Manage for Success: Next Year's Budget, Newsletter #113, November 2010

"Manage for Success" is a free monthly newsletter for record label executives who want to operate their companies efficiently and successfully. It's published by Keith Holzman of Solutions Unlimited, a management consultant, troubleshooter, and trusted advisor, and is based on his many years as a senior executive in the music industry.

Copyright 2006 and 2010 by Keith Holzman, Solutions Unlimited. All rights reserved.



It's been some years since I discussed budgeting for the following year -- it's something that brings nightmares to many label managers and entrepreneurs. Therefore I’m repeating, with a few revisions, an oldie but goodie.

You'll probably recall that I'm a great believer in planning ahead, and this plan is one of the tools that can lead you to a profitable future.

As you approach the end of this year you should be thinking about the coming year and all that it might bring. Which means that not only should you be thinking about what artists and recordings you hope to release next year, but that you also should build financial projections and budgets to ensure that you remain fiscally healthy. This assumes you're already fiscally healthy. If you're not, you should contact me to see how I can help you improve your business and your numbers!

How do you go about assembling projections for the future?

Start by listing all the recordings you hope to release in the coming year. Then estimate when they'll be released. Figure out how many units you plan to sell initially for each title, as CDs and as downloads, but also re-orders by title for subsequent months. This will yield sales estimates for each new release. Supplement these by doing the same thing for back catalog re-orders as a group. Back catalog is the aggregate of all titles put out in prior years, with the possible exception of best-selling titles released late this year. In that case you'll make separate estimates for these titles. Remember the Long Tail theory? I wrote about the advantages of having a good back list in Newsletter #59 of March 2006. <>

Put all of these estimates in a spreadsheet if you haven't already done so. What you'll have is a projection of unit sales by month for the entire coming year. Convert these numbers from units to dollars based on your prices to your distributors and house accounts, and from downloads. So you've now projected unit sales and dollar volume for each month of the entire year!

The next step is to take the dollar estimates and shift them later in time to reflect when you can realistically expect to get paid by your distributor and on-line aggregators for those sales. Be conservative with these numbers, because all the rest of the financial projections will be based on them.

Factor in all other ancillary income such as royalties for licenses you may have issued, or for getting your music used in television shows or feature films, and also for your publishing division.

You now have a spreadsheet that projects the gross income for next year.


Do you need help planning for your label's future? Email me for advice on assembling your financial projections and how you might plan ahead for your company. I've been doing it for many years and have assisted many clients in putting their financial houses in order.

We'll discuss your unique circumstances and put together an operating budget or other solution that works for you. Join other like-minded professionals ranging from small one or two man labels, to medium size companies, to large multi-national conglomerates, who've already called on me for assistance.

I also recommend my "Complete Guide To Starting A Record Company" which can be ordered as a downloadable eBook in PDF form or as a printed, spiral-bound volume. You can read the complete Table of Contents and download the Introduction at <>


The next step is to estimate all expenses by department or function, in the same manner as above.

For example, guesstimate all your marketing expenses for each new release, broken down into relevant categories -- radio promotion, publicity, direct advertising, charge-backs, promotional deals, etc. You can post the estimate for the month you make the commitment, or preferably, the month when you anticipate actually having to pay the expenses.

Do the same thing with all other departmental costs. Numbers for each department or function should be on a separate spreadsheet page -- all in the same workbook.

Then estimate personnel costs, such as salaries, medical insurance and other fringes, and travel and entertainment expenses. Include merit raises and when they might occur.

Think about whether you might have to add additional employees and when that might happen. The same applies to capital expenditures such as desks and computers. Even those these items will be capitalized, they'll still affect your cash flow projections.

Estimate artist and mechanical royalty payments for the months they will occur. Artist royalty statements and accompanying payments are usually issued at the end of March and September, which is ninety days after the preceding six-month period. Mechanical (publisher) royalties are usually paid by mid-February, mid-May, August, and November -- 45 days after the preceding calendar quarter.

Subtotal all of the expenses and bring them up to a "top sheet" -- along with the income numbers you already estimated. Subtract expenses from income and you'll have numbers that will project either a net profit or a loss -- hopefully the former!

If you're projecting a loss, now is the time to see what you can do to improve the numbers. How might you be able to raise income by increasing sales, or by finding other ways to bring in money? Can you reduce expenses without impairing the actual functioning of the label?

This is the art of financial planning, and such a forward-thinking budget process results in a form of road map for the coming year's activity.

Once you have a financial plan that you're comfortable with, try to stick to it as best you can, but don't let it get in the way of growth or progress.

Keep track of what's actually happening each month by revising the budget based on real income and expenses as they occur. How does reality compare to the projections? Are you ahead of or behind your estimates? Feel free to adjust the projections as you proceed through the year. You may decide to put out one or two additional releases, or a planned major release may slip later in time. Some artists are notorious for late delivery of masters!

You'll probably put a lot of time and thought into the planning process, but the results are likely to be extremely worthwhile and should keep your business running on a healthy fiscal basis. And all by planning ahead!

Until next month,

Keith Holzman -- Solutions Unlimited

Helping Record Labels Manage for Success.


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Copyright 2006 and 2010 by Keith Holzman, Solutions Unlimited. All rights reserved.