If you want to make money, you have to spend money. It’s just a fact. How you spend money, and on what, is going to be very different from one band to the next. What is common to all bands is that you need to manage your expenses to ensure they stay less than or equal to the money that’s coming in.
How much your band spends should be governed by your budget, but that’s only a part of managing expenses. Your expenses can get out of control very quickly if you don’t pay attention to the following points (many of these will be covered when you create your Band Agreement and Revenue Toolkit):
Guidelines for purchasing different types of goods and services.
For example, is it better to outsource graphic design overseas and keep t-shirt printing local? Do we always stay in budget motels? Do we have preferred suppliers? Do we use a corporate credit card for all business purchases or do we reimburse certain purchases made via personal means?
Spending limits and decision making.
Your overall spending is guided by your budget but you also will need to set some guidelines around who can spend how much at any given time, and what level or type of spending requires a group decision. Can each band member book travel on his own but major equipment purchases must be a group decision? What spending amount puts you at an uncomfortable level of risk? Should you require group approval before anything is purchased that exceeds this threshold?
It is likely that each band member is going to spend money on behalf of the company. You will need to develop a plan for how each person will submit transaction records in a way that can be recorded at regular intervals by your bookkeeper. Decide whether everyone must submit receipts and invoices electronically using a shared filing system (such as Hubdoc or Dropbox), a third party service (such as Shoebox), plain old email to a standard address (cheap & cheerful but less easy to manage), or whether you will collect hard copy receipts and invoices at periodic intervals, or as they are generated, in a shared space (e.g., mail slot). A few things to remember about receipts and invoices:
- Receipts: for a sales transaction that already has been paid for; in accounting language it is considered an expense and is recorded as such.
- Invoices: for a sales transaction with a promise to pay on the terms set out by the vendor (net 30, due on receipt, etc.). It is recorded as a bill or invoice in the accounting system and becomes a liability for the company until it is paid – this becomes more important when you are ready to look for funding, but also is important in tracking your cash flow and what you still owe.
- You or your bookkeeper will need to “code” any bills or expenses when they are entered into the system – you are assigning the expense to a specific account. With incorrect coding, your reports and tracking will become hard to understand and could paint an unrealistic picture of the business for an investor, or for yourself.
- Know the transaction date, as this gives an accurate trend analysis of your spending over time.
Who buys what?
Similar to your spending limits guidelines, you will need to clarify who is responsible for which types of purchases. It can be decided by connections or expertise. If an individual has a relationship with the vendor, he may get better pricing and terms. Or, each person is responsible for an area(s) of expertise and will ensure that major purchases such as marketing activities, equipment purchases or promotional activities support the band’s strategy. While everyone may have input to purchasing decisions, things work a lot better if the ultimate decision rests with the assigned person.
Planning for expenses.
How will you ensure that you have the cash flow available to buy what you need, when you need it? Well, presumably you have some money available from bootstrap funds to music sales, payments from shows, etc. Now you need to schedule the disbursement of those funds to match your budget planning, business strategy, and availability of funds.
Requirements for tracking, reporting and paying applicable sales, corporate and employment taxes may vary based on where you registered your business. You may or may not be required to pay one or all of these (see Taxes section for further detail), so it is important to distinguish the tax from the base purchase price on any expense or bill. These taxes will be entered separately within the accounting system, so the bookkeeper can identify the taxes paid on a particular transaction.
Decide who is going to manage your books and keep track of financial transactions.
No business can escape taxes. Ensure that you have everything in place to manage and prepare for your tax payments.