Be that good family member or friend, and don’t approach those who can’t handle an all-around loss if the worst-case scenario were to occur. It can destroy friendships and ruin family relationships.

Collateral items and second mortgages

If you really believe in your project and your career, then showcase that with putting up the collateral to help fund it or go after the second mortgage to finance your project on your own.

If the answer is yes, then you are many steps beyond that old mentality many artists get into where they believe all the funding should come from elsewhere. Put your money where your mouth is, walk the walk, and talk the talk.

Take a look at what kind of options can bring additional funding to the table, and track this progress as you solicit for more money. By activating the early stages of your music business plan with whatever equity you can get from a mortgage, second mortgage, some kind of collateral loan, or even selling certain item, you help the project as well as show investors you’re all in as well.

When you show others you’re willing to take a risk with your own assets, equity, vehicle, and savings, you say that you’re all in and have full confidence, which raises the confidence of others.

Crowdfunding and its many issues

Crowdfunding and crowdfund investing have been hot topics ever since Kickstarter came on the scene some years back. They’ve gotten so popular that people have written entire books on the concept of crowdfunding, such as Crowdfund Investing for Dummies by Sherwood Neiss, Jason W. Best, and Zak Cassady-Dorion (John Wiley and Sons).

The plus side of crowdfunding is that you can reach out to your existing audience and see how they can help. That said, if your existing audience is small and not all that engaged with you, crowdfunding will be a struggle. It’s also a struggle in the sense that so many people have overused it to the point of oversaturation. You also have to deal with the fact that many people have been burned by many projects where they didn’t get what was promised to them or see the product come to fruition, even if it was fully funded.

Many crowdfunding projects have been heavily under-or incorrectly budgeted, which has caused issues for both artists and donors. Stay away from thinking all you need is X or making too many promises.

Use crowdfunding for a specified line item, such as food for an entire recording session or a piece of a marketing campaign like a month’s worth of social media advertising. You could ask for crowdfunding funds to pay a publicist for one month, a graphic designer for a special piece of art, or build another page or two on your website. These are good ways to get a larger number of people to help through smaller donations.

Fans are asked to donate every day to this album or that project. Even though crowdfunding has dialed back a little, fans are still being asked to give all too often. Keep your asks to a minimum, and don’t spam. Many have lost fans from bad crowdfunding campaigns.

Be careful with the crowdfunding approach, and when you read the success stories, make sure you dig a little deeper. Many of those who did so well already had an expansive and strong fan base. Using crowdfunding in a supplemental and small fashion gives you a greater chance to hit a goal and even potentially begin another campaign for another item.

Other options to find funding

Get creative, look online, talk to different people about referrals. If your plan has a nonprofit element to your music, set up a 501(c)3 and look to grant writers and other types of fundraisers. The money is out there; the people are out there to invest in you, but they are not waving neon signs. (Which, now that I think of it, would be heavy and somewhat dangerous.)

So, do your research, solicit to different companies, and reach out to fundraisers and grant writers to find the cash. Use creative angles. Funding is out there for those who really want to find it, and if you have the plan, the brand, and the organization together in a professional package, it makes it that much easier for you to fully fund your plan.

Lawyers and copyright laws

You need a lawyer to review your plan, assist with your internal agreements, and help set up an actual corporation as well as the bank accounts. This is a preliminary step that many musicians think is covered when the money comes, but those who organize this first have a place and a real business to actually deposit money in to. Chapter 9 digs deeper into copyrights, publishing, lawyering up, and protecting yourself.

The incorporation of your company with basic bylaws and fundamentals can be done online these days, but it’s a good idea to get a lawyer to assist you with the process for the exact details.

Your copyrights and publishing need to be in order, as well. Who wrote what, who gets what from the writing, and who is included internally and externally in the compositions should be set down in writing. Again, Chapter 9 looks at the copyright and publishing elements in more detail.

Accounting, accountants, and auditing

An accountant can help review your music business plan and put together some of the basic structure for monies coming in and going out as well how they can be tracked and reported. Preparing a system for how you track the expenses and keep the receipts also builds additional confidence with investors and keeps you prepared for any kind of audits or tax reviews that could come your way.

Save and track every receipt. Think like you could be audited, because at some point you most likely will be. If not by the government, some investors will want to double-check to make sure the money is going where it’s supposed to be going.

From the internal agreements to incorporating to copyrighting, accounting, and finalizing all the independent contracts, the best music business plan is held together by the glue of its legal and business organization. Your plan can state how it does all these wonderful things and exactly how it works, but without the organizational and legal elements to make it binding, your business is just a concept.