How to Make Money with Your Music
You’ve finally finished your first EP and now you want to release it into the world. So the first step is… uh, what is the first step? A lot of artists hit this road block. You have some music that you’re really proud of, that sounds professional, but how are you meant to start making money off of it? This guide is going to teach you how to register your artist alias as a legitimate business and start taking advantage of various income sources.
Let me start this off by saying that I'm not a lawyer and that if you don't feel comfortable registering your business yourself, you can pay a lawyer a one time fee to do it for you. However, the process is quite straightforward and I've registered three businesses myself: my audio engineering business (Black Ghost Audio), my artist brand business (Virtus Entertainment), and my music publishing business (Grip The Blade Music).
Register Your Business
You're about to be making a substantial amount of income from music and the first thing you want to do is set up an entity to conduct business through. By registering a business name with the government, you'll receive a business number that will allow you to open up a bank account for your business. From there, you can set up dedicated online payment methods such as PayPal or Stripe that link right to your business account. Keeping your finances separated like this will make it much easier to file your taxes.
Each province/state has slight variances in the way you need to register your business. In Manitoba you need to go through the Manitoba Companies Office website to complete this process. The whole process can be completed online. All of the business name forms that you're going to require can be found here. You'll need the following two forms:
- Request for Name Reservation
- Business Name Reservation
1. Request a Name Reservation
By reserving a business name, you’re provided with a 5 page government issued report stating all current business names that are similar to yours. If your business name is clearly unique and there's no competitor with a similar name in your field of expertise, it’s a pretty safe bet that you’ll be approved when registering your business name. Make sure to follow the Name Reservation Guidelines before requesting a name reservation. A name reservation costs $45 and this processing fee is non-refundable (even if your name is already taken). This means it’s important that you do an online search for similar names BEFORE requesting a name reservation. For this step, fill out the Request for Name Reservation form online.
2. Register Your Business Name with the Government
Sole Proprietorship ($60): Registering as a sole proprietorship means that you're the one and only owner of your business. In this situation, your personal assets are tied into your business. I'd recommend this if you're producing music alone and just starting out.
Partnership ($60): Registering as a partnership means that you're one of multiple owners of a business. In this situation, your personal assets are tied into your business. I'd recommend this if you're producing music with one or more people and you're just starting out.
Corporation ($350): Registering as a corporation completely separates your personal assets from your business. If someone were to sue you, they could sue your business into the ground, but your personal finances would be off limits! The downside of owning an incorporated business is that you must pay tax on whatever the business earns, and then pay tax again on whatever you pay yourself. If you're just starting out, you don't need to incorporate right away. You can do this at a later time. I'd recommend this if you already own a business that's making substantial income and you would like the separation of assets.
Once your business name has been approved, congratulations! You own a business. Make sure to keep receipts for everything you spend money on related to music throughout the year. You’ll be able to write-off these expenses which will reduce the amount of money you need to pay in taxes when tax season comes around. That’s right, as a business, you’re responsible for paying taxes. You can take care of this yourself by using an online service like Quickbooks, or hiring an accountant. For this step, fill out the Business Name Reservation form.
3. Open a Bank Account
Now that you’ve registered your artist name as a business, you can set up a business bank account. This will allow you to keep your business funds separate from your personal funds. When tax time comes around, filing your taxes will be much easier. That's right, you're responsible for paying taxes for all the money you make through your business. Make sure to keep all music-related receipts in a folder somewhere. You'll be able to write these expenses off at the end of the year. You pay tax on a percentage of your net profit (the money you're left with after balancing your income and expenses). Let me show you what happens when you don't write these expenses off:
- Income - Expenses = Net Profit
- Example (with write-offs):
- Income ($10,000) - Expenses ($2,000) = Net Profit ($8000)
- Taxes (25% of Net Profit) = $2000
- Net Profit ($8000) - Taxes ($2000) = $6000
After paying taxes, you're left with $6000.
- Example (without write-offs):
- Income ($10,000) - Expenses ($0) = Net Profit ($10,000)
- Taxes (25% of Net Profit) = $2500
- Net Profit ($10,000) - Taxes ($2500) = $7500
This is weird... looks like you made an extra $1500, but WAIT! You bought that audio interface, but just didn't write it off:
- $7500 - $2000 = $5500
After paying taxes without writing off the audio interface you bought, you ended up paying $500 more in taxes than you needed to. This demonstrates why it's so important to keep track of all your expenses and deduct them (write them off) from your net income at the end of the year. Doing this will ensure that you only pay taxes on your net income. Setting up a business account is easy. It can either be done online through your bank's website, or you can schedule an appointment with a financial advisor at your branch.
Set Up Your Income Sources
If you're American, you can find an entire guide on how to do the following here. I created this section for Canadians because the online search results for these topics are dominated by US organizations (which isn't helpful if you're Canadian).
1. Performance Royalties
Earned when your music is performed publicly.
Examples: When your song is played (recorded or live) via the radio, television, or internet. This also includes having it being played at concerts and music festivals.
How to Collect in Canada: Register with SOCAN.
2. Mechanical Royalties
Earned when a physical copy of one of your songs is made.
Example: When your song is sold on a CD, vinyl, cassette, etc.
How to Collect in Canada: Register with CMRRA.
3. Digital Performance Royalties
Earned when your music is played on non-interactive transmissions.
Example: When your song is played on satellite radio, internet radio or cable TV music channels.
How to Collect in Canada: Register with SoundExchange.
4. Sync Fees
Earned when someone pays you (the holder of the copyright) to synchronize your music with visual media. (Note: When you create a song in Canada, you own the copyright by default)
Example: When a television show, film, commercial, video game, etc., pays to use your song in their project.
How to Collect in Canada: Register with CONNECT. You don’t need to go through CONNECT, but they can help you find people willing to license your music.
How This Traditionally Works: Typically a project (like a movie) will hire someone known as a music supervisor to find music for their film. This music supervisor contacts various music publishing companies in order to find music that will work for their project. If your publishing company pitches them your music, and they decide they’re going to use it, you get a portion of the sync fee! A good chunk of this fee will go to your publisher for setting the deal up for you. You can set up sync deals independently, so it’s not required to have a publisher.
Taking these four steps will ensure that you're collecting all the royalties that you're entitled to. Each time you release a new song, make sure you register it with each of these companies. There are plenty of ways to make money as a music producer, but with very little effort, taking these steps will make sure you're capitalizing on what you're owed.