38: Musicians are Small Business Owners
with Tiffany Soricelli
You said that somebody who is self-employed is a business owner. How should musicians think about the finances of the business of being a musician?
Yeah. That's a-- when I teach, I teach three keys every artist needs.
First is your goals - clarity around that. Second is your financial system, financial plan. And the third is a business strategy. It is equally important as the other two and, and as a business owner, one of the things that you should be measuring are the same things that all other business owners measure, which is, How do we make money? And we don't have to be as granular about measuring your profit margin necessarily.
However, something to keep in mind is, is how much you're earning versus how much it's costing you in this career. For instance, if you were preparing for a competition, if you're preparing for an audition, if you're working and you just want to coach a couple of things before you take it on the road, or whatever, you need to factor in those coaching cost, your accompanist fees, the travel fees, anything related to a said contract and keep an eye on, on that bottom line.
And of course, as the career progresses, one would assume that the contract size will increase to a certain degree. At the very least, as you get more experience, you probably have to incur less expenses, less coaching experiences, and lessons, and stuff around that so that again, your profit margin increases as you gain experience. But being really mindful that when you take a job and if it's a 1099 gig, which most of them, unless you're in an employee situation like an orchestra or a union gig, when you take that job, that top line they offer you is not your take home, right? 30% of that is the government's. And then if you have a manager, part of that's your management fee. And then part of that is actually your operational expense needs to cover your website, and your cell phone, and the other things you have to keep an eye on, on all of those things that need to be covered by the income coming in.
And that's what, I mean, business owners do. They're looking at the bottom line, looking at that bottom line, meaning income minus expenses gives us our profit, our, our revenue and, and going off of that. So if you want to make more money, it's increasing those, those fee-- those rates, or those contract rates, or the number of contracts increasing that top line revenue is a good thing. But also controlling the expense needs and the, the outflow is equally as important. Managing your taxes is a big part of that, right? Because if you can maximize your expense deductions, your business expenses, you put more money in your pocket. In fact, you can even save for retirement as a business expense. Put money in your pocket before you pay your taxes. All of these things help.
But as a business owner, having that strategy, having the systems in place allows you to set up these resources and set up the systems that you know that as you get busy and you're working, you know, This is going to taxes, This is going to my retirement. And having a system to capture all of that is really important.
Kellogg:
Related to a self-employed musician being a business owner, when businesses have profits, they often will decide what if any, portion of that profit to invest back in the business? What does it look like for a musician to invest in themselves?
Soricelli:
I think so, what does it look like for a musician to invest in themselves? It's going to be directly tied to one's own goals. Some people might take a portion of their surplus, their retained earnings, their profit, and put it into their equipment, put it into training, put it into a break - an actual vacation. Oh, my gosh. Not, not a work trip. An actual vacation. It's going to be directly related to what your own personal, professional, and financial goals are. I think a lot of time, though, there's nothing left over, right? We look at what came in during the year. We look at our expenses and then we know, Oh, crud, I have to pay taxes now. So finding where, where that's coming from, some savings account, and paying it where, I think that if you begin saving upfront, right? Save that 2%, 5%, whatever off the top as part of your habit, you build profit, you build in the ability to, to give yourself nice things, or invest in a better case, or a better luggage, or an experience, or just treat yourself for the work that you're doing. But if we're not intentional around it, there's, there's never anything left, right?