May 18, 2024


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Bills and Investments – Music Connection Magazine

We’ve all heard about musicians who hit it big, then ended up penniless. In one such infamous story, rapper MC Hammer, who was once reported in Forbes magazine as being worth $40 million, actually had to file for bankruptcy. If you don’t want this to happen to you, the assistance of a good business manager is crucial.

In the early stages of your career, when you’re trying to get noticed and you’re making no money or just making ends meet, you’re probably not ready for a business manager. In fact, all you may need is a certified public accountant experienced in music to help with taxes and to provide general business advice.

But if you plan to hit it big one day, learning about what a good business manager can do now is worth millions to your career and to your future. The following article, excerpted from the book Business Basics for Musicians, 2nd Edition by Bobby Borg, covers the role of a business manager, hiring a business manager, important terms of your agreement, and tips on handling finances yourself.

Those who say money isn’t everything are usually those who never had to worry about it. Read on.

The Role of a Business Manager in Your Career

The role of a business manager is not to be confused with that of a personal manager.

A personal manager is more like the chief executive officer (CEO) of your company, who helps generate income by helping you attract recording deals, publishing deals, and tours.

A business manager, on the other hand, is more like the chief financial officer (CFO) of your company, who helps manage the income from these deals once they’re in place.

A business manager handles all financial issues, such as investments, financial planning, bookkeeping, tour account services, asset administration, tax services, insurance monitoring, and royalty examination. These are all discussed below.

Bobby Borg

Investment Strategies and Financial Planning

One of the most important roles that a business manager can play in your career is to help you plan for your future. It’s not enough to bank on hitting it big.

Planning for the Long Term

A good business manager helps his or her clients plan ahead by first determining what investment strategy is best suited for their needs.

For instance, is a high-risk, short-term strategy (such as stock investments in emerging technologies) a wise plan, or is a long-term, low-risk strategy (such as investing in pension plans, mutual funds, and municipal bonds) a more appropriate scheme?

Jeff Hinkle of the Los Angeles-based business management firm Gudvi, Sussman & Oppenheim ( says,

We like to think in the long term for our clients. One of the first things that we would do, especially for our younger clients, is to set up a pension plan and start saving for their retirement. Depending on how much they can afford to put aside, we’ll probably use the assistance of a professional money manager.

Managing the Portfolio and Minimizing Risk

The money manager opens the investment accounts and recommends appropriate investments such as stocks, mutual funds, treasury bills, and high-quality bonds. Once the investment choices have been made, the money manager then oversees the portfolio on a day-to-day basis; he makes ongoing recommendations as to the mix of investments to maximize clients’ return on their money and also minimize their downside risk. The business manager is always involved in these decisions, but the business manager is not a stock picker. That’s the money manager’s job.

Bookkeeping and Accounting

Business managers not only look out for your future by helping with investments and financial planning, but they also help manage your money on a daily basis by reviewing invoices, paying monthly bills, collecting royalty earnings, depositing money, and monitoring your bank accounts. All of these issues fall under a service known as bookkeeping and accounting.

Opening Accounts

Business managers have long-established relationships with local banks that are familiar with the business management firm and its clients. Your business manager will usually open a checking account (to pay all of your bills) and what’s called a pocket account (for whatever personal expenses you may have, ATM withdrawals you may make, etc.). Of course, these accounts are open under your name, and you have to provide your signature to the bank.

Paying Bills

Your business manager then collects all of your income, which can range from touring and merchandising monies to publishing and artist royalties, and deposits it into these accounts. He or she monitors your bank accounts to make sure there’s enough money to meet your expenses, reviews your bills (car payments, credit card bills, home mortgages, gardener, personal trainer, etc.) to ensure that all charges are justified, requests your approval and signature (unless you authorize him or her to sign on your behalf), and then pays your bills.

Jeff Hinkle notes:

“We really encourage our clients to be involved in the bill-paying process. Not paying your own bills can be a dangerous thing; it’s the old “out of sight, out of mind” problem. We prefer for clients to sign their own checks, although this isn’t always possible due to their generally busy schedules. I’ve had clients who seemed to have a phobia when it came to bills and discussing their spending. Sometimes, as long as they know they can meet all of their expenses, they would rather not deal with any of it at all.”

Tour Services

Another important role played by your business manager is the handling of all financial matters pertaining to touring. Business managers are involved with a tour from its inception and planning to the very last show a band performs.

Handling Pre-Tour Activities: Budgeting and More

Your business manager, along with your personal manager, is responsible for putting together tour budgets when you’re planning to hit the road. He or she will review all of the performance deals offered by concert promoters around the country to determine the total gross earnings of the tour. A projection of expenses is then made to determine what the potential net profit or loss of the tour may be. Expenses may include the following:

Tour bus

• Airfare

• Hotels

• Insurance (for personal injury, theft, if you miss a show—called “nonappearance”)

• Rehearsal fees

• Per diems (daily allowances paid to the band and crew for food)

• Salaries for the band

• Salaries for the crew

• Production costs (for the sound and lighting equipment)

• Trucking cost (to carry the sound and lights)

• Contingency (an additional percentage [usually 5 percent]) calculated into the budget in case expenses are estimated low or there are unexpected emergencies

• Your agent’s fees

• Your manager’s commission

• Your business manager’s fees

The expenses listed above are an oversimplification of what is usually incurred by a band on the road; the list can easily be a page long. Nevertheless, after determining the total expenses of a tour and then deducting them from the projected gross income, the business manager works at making adjustments in areas where he or she feels money could be saved. Careful planning is required. Any miscalculation of expenses can lead to serious problems at the end of a tour, and instead of making money, you can find yourself thousands of dollars in the red.

Monitoring the Tour During and After: Taxes, Insurance, and More

Once you’re on the road, your business manager’s work does not end by any means. He or she collects monies taken from each performance and makes sure that the concert promoter paid the appropriate sum. Your business manager then pays all bills owed to the tour bus companies and trucking companies and pays salaries to the band and its crew.

He or she also makes sure a tax return is filed in every state in which a tour is planned. By submitting a budget to the appropriate authorities in each state, your business manager can limit the band’s tax obligations by making sure the band is taxed on the net profits of a performance rather than on the total gross earnings taken.

Lastly, your business manager makes sure your band is properly insured while out on the road, especially with something called “non-appearance insurance.” This means that if a concert is canceled because your lead singer gets sick or your tour bus breaks down, the insurance company will pay the band the amount it was expecting to earn from that performance. As you can imagine, non-appearance insurance is extremely important. One or two live performance cancellations can cause a band to lose incredible sums of money.

Asset Administration

Moving away from making money, now let’s talk about spending it. This brings us to your business manager’s next important role, known as asset administration. Let’s take a look at common purchases like a home and automobile.

Shopping for a Home

When you’re shopping for a home, your business manager will advise you as to what price range you can afford and explain deal points such as loan fees, title insurance, and credit reports.

Unless you’re exceptionally fortunate and can pay cash for a home, your business manager will rely on relationships with mortgage brokers to arrange loans.

Shopping for an Automobile

Car shopping is not unlike shopping for a home. Your business manager will advise you of the price range you can afford and explain the finer points of deals such as buying versus leasing. After you decide what you want to do, the business manager contacts an automobile broker.

Jeff Hinkle remembers one instance in which a client wanted a particular Mercedes model that was especially hard to find. An automobile broker located the car, down to the exact specifications, in Texas and delivered it to Jeff’s client in California in a few short days; how’s that for service?

Financial Reporting

While on the topic of spending money, let’s discuss financial reporting.

Every month, your business manager must send out a detailed statement to his or her clients that includes every deposit made, every transfer of funds made in and out of investment accounts, and every check written. Rather than these reports looking like something a bank would send out, your business manager may categorize items under certain headings, such as recording expenses, housing expenses, and business expenses. This makes it much easier for you to read and understand your statements.

Your business managers will also meet periodically with you to review financial statements and to make projections as to where they see your finances in six months to a year. Jeff Hinkle adds that this is one of the most challenging parts of his job:

“Communication with the client about their money is the key. Most artists would rather think about mixing their new album or an upcoming tour than their finances. That’s why we make it a point to have regular financial meetings with all of our clients. Since most of our clients are touring artists, finding the time and place to meet can be difficult. So, several times a year, we will get on an airplane and fly out to meet with a client who is on tour. I’ve had plenty of business meetings on tour buses and backstage in dressing rooms. Sometimes that’s the only way to get in front of the client.”

Tax Planning

Another important function undertaken by your business manager involves tax planning. This crucial responsibility can be divided into three categories: determination of an appropriate business entity, handling of payroll and income taxes, and estate planning.

Determining a Business Entity

One of your business manager’s major responsibilities is helping you determine what business entity best suits your needs. Should you be a partnership, a corporation, or an LLC (limited liability company)? The choice can significantly affect the taxes you pay. Your business manager, together with expert lawyers, will help you set up the business entity best suited to your needs.

Handling Payroll and Income Taxes

Your business manager also handles payroll and income taxes. He or she writes checks and pays all personnel, from the crew to the side musicians to the band itself, and deducts all applicable taxes. He or she also prepares all W-2 and 1099 forms for the purpose of filing tax returns. Having a working knowledge of the special deductions that entertainers are allowed to take, your business manager also prepares your tax returns (or, in some cases, business managers hire an outside firm to do this).

Should you ever be audited by the Internal Revenue Service, your business manager will have the authority (granted by you under contract—discussed later in this chapter) to meet with the IRS field agent and show all proper documentation of receipts and deductions taken on your returns. If your business manager is doing his or her job correctly, this is usually not too difficult. But without a business manager working for you, an audit by the IRS can be a nightmare unless you have been extraordinarily organized and careful with your record keeping.

Helping with Estate Planning

Lastly, your business manager helps you with estate planning. In plain English, this means that he or she will assist you in preparing for what will happen to your assets when you die. It may not be something you want to think about while you’re young and healthy, but if you’ve worked hard all your life and are finally successful, you want to be sure your assets are left with the people you love.

Estate planning includes such important issues as setting up wills, trust funds, life insurance, and gifting (the process of giving equitable gifts such as cash or property in order to reduce estate tax liability on inheritance). Your business manager will work with expert attorneys specializing in estate planning to make certain that you and your family members are protected.

Insurance: Liability, Auto, Home, and More

Your business manager also makes sure that you have all of the appropriate insurance coverage in place, including general liability, workers’ compensation, auto insurance, home insurance, and non-appearance insurance.

When taking on a new client, a business manager typically contacts that client’s current insurance broker to determine what insurance is already in place. If the broker is not experienced in entertainment, the business manager will recommend someone who is.

Although business managers typically have established relationships with experienced entertainment insurance brokers, they will not take their advice at face value. The business manager makes sure that his or her client is getting all the best rates, premiums, and deductibles. Jeff Hinkle notes that insurance is a very important responsibility for business managers. If their clients are sued and don’t have adequate coverage, or the right kind of coverage, or have no coverage at all, it can lead to substantial losses and even bankruptcy.

Royalty Examination

Last but not least, let’s discuss royalty examination as the responsibility of the business manager.

Most music business management firms have royalty-examination departments that understand the detailed aspects of royalty earnings. Your business manager monitors royalties from record, merchandising, and publishing deals and makes sure you’re paid appropriately when these monies are due.

Hiring Your Business Manager

Now that you have a pretty good idea about the role a business manager plays in your career, it’s time to discuss when to hire a business manager, how to find one, and what qualities you should look for.

When to Hire a Business Manager

The best time to hire a business manager is when there’s a substantial amount of money passing through your hands (such as at the time when you are about to sign a recording deal and receive a recording fund).

Jeff Hinkle warns:

“Just don’t wait till the last minute before hiring a business manager. Usually this is done to avoid paying the business manager a commission on their first round of advances. However, this can end up costing the artist more than they save in fees. The problem with waiting is that their money is often wasted or mismanaged, and more times than not, they forget to file their tax returns. By the time the artist decides to hire a business manager, they may have already blown through the advance, but no taxes have been paid. Remember, advances are almost always taxable income in the year received. Once the delinquent tax returns are filed, the IRS adds penalties and interest to the tax bill, compounding the problem.”

Finding a Reputable Business Manager

Once you’ve decided you’re ready for a business manager, you have to find one. The best way to do this is usually through personal referrals from people on your professional team, such as your manager and attorney, or from artists who are more successful than you are.

Jeff Hinkle suggests that you get more than just a single recommendation and that you meet with all of the business managers before making your final decision. This is really important. Remember that your business manager is the one person to whom you’re usually giving significant control of your money!

And if that’s not scary enough, you should know that in the state of California (check other states), a business manager needs no credentials, licensing, or educational qualifications. That’s right. So be sure to choose your business manager wisely!

Qualities to Look for in a Business Manager

After you’ve received a few referrals for business managers and made a few appointments, there are a few things you need to consider before deciding whom to hire:

• Is the Business Manager a Certified Public Accountant?Being a CPA doesn’t necessarily provide someone with the skills to be a business manager (many great business managers aren’t CPAs), but it does give you some assurance that your business manager is at least a college graduate, is board certified, and has some organizational and accounting skills. Remember, there are no qualifications needed to be a business manager, so essentially anyone can be one.

• Is the Business Manager Part of a Larger Firm or a Smaller Firm?

Some smaller business management firms (with a staff of 1 to 20 people) simply don’t have the same resources larger firms do. For instance, they may not have the capability to undertake a royalty examination, which is often the province of a dedicated department of experts. You don’t want to be with a firm that you’re going to quickly outgrow. On the other hand, if you start out at a larger firm (50 to 100 people on staff), you risk being overshadowed by their larger, more successful clients.

• Who Are Some of the Business Manager’s Other Clients? If you haven’t heard of any of the clients the business manager represents, it may not be a good idea to go with him or her.

How Long Has the Business Manager Been in Business? An established business management firm is one that has been in business for about 10 years. That’s not to imply that firms that have been in business for less than 10 years are not any good; it just means that they haven’t handled as many clients and are not as experienced.

Does the Business Manager Specialize in Music? This is perhaps one of the most important questions to consider. If the business manager handles clients in film and television but doesn’t work with musicians, he or she may not be right for you. Your business manager must understand the complexities of touring (in both the United States and foreign territories) and royalty issues (publishing, recording, merchandising, and more).

 • Does the Business Manager Handle New and Developing Artists? This is also important! You want to know that this business manager has the patience and know-how to make your pennies grow into nickels and your nickels grow into dollars.

Is the Business Manager Approachable and Pleasant? If you can’t communicate with your business manager, or if you feel uncomfortable or stupid discussing money in his or her presence, then no matter whom he or she represents, you should look for someone else to hire.

Does the Business Manager Welcome Your Questions? You want someone who’s going to be helpful enough to take your calls on weekends or at home if you have an important question or concern.

Can You Trust Your Business Manager? This is an obvious concern, but extremely important. You want a business manager who projects a genuine feeling of concern for the security of your future.

What Investment Strategies Does the Business Manager Have in Mind for You? As previously discussed, does the business manager have a long-term, low-risk plan, or a high-risk, short-term plan in mind for you? You probably want to look for someone who is thinking about the long term.

 • Is the Business Manager Independent of the Deals and Investments He or She Is Putting Your Money Into? If the business manager owns a share in a shopping center and wants you to invest in it as well, you should be wary of his or her advice. Or, if your business manager aggressively pushes you in the direction of investing in a particular stock, he or she may be getting a commission from the stock broker for making the referral.

What Kind of Financial Reports Will the Business Manager Give You? Will the financial reports be issued monthly? Will they be categorized in a way that is easy to read and that you can understand?

Will the Business Manager Handle Your Tax Returns? Some business management firms hire outside CPAs to handle tax returns, and as a result they charge you extra. You want to know this in advance.

Is the Business Manager an Expert in Handling Royalties? Royalties from publishing, merch, and record sales can be a great source of income for you. A business manager needs to understand this very complex and detailed area to ensure that no money is lost or uncollected.

Does the Business Manager Have Insurance? Many business managers are insured against errors and omissions they may make while providing accounting and investment services to you. And finally . . .

Has the Business Manager Ever Been Sued? “Never be intimidated to ask this question of both the smaller and larger firms,” says Sharon Chambers of Down to Earth Business Management. “It’s often the smaller firms that get the bad rap for unscrupulous activity, but the big firms are just as likely to rip you off. The reason why you rarely hear about these cases is that they settle out of the courts. You should never subscribe to the ‘the larger the firm, the safer you are’ way of thinking.”

As you can see from this list of questions, there is a great deal to consider before hiring a business manager. Just don’t forget to use your good old gut instinct. If things don’t feel right from the start, they’re probably not!

That’s about it for hiring a business manager. Now let’s move on to the last part of this chapter and discuss business management agreements.

Important Terms of Your Agreement

For many years, formal contracts between business managers and their clients were not standard, but this is no longer the case—at least for many firms. The basic terms of an agreement might include the payment structure, audit rights, power of attorney, and termination rights.

Payment Structure

There are three methods by which business managers are typically paid. These are discussed below.

Flat Retainer

A flat retainer is a fixed monthly sum that is based on the success of the client. Obviously, the more successful a client is, the more attention he or she will need. On average, a monthly retainer can range from $500 to $3,000 for new artists, and far more for successful clients.

Hourly Fees

A straight hourly fee is just that: you’re charged by the hour for your business manager’s services. The hourly fee is based on the professional level of the person working with you.

For instance, a file clerk can get around $30 per hour, while a partner of the firm can get $300 per hour or more. It’s usually not possible to pay one hourly rate for everyone involved with your career, so your bill will reflect various rates and charges. For instance, during the tax season (January 15–April 15), you may see higher charges on your bill, since the higher-level CPAs may be preparing your returns.

The “by the hour” system of paying a business manager usually works best for artists making substantial sums of money. As you’ll see in a minute, when you choose to pay your business manager a percentage of the deals you enter into, he or she can end up with substantially more money—especially if you’re earning large sums from concert performances or publishing deals.

Percentage of the Deal (5 Percent)

The last method of payment is for your business manager to take a percentage, typically 5 percent, of your gross income (excluding investment income, tour support, and recording “costs”).

Jeff Hinkle tells me that for tour services, that 5 percent can either be a percentage of the tour’s gross (artist guarantees plus overages, but not production reimbursements) or a percentage of the net (total gross minus all tour expenses).

This can add up. Thus, your business manager may sometimes agree to set a cap on the amount of income he or she can earn per year. For instance, a business manager may agree to take in no more than $100,000 in commissions, and no less than $30,000.

But business manager Sharon Chambers cautions you to be sure to check on the firm’s cancellation policy regarding minimums. Some firms will dump you in a year after they’ve commissioned your initial advances and monies from touring have slowed down.

Audit Rights

Another point that you may want to stipulate is your right to audit your business manager’s books. Business managers will always allow their clients to review all financial records.

That said, Jeff Hinkle adds:

“An audit can actually be a healthy exercise for artists. If anything, they’ll get a greater appreciation for what the business manager does by seeing that everything is in order. And in the worst-case scenario, if the business manager is up to no good, an audit may help reveal whose pockets the artist’s money has been going into. The stories you often hear of unscrupulous business managers, personal managers, attorneys, or whoever else ripping off unsuspecting artists occur when artists allow one person to have too much control over their career and finances without having any checks and balances. The artist must always pay attention to what’s going on around him or her, and not get caught up in the whole fantasy of being a star.”

Power of Attorney (or “Limited” Power of Attorney)

The term “power of attorney” simply grants another person “the right to act for you.” Jeff Hinkle says:

Generally, all we ask for is what is called a limited power of attorney for handling certain IRS matters (like representing you in tax audits) and signing bills on your behalf (when you’re out on the road and too busy to deal with this matter). Always think twice about what rights you grant under a power of attorney, and think three times—no, four—about granting someone full power of attorney—or you might find someone buying a home or financing new automobiles using your money without you knowing about it. Remember, your business manager should only have a limited power of attorney, with the rights you’re giving him or her clearly stipulated in writing.

The Right to Terminate

Last but not least, in all relationships between a business manager and client, the client must have the right to terminate at will. Said another way, if you are unhappy with your business manager for any reason, you can fire him or her on the spot.

Just be fair! If you suddenly snap out of rock stardom and realize that you’re running out of money due to excess spending or neglect of your finances, despite your business manager’s warnings, the only person to blame is yourself. No one should care more about your future than you!

BOBBY BORG is a professor of music industry studies and the author of several music industry books, including Music Marketing for the DIY Musician, Business Basics for Musicians, and (with Michael Eames) Introduction to Music Publishing for Musicians on sale at finer book sellers. Contact him via