Skills to Pay the Bills – Part 1
In Part 1 of this two-part series, producer/engineer Nick Franklin reveals his dirty little secret: running a studio is a business. Here he explains how he stays in business thanks to the right tools.
With sole traders making up a whopping 61 percent of Australian businesses, it’s little wonder that resources, information and assistance for small enterprises are abundant. Plug ‘small business podcast’ into a search engine and you’ll be overwhelmed by the sheer volume of information available to the budding entrepreneur. So why is it that when it comes to the ins and outs of running a small business, audio engineers and producers are so useless?
My theory is this: the reason you got into audio or production in the first place is the same reason you’d push your mother down the stairs to avoid looking at a profit and loss statement or, heaven forbid, your superannuation fund! Audio engineers and producers are programmed to figure it out as they go along. When a new compressor or microphone arrives we don’t start by trawling through the manual – we just plug it in and figure it out. So why would we read the manual on running a business? It sounds like a lot more fun to simply jump in and start running it. In fact, if we were to assess the notion of becoming a freelance music producer or opening a studio from a business-savvy perspective, we’d run for the hills. It’s a terrible idea…
The reality is that musicians are some of the most broke people on the planet, and they’re the ones who are going to be paying you. Talk about drawing blood from a stone!
I doubt any of this will deter you, and I doubt you even have a choice; most who’ve embarked on this journey have the audio and production seed planted deep inside them, and helping others to create great music is part of who they are. It’s why you’ve come this far, and it’s why you haven’t given up. So if you’re in this for the long haul, the very least you can do for yourself, your future and your family is know enough about business to keep the lights on, the VU meters moving, and food on the table – even when things get tough.
I reckon I could write a book about running a small business based on the things I’ve learnt by simply doing it, but there are heaps of books like that out there and you probably wouldn’t read it anyway. Instead, what I am laying out here is the bare minimum you need to know to keep your head above water as a freelance engineer and producer, and to avoid getting yourself into sticky situations down the line. It’s the information I wish someone had told me before I started. There are plenty of traps for those starting a small business, and I fell into all of them!
As soon as you think you might be able to make ends meet recording and mixing bands and nothing else, you will want to. We have a bizarre pride complex about employment in Australia, and especially in the audio industry. At dinner parties when asked what it is that we ‘do’, it’s natural to want to answer with “I’m a music producer!”, as though those words will trigger the arrival of a mariachi band, confetti cannons and pats on the back from everyone in attendance. On the other hand, if your answer was “I’m working on starting a small business recording music but in the meantime I’m working in hospitality and teaching guitar to fill the void”, the sniggers and whispers around the dinner table would be just deafening, wouldn’t they?
When I began my freelance career as a music producer I was terrible at business. The extent of my preparedness for becoming a ‘sole trader’ was that I had my enthusiasm and an ABN (Australian Business Number). My first mistake was to recklessly quit my day job the moment I decided I had enough audio work to pay the rent for a couple of weeks. I had some annual leave and a fortnight’s pay accrued at my day job which kept me afloat for some weeks, but before long my bank account was drier than the Tanami. I wish someone had told me to stay a little longer in full-time work, or cut down to part-time or casual, and use that time to develop the business.
The reality is that the first couple of years for most small businesses are tough, and even more so in our industry. Quitting your day job on a whim and a prayer is going to be extremely challenging in even the best case scenario. Worst case? It could ruin your personal relationships and put you in a financial position you can’t get out of without going back to a day job and setting your audio career back by years. My advice is to use the time prior to leaving your day job to get all of your business ducks in a row.
The reality of making money in Australia is that the government want their cut of it in the form of taxation, and they’ll find a way to get it from you regardless of how sneaky you are. The upside is that for sole traders, complying with your taxation and small business obligations is incredibly simple. The consequences of doing the right thing are completely manageable, but the consequences of ignoring your obligations can be financially and emotionally devastating.
I was no saint when it came to doing the right thing by the tax office. During the first three years of running my business I was earning a reasonable income but didn’t submit a single tax return or pay a cent of tax, and the reason I’ve become so in tune with the ins and outs of small business and tax is because I never want to be in that position again.
A significant portion of the people reading this have probably just experienced a familiar pain in the middle of their gut associated with the guilt of having ignored their tax obligations for too long. To those readers I say fear not: getting up to date with your income tax is not only easy, but it will lift that Steinway-sized weight off your shoulders, too. Book an appointment with an accountant, discuss your business situation with them, and follow their advice to prepare and submit your tax returns. While we’re being honest about money, I almost guarantee that one of the reasons you’ve avoided doing your tax is the fear that you’ll owe more than you have. That’s okay, too; the Australian Taxation Office (ATO) will put you on a payment plan that you can afford. It will get them off your back, take that Steinway-sized weight off your shoulders, and ease that pain in your gut.
To those of you who have managed to stay up to date with your tax returns I say “Congratulations, but don’t tune out yet!” There are many ways you can improve how you keep your records for tax purposes and swing them to your advantage. Tax is great and important. It pays for our roads and hospitals, but I reckon freelance audio professionals working hard to just make a living should not be taxed a cent more than they have to be. Watertight record keeping and solid systems is how you make that happen.
To start getting all of your business ducks in a row and begin your life as a freelance production guru, you’re going to need to register an ABN (if you don’t already have one) and then set up a completely separate business bank account. There are a number of banks that offer these free, so there’s no excuse for having your business money land in your personal bank account. Have all your clients pay you into that account, and use the card linked to that account only to make business related purchases. You can then pay yourself out of that account. If your business ever gets audited by the ATO, your life is going to be a lot easier if you can produce bank statements with only business-related transactions on them. The next step is to keep good records of your income and expenditure…
it’s natural to want to answer with “I’m a music producer!”, as though those words will trigger the arrival of a mariachi band, confetti cannons and pats on the back from everyone in attendance
Tech savvy audio engineers and producers have never lived in a better time for keeping accurate and useful records. Really cool (come on, you know you’re a nerd just like me) bookkeeping software is abundant, cheap or even free, and it will change everything about the way you see your business. It also provides a fast and convenient way of issuing invoices that make you look like a real pro. For those of you who aren’t already running your audio business, an invoice is the document you provide to a client that indicates how much they owe you and when you expect to be paid. Prompt professional invoicing can make the difference between having the money in your bank when you need it, or endlessly chasing late payments and wasting valuable time that you could be using in your studio. If you can operate a DAW, you can operate a piece of bookkeeping software.
If you’re anything like me you probably put off all of those annoying little studio tasks, like editing and comping, for as long as you can. I’ve never once woken up and thought “Yes! I can’t wait to get stuck into comping that terrible vocal!”, or “I’m glad I’ve got eight tracks of drums to edit today!” I avoid those types of things until they literally can’t be left any longer, at which point I’m under stress and time constraints to get them done. Likewise, if you make keeping track of your income and expenses in any way annoying or hard you will put it off until the end of the financial year, at which point it’s going to be a very big and unpleasant task indeed. You can keep records in a spreadsheet, of course, but good bookkeeping software takes all the pain out of record keeping and makes you want to do it as you go. It also gives you back some of what most producers and engineers I know are desperately lacking: time! Someone should invent equivalent software for automatically editing and comping that singer you recorded last week, whose concept of timing and tuning seems to be more abstract than grounded in reality.
Here’s how I keep my records. I’m not a financial advisor so take my advice with a grain of salt, but it’s worked for me so far. I use an application called ‘Rounded’ so the examples I’m about to give are based on that, but you could also use Quickbooks, Xero or any of the multitude of applications available. I’m sure they all work in similar ways, so check them out and choose one that works for you.
To invoice a client for work I’ve done for them, I simply select from my common invoicing tasks such as ‘One Day Studio Recording’ or ‘Mastering One Song’ and hit send from my phone or in the web browser. Rounded notifies me when the client has opened the email, so there’s no more “I didn’t get the invoice” excuses. If the client hasn’t paid by the due date, Rounded will automatically send reminders at an interval I specify. Keep the heat on them! When their money hits my bank account I mark the invoice as paid, and Rounded adds the payment to my income report and sends the client a receipt.
Every time I buy something for the business it takes less than 30 seconds on my mobile phone to enter the amount, date and category into Rounded. I also snap a photo of the receipt, which is added to the record in Rounded. I never miss a single tax-deductible opportunity, and I don’t have to worry about the receipts fading away to blank paper in a shoebox under my bed!
When my BAS (Business Activity Statement) is due I tell Rounded to export my income and expenses as a spreadsheet and email it to my accountant. That’s it. Within a week (usually) my documents have been lodged and my tax obligations for the period are met.
Sounds pretty easy, right? It is. Next issue I’ll talk about the longer term benefits of using bookkeeping software, describe my three-tiered system for ensuring my business continues to grow, and how I am planning for retirement with superannuation. In the meantime, get yourself some good bookkeeping software and start using it. Don’t wait any longer.