Thinking About Starting a Record Label?
Setting up a record label is a bit like going to a theme park: you sign up for the thrills, but end up spending more time queuing than on the rides. That’s not to say it isn’t exciting, but it does come with its share of challenges, from start-up costs and negotiating contracts, to shifting trends and high levels of competition.
Balancing all the moving parts can be demanding, but if you follow a few simple tips, you can set yourself up for long-term success.
If I could give only one piece of advice, it would be this: do not neglect the admin.
I can almost hear that heavy sigh—but getting everything set up right from the start, with the best people behind you, can save a lot of headaches down the track.
Here are my 5 tips for starting your record label
1. Stay on top of cash flow
Say you’ve landed an advance from a sub-licensing deal—nice work! It can be tempting to put it all into PR, advertising, and artist development straight away, but it’s wise to hold back. Step away from the platinum Amex, my friend. Keep a close eye on your cash flow, set aside enough to pay your artists, and plan for any expenses that might pop up before that advance recoups.
Be upfront with your artists about cash flow too. Sub-licensing can be a great way to reach new markets and increase revenue, but it also adds another link in the chain, which often means the artist gets that money later. Explaining this right from the start sets realistic expectations and can save everyone from awkward conversations if the streams are pouring in but they’re still unrecouped.
2. Keep things simple
The kind of deals you make with your artists will translate into admin, either for you or someone else. To keep the admin beast from getting too hungry, make sure your agreements translate easily into straightforward calculations.
Using the same deal template for every single artist will create fewer headaches in the future and ensures that someone else can easily take on the royalty reporting.
3. Set up your accounting systems at the start
Set up your Xero file correctly to track relevant income and deductible expenses right from the start. When the time comes to do your royalty accounting this will make everything run much more smoothly.
If you’re receiving royalties from overseas, or paying any artists outside of Australia, then you’ll be dealing with withholding tax. Having a system in place to track this will make it easier to fulfil your tax obligations and offset any withholding tax deducted from you.
Hiring an accountant who specialises in the music industry will give you the peace of mind that your chart of accounts is set up to meet your business needs.
4. Consult the experts
Even if you’re a numbers wizard, consider getting the assistance of a royalty expert.
Royalty statements can be confusing for even the most numerically savvy—sometimes reading one can feel like trying to break a cryptic cipher. A royalty expert can decode your reports and also help you make sense of reporting obligations so that you don’t fall behind.
Getting someone involved as early as the contract-drafting stage can help to ensure the legal terms in your contracts are practical in the real world too.
A royalty expert can also:
- Ensure both the artist and label end up with their rightful share of neighbouring rights income from PPCA and overseas collection societies.
- Review your incoming distro statements to make sure you’ve been accounted to correctly. This helps prevent overpaying artists due to errors, saving you from having to recover funds later.
- Prepare accounting to any producers or mixers on behalf of your artists. These royalties are notoriously complex and can require expert knowledge to calculate.
- Help you maximise your revenue streams.
5. Explore the best distribution pathways for your label
When choosing third parties to work with—especially those involved in your income streams—it’s worth taking the time to do a bit of research, seek out recommendations, and make sure you feel confident in your choices. Trust and strong relationships can make all the difference down the track.
Consider the flow-on effect of the formats you’re going to sell. Physical comes with added considerations, like manufacturing and warehousing. If you’re aiming for a chart position and you manage your own fulfilment then you’ll also need to be audited in order to submit your sales data to ARIA.
Dealing in physical formats means you may need to pay mechanicals to AMCOS. In some cases, some digital aggregators also pay mechanical royalties to the label.
Starting a record label is a huge undertaking, but tackling the admin and building strong foundations from day one will make every other part of the journey far smoother. Whether it’s keeping cash flow in check so you don’t run out of money, streamlining your agreements, or seeking expert help, a bit of planning up front pays off for years to come.
Starting a record label? I’m always happy to chat. Contact us here and we’ll be in touch.
White Sky, now part of BlueRock, provide specialised accounting and financial services that help artists, managers, record labels, festivals and creative businesses thrive.
