Fiscal Transparency

So all my music is free, open, and sharable. Same with the code to my web site. Why not financials?

I’m tossing around the idea of creating a company (zero-overhead proprietorship kind of thing, nothing fancy with LLCs or corps or anything¹) to track everything musical that has a dollar amount attached to it. I would “invest” in the business by seeding it with the instruments I already have, my laptop, recording equipment, and an amount of cash that I expect to be enough to build the studio. From there I’ll track revenue, capital investment, expenses, interest, and depreciation. Why would I do all this for a business whose product I freely give away? Because I believe that this can be a legitimate and viable – if challenging – business model.

This is nothing revolutionary. It’s not really any more than I’d have to do for my accountant at tax time if I want to be able to deduct any of the expenses etc. from income. Otherwise I could actually end up paying income tax for a venture that loses money. What I’m thinking about though is a bit more than that. Basically, it would be an open bookkeeping plus quarterly reports, posted on my web site for any interested party to check out and see, well… frankly just how much money a musician bleeds while trying to make a go of it. And if I end up successful, it could paint a picture of what a person has to go through to get there.

I’m not entirely sure how specifically useful the initial numbers will be to anyone trying to spin up a new music business, since I’m kicking in used gear. I have a basic setup I’ve been using for years, and this new company only has to record fair market value for everything. Can you find everything you need used, in perfect operating condition, or will you have to buy some items new at twice the price? When you buy used microphones, will you also need to replace the windscreen (and maybe capsule or diaphragm) because you don’t know if the previous owner was maybe a vocal percussionist, or just generally spitty person? I even have dimensional lumber, drywall, insulation, and RSIC-1 clips I was able to scavenge from my old half-built studio to use in building the new one. Most people will not have that kind of head start, though if I account properly for the in-kind investment you should be able to see the total materials cost, be they pre-existing or purchased.

I expect at first, income will be limited to my current, voluntary BandCamp purchases (and in case you’re wondering, the mode value appears to be settling at $15 for the “Every Song Ever” album. Not sure why, but people seem to think it’s worth $15), and my soon-to-be-published Patreon page. Stay tuned for that. Current & planned expenses are building materials and equipment purchases and depreciation, promotional materials, internet-related technical costs (DNS, web site, etc.), mileage to and from gigs, and some portion of our annual JCC(C) trip (figured by actual man-hours spent on business-related activities as opposed to our just enjoying ourselves). Future potential expenses are pretty much indeterminate, but may or may not include all the above plus professional studio time, recording/mixing/mastering engineer time, specialty equipment rental, session musicians, gig musicians, and probably lots of things I can’t think of right now.

One category of expenses I intend to exclude specifically is the home office accounting.  Roughly 1/8th of the assorted costs of our house (mortgage interest, electrical, gas, depreciation)² are deductible as expenses based on the studio I’m building taking up about that much space. I’m excluding these simply because I don’t feel like exposing the personal details of how much our mortgage is or how much our house is worth at the time the business spins up. The latter would be trivial to calculate (8 * 39 * depreciation), the former would take some work (you don’t know our interest rate or how many years we are into the note). Regardless, the public books would thus not reflect every detail we include for Uncle Sam. Still, I think it’s an interesting experiment that may help other people in my situation understand a bit about what some other random person has gone through, financially.

What do you think? Is this a good idea? Is there anyone out there who would find this the least bit interesting, or should I just track my own stuff locally, file my taxes, and call it a year?

1. To avoid the overhead of having to file paperwork and pay registration fees and all that goes into running a business through an entity that limits liability, I’m trading in that protection. Thus, if in the course of making music I harm someone and get sued, my liability is not limited to the value of the company, and personal assets can be attached. Don’t be surprise to see a monthly liability insurance premium tacked onto the “expenses” column. If in the future I decide to make extra money by — for example — renting out studio time, I may have to revisit the decision and go the LLC route so we don’t lose our house when some idiot smashes their guitar and a fragment flies off and blinds another band member. ↩

2. There’s a new, simpler way of accounting for a home office, but I don’t know if it’s right for me. You essentially just write off $5 per square foot you reserve exclusively for business use. The simplicity is attractive, but it appears to come with a cost. You cannot take the deduction if it exceeds your revenue, nor can you carry over current losses against future profits like you can with the old way of doing it. As I’ll surely be losing money at first, it’s probably not the way to go, but I’ll ask a professional about all this before deciding. ↩