Cash Flow for Artists: What You Ought to Know
And so, we arrive at a rather difficult subject.
Cash flow seems completely obvious and an easy field to navigate, only to entrepreneurs with no experience worth talking about.
“Earn more than you spend,” they say, which is not incorrect, but it doesn’t demonstrate a deep understanding of a potentially devastating issue, especially if you don’t constantly have your finger on the pulse of your career or business.
You can keep your project afloat so long as you have access to cash, but the moment that runs out, and your expenses exceed your revenue, it’s game over.
And it’s not always obvious how or why this happens. That’s the most challenging part.
I hope you never have to face that. But we know full well that even our heroes have gone through rejection and failure – in most cases, more than we even know!
So, while I don’t claim to have a foolproof method, here’s what I’ve learned about cash flow issues and how to solve them:
When Revenue isn’t Keeping Pace with Expenses
This is perhaps the most basic, most common cash flow problem (which doesn’t mean it’s easy to solve).
Even though your cumulative revenue is greater than your total expenses… because your expenses are piling up faster than your income, you’re having trouble meeting ongoing expenses.
As you can see, the plain logic of “earn more than you spend” isn’t going to apply here, and if anything, it’s going to stifle your efforts to resolve the issues at hand.
The solution here would be to control the flow of income and expenses. And, I’m not going to lie, some of this can be uncomfortable.
On the income side, invoice your clients early, take pre-orders, increase your rates, increase the frequency of purchases, and if possible, get paid upfront for your work.
On the expense side, negotiate with your suppliers and reduce the velocity or frequency of payments. Cut services you don’t need or find more affordable replacements. See if you can work out a bulk order deal or move to an annual plan instead of a monthly plan.
Rapid Growth Usually isn’t Sustainable or Profitable
We’ve already asked the question, “are you ready for a million streams?”
And the answer is if you don’t already have the right structures in place, you’re not.
Rapid growth seems like a dream come true, the very thing you’ve been waiting for your whole life. And yet, it can derail your project just as quickly as it can boost it. There’s a reason a lot of growing artists sign with a label.
Think about it. With rapid growth, you can be bombarded with emails and calls, customer support inquiries, media requests, bugs that need to be fixed (payment processing, refunds, overloaded servers), and more. And people generally expect these things to be resolved at the drop of a hat.
It’s one thing if you know how to handle growing demand. Quite another if you end up taking random stabs in the dark.
Rapid growth usually isn’t sustainable or profitable because you need to onboard and train new team members to meet the demand. Which isn’t to say you can always control growth, and that’s the troublesome part.
The only solution here is to educate yourself on the following before demand gets out of hand…
Leverage the Power of Structures & Systems
“I’ll just hire people once things get crazier,” said only the greenest of entrepreneurs.
One of your greatest expenses is bound to be team, and for good reason – they are just as much an asset as they are an expense.
But onboarding and training alone can be quite expensive, never mind the cost of turnover and having to replace departing team members.
Even the most experienced people are going to need direction, get a good sense of what you’re about, and have a clear understanding of your needs before they’re going to be 100% effective on your team.
The good news is that even small teams can be incredibly effective if they have the right structures and systems in place. In every enterprise, there are ongoing opportunities to eliminate, automate, and delegate.
With the right tools, you can systemize your operations to run more efficiently, and that means major savings.
But that doesn’t mean it’s going to be easy. I’ve interviewed some entrepreneurs who had to work evenings and weekends (on top of their regular workload) just to get their systems in place.
The good news is, whatever cash flow problems you might be facing, there are answers if you’re willing to go look foring them. And, sometimes, you will need to pay for good advice. That’s accurate thinking.
Quick reminder – you can now get The Music Entrepreneur Code – 2022 Edition (just in time for the holidays). Don’t get left behind – be the first to get my latest work into your hands!