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Chapter THREE

Accounting 101: Just the Basics

Just the basics, folks – no heavy-duty math and no complicated formulas – just what you need to know to understand where the money comes from, where it goes and how the music industry players affect your wallet. This foundation will help you understand how to put more MONEY in YOUR POCKET and have greater success based on greater PROFITABILITY.

The first assumption in accounting is that everything is MONETIZED, which means that everything is reduced to numbers or value amounts. You have to have a quantitative number that gives the “ money score” on every project or show you do and tells you what you earned or lost. The record is great is a quality measurement or valuation of your work; it sold 100,000 copies last week is a quantitative measure and accountants use it to score the dollars: 100,000 records sold at $10 each yields a $1 million week. So to define success in terms of profitability, everything must be quantified by converting it to money amounts. While music is an art and is often measured in quality, accounting is the science that measures the art in the numerical values of the price and the profit.

In its simplest form, profit is when your income is greater than expenses. You sold more- T-shirts than it cost to make and sell them; that’s a profit. You received more money putting on a show than it cost to put it on; that’s a profit.

INCOME

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EXPENSES

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  • Accountants create two major reports the first called INCOME STATEMENT 

  • and  a second report, the BALANCE SHEET

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    Recoupment is a term you will hear a lot and is a very important accounting concept in the music industry. 

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    You can't be successful unless someone believes in you and will gamble their cash on you; the record company is this risk taker. The record company may advance you money or pay your expenses, but you will pay them back before you earn another penny. Understand you are not going to get paid for selling the first million (or more) records; it will take that many sales until they recoup from you and only then can you earn a steady paycheck.

    You can see that there is a lot of BUSINESS that happens “behind the scenes” to make a show happen These professionals, the accountants and business managers, dedicate their lives to this “art” of accounting and reporting, I have grossly oversimplified the processes and procedures they use. There are libraries full of text books and manuals of these processes and procedures, rules and regulations that can be reviewed and must be followed so standards are set for them to communicate amongst themselves, the rest of the players, the I.R.S. and you. Please learn more than is here, but with out this basic understanding of value and profit as a measuring tool, it is hard to QUANTIFY what most people use as a QUALITY measure. How good was the show? The accountant’s answer is $54,317.34, while a fan’s answer might be “Spectacular!” Understanding the difference between quantifying answers and qualifying answers will help you to define success as profitability.


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