Today’s preview chapter from “Music Management for the Rest of Us” is about separating your cash from your clients’ cash.
Don’t Be the Bank
Too many bands that come to my seminars talk about their need to find a manager, when what they really want is an investor. Likewise, I have heard too many horror stories about managers who believed so strongly in their clients’ talent that they mortgaged their own futures to fund a client’s career that never materialized.
Yes, there will be times when it’s appropriate (if not necessary) to lend your client a few bucks between paydays at their day job. Yes, there will be an occasion or two when it’s far more expedient to charge a band expense on your credit card and get reimbursed later. In general, though, you should not absorb any of the costs of your clients’ business. Your clients are responsible for paying all expenses related to their career – it’s your job to help them maximize the investment of your money and their time. You are no one’s “sugar daddy.”
So, how do you facilitate startup funding when your client is new to the business? You handle it the way that legions of small business managers have done it for generations – look for venture capital. Many successful artists form shell companies for their touring business, their recording business and their publishing business. You can, with the assistance of an attorney and an accountant, open up any of these companies to qualified outside investors. Their injection of capital will help you launch your client’s career – with the understanding that those investors will reap a fair share of future profits as shareholders.
Should you take the incorporation route, be sure to set up your companies in a way that you and your clients retain final control over all decisions. Be sure not to release more than 49% of the outstanding shares of any company, and make sure that all parties involved sign buy/sell agreements to control the transfer of ownership from shareholder to shareholder. You don’t want to wake up with an ornery voice mail message from the new owner of 49% of your client’s company! The nuts and bolts of setting up this kind of arrangement is beyond the scope of this book, so seek the guidance of an experienced attorney who can structure a corporation that’s attractive to investors but leaves you and your clients in the driver’s seat.
Advisers and investors will expect you to provide them with a clear budget and a business plan for at least the next eighteen months. Be very honest with yourself and with your clients about selecting items that should get on this budget. Make sure that you can clearly point to a return on investment. After the dot-com collapse, investors no longer want to see “builds buzz” or “increases awareness” as an expected outcome for an expense. Instead, make sure that every dollar you spend leads to a very clear return on investment. If you cannot point to a specific profit margin for an item on your budget, it shouldn’t be there.
Finally, as you oversee the general health and well being of your clients’ affairs, keep in mind the wisdom that Dr. Thomas Stanley imparts in his series of Millionaire Mind books. Folks who become millionaires stay millionaires by scrutinizing every expense. If it’s needlessly lavish, it’s usually needless. You may find yourself playing Scrooge, swapping domestic bubbly for Cristal, and keeping your clients from having fun with their sudden windfalls. Should they survive their first label deal with any cash left in the bank, they will thank you for it.
In the next preview, I’ll tell you about two roles managers often take on that they really should be delegating. If you’d rather not wait until then, you can download the entire PDF of “Music Management for the Rest of Us” by pressing any of these buttons:
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