Are you confident that your touring budget covers all the bases? Financial hurdles are among the most significant challenges entertainers face today in the entertainment and music industry. From premium touring resources and international costs to managing post-COVID protocols, the costs are soaring and eating into artists’ profit margins.
In a recent panel, “Managing the Soaring Costs of Touring in 2023,” at the March Trusted Advisor Music X NYC Summit, I teamed up with entertainment industry professionals and provided solutions for successful in-person events and tours for the artists we represent. Through this panel discussion, several unanswered questions arose:
Why should I have a budget? What should I consider? Who can I work with during the planning process? Do I have a proper tax strategy in place?
Before going on tour, entertainers and their teams should partner with an experienced CPA in the entertainment industry to manage the budget planning process and paint a clear picture of costs and profits.
The Importance of Comprehensive Budget Planning
Working in collaboration with the production manager, tour manager, and artist manager, we typically go through many versions of the artist’s budget because there are so many moving parts. Only after we arrive at a place that works from both an artistic perspective and a profit perspective do we present the budget to the entertainer.
A few frequently asked questions arise during the planning stage: What type of fan experience do you plan to provide? Will you need complex pyrotechnic and lighting packages? Are you traveling by bus or airplane? What kind of accommodations will you need? How much insurance coverage do you need? Have you considered the tax implications of your decisions?
The answers to these questions need to be answered. One key factor we mention during the planning process is that vendors expect to be paid upfront. These costs typically amount to 10 percent or more of your gross revenue. Do you have cash reserves or a source that can provide the necessary funds? Ultimately, this is a business. There are startup costs that must be adequately budgeted and analyzed comprehensively.
The Tour Budget Planning Process
Like any business will review budget history, touring companies must reference previous tour budgets against actual budgets and current costs. This will help us estimate expenses and revenue. Of course, getting from point A to point B is rarely a straight line.
We must evaluate and negotiate vendor agreements for equipment rentals, crews, transportation, accommodations, insurance, etc. We calculate and process payroll and present insurance options for adequate coverage. We also go through the budget line by line, allowing the artist to make changes to maximize profits. Even the most minor changes to contracts and policies majorly impact your bottom line.
A critical component of tour budget planning is understanding the tax implications of your decisions. We will explore ways to reduce the state tax burden by filing for tax reductions in certain states. International artists must also file central withholding agreements to avoid having 30 percent of gross revenue withheld for U.S. taxes.
For example, if an international artist’s profit margin is 35 percent and 30 percent goes to U.S. taxes, the client is left with 5 percent for cash flow purposes. If you plan and properly file the central withholding agreements and your profit is 35 percent, withholding will be 10.5 percent instead of 30 percent.
Finally, our team will compare the estimated budget with actual costs. Unless significant changes are made to the tour, the budgeted profit should align with the actual profit. The profit is the artist’s compensation during the tour, so the actual costs must reflect the budget.
By accurately calculating expenses, negotiating vendor agreements, understanding tax implications, completing the necessary tax filings, and reconciling the budget with the actual tour costs, we can help you avoid unexpected budget overruns and maximize profits.
The Measurable Value of Entertainment Industry Experience
“Why wasn’t I doing these things before?”
This is what we hear from clients who have worked with less experienced accounting firms to support the launch of a tour. Too many artists have learned the hard way that you can’t just focus on a small set of details.
When you partner with the team at Prager Metis Entertainment and Music Group, you can leverage the expertise of advisors who can negotiate with vendors, review agreements, analyze expenses, and assess tax implications in ways you probably haven’t considered. An enormous amount of work goes into launching a tour from a financial perspective.
I know because the experience I have gained over more than 25 years enables me to help people in the entertainment industry successfully navigate the process. There are no shortcuts, especially with tour costs as high as today. You need to account for all the details – completely, accurately, and analytically – to maximize your bottom line.
If you’re planning to launch a tour and need help planning a budget that covers all the bases, contact me at 212-450-1703 or tsmith@pragermetis.com
