One way working musicians can save money is to do their own accounts. This can be a daunting idea for anyone starting out. Here we highlight some musician accounting tips to help save time and money.
Whether you’re a part time, full time or do music as a hobby, as you soon as you start earning money, you’ll need to start keeping accounts, to help you with your tax payments.
I was lucky, by the time I got around to doing my accounts, things were going well. Looking back now though, I realise I could have made life a lot easier by keeping on top of it from the beginning.
There are a few reasons why doing your accounts is important for your business, and I’ll quickly lay them out for you because no one really likes talking about Accounting. Let’s get down to business!
Musician Accounting #1. Know If You’re Profitable
It’s important to see if you’re actually making a profit or if you’re making a loss. Having a simple Profit and Loss Statement will help you identify whether you’re profiting or not; whether that’s annual, semi-annual, quarterly, or monthly.
I remember when I received my first royalty payment. I thought I was the king of the world. Though in reality, I had a long way to go. I spent money on advertising, thousands on different programs and hardware, courses, and monthly subscriptions to set up my website. …And I had made just £25.
I had people following me which was cool. But no way to monetise that following. Once I saw my numbers I stopped and changed the focus of my marketing to a few specific things that worked and doubled up in them.
Musician Accounting #2. Cut Costs
Secondly, seeing all of your expenses laid out in front of you can help you identify where you can cut some costs. I found that I wasted a lot of money on things I didn’t need or use. If only I paid closer attention to what was making me money, and what was costing me money, then I would be a lot better off than I am today.
Musician Accounting #3. Tax
There’s that little thing called Tax. When you work for yourself, you have to pay your own tax. There’s no more employer to do it all for you. Seeing your profits will help you calculate how much you should be putting away for the tax payments later on.
It’s a great idea to put a certain percentage of your earnings away to save yourself getting burned by the tax man at a later date!
Musician Accounting #4. Don’t Put it Off
If you leave it too long and have to play catch up, going through every transaction you made over the previous two years will be the most mind numbing task you will ever endure.
Good news though, setting up your accounts can be easy!
There are plenty of different accounting programs online that you can use yourself. I personally use Xero and have found it super easy to use (www.xero.com). They’re also offering as 30 day free trial, so you can try them out.
When you start, connect your bank accounts to import your statements from the date you first started spending money towards setting up your business. You’ll be able to write this off your tax bill later.
Then put some time aside once a month or so, log in and reconcile all of your transactions (which means, tell Xero whatever that purchase was, or where that payment came from) so everything’s accounted for. It’s super quick and easy. You can even do this on your phone.
Once you have done this, you can check the health of your business very quickly. It won’t be long before you realise how and where to make some tweaks to improve your business.
Doing your own accounts will save you a lot of money, and time, but if you’re starting your own business from the ground up and you haven’t made any money yet, I understand if you don’t want to spend more money to manage your accounts just yet.
What I suggest doing is to start simple a spreadsheet in Google Sheets or Excel to keep track of your income and expenses. Once you are ready, you can easily transfer that sheet into Xero.
Trust me on this one. Get this sorted and you will find it much easier when the time comes to subit your accounts correctly and work out what’s working for your business.
Editor’s note: I hope you found my accounting tips for musicians useful. I personally use Xero which is why I recommend it. All opinions are my own. I am sure there are many great accounting programs out there but Xero is my program of choice for the ease of use – Makai Macdonald.