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It’s Never Too Early To Organize Your Music Business

It’s Never Too Early To Organize Your Music Business

Once you’ve started directing effort and funds toward earning income as a musician, congratulations, you’re in the music business!
Many musicians put off organizing the business side of their career until they have to, only to realize how many opportunities they missed to save money along the way. So, no matter how overwhelmed you may feel about tax planning or the grant application process, meeting with a lawyer from our entertainment group as early as possible is a good idea for understanding the big picture and keeping more money in your bank account.

If you’re just starting out in the music business, here’s some of what we’ll discuss with you:

Business Structure

Incorporating your business is a step that warrants a conversation with a professional. Yes, it involves additional compliance and costs, and at the outset of your career the costs outweigh the benefits, but once you’re gigging more and earning more per appearance, it’s a smart move.

You’ll be able to run expenses through the corporation, like new instruments and gear, which you can write off so you pay less tax. Also, as an incorporated company, you’ll be personally protected against any claims made against you by club owners, record labels or anyone else.

Our team can take you through the ins and outs of incorporating and get you set up for a long run.

Expense Tracking

Generally speaking, when you’re starting out in the music business, you’ll spend more than you earn. This is called a “business loss,” and a big mistake a lot of musicians make is not taking full advantage of these losses, which you can claim against other income from your day job, or carry forward so you get the tax benefit when you are making money down the road.

The best way to do this is to track and report all of your expenses. We can help you determine what expenses you should be tracking.

Income Tax and GST/HST

You’re required to register for GST/HST when you hit $30,000 in gross sales (business income before expenses). As a musician, your gross income includes royalties and advances, so you can hit the threshold without being aware.

Once you are registered, you have to collect GST/HST on taxable revenue at the rate set out in the province where you are performing. But the money you spend in GST/HST on business expenses is subtracted from what you collect in GST/HST, so you wind up owing less per period. If you pay out more GST/HST than you collect, CRA will issue you a cheque for the difference.

We can set you up for GST/HST collection, and make sure you have what you need to remit on time (the penalties for late filing add up quickly!).

Cash Planning and Budgeting

Touring is expensive and fraught with unforeseen expenses like vehicle and gear repairs, weather-related problems, cancelled gigs and more. As well, recording costs can also get away from you if you’re not careful. This is why planning a tour or an album should include a budget with a contingency amount. It’s a valuable exercise that will help you to stay financially focused.

We can give you template worksheets to reconcile money you earn/spend on the road, settlements, grant funding and more.

Chasing your dream of being the next <insert your favourite artist here> is a great thing. Hit all the right organizational notes and you’ll be in a much better financial position every step of the way.

Contributed by Donna Branston, CPA, CGA from DMCL.

This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.

Preparing for a Liquidity Event

The success of a liquidity event involving a privately-held business requires considerable preparation.

Even in circumstances where a sale is not imminent, much can be done to improve the operational and financial performance of a business in order to ensure owners can capitalize on favourable market conditions and execute their liquidity option when the timing is optimal.

Even if a liquidity event not be expected to occur for many years into the future, business owners will end up benefitting from owning a company with reduced risk and better operating and financial performance.

The following outlines the main areas of focus for business owners contemplating a future liquidity event:

Know the Value of the Business

Even if there are no plans for an imminent sale, it is important that business owners have a reasonable estimate of their company’s value.

When armed with this knowledge, owners will be better positioned to evaluate unsolicited offers by potential investors. Additionally, obtaining a periodic, realistic estimate of value serves as a tool to examine changes in value over time and is a means to target and track growth objectives.

Relying on a value based on pricing obtained in transactions involving similar companies may lead to value expectations that are unrealistic in an open market transaction. It is worth retaining an experienced Certified Business Valuator to get an accurate and unbiased valuation based on the financial and non-financial, tangible and intangible factors specific to your business.

Understand the Value Drivers

Along with an estimate of a realistic value range, it is important to understand the factors driving this value.

Value drivers consist of financial and non-financial metrics and intangible attributes that are of importance to prospective purchasers. They are also the catalysts to increase the future value of a business prior to any liquidity event. Identifying value drivers will allow owners to focus on enhancing areas that are deficient, resulting in better financial performance, lower risk and, ultimately, a higher value.

Prepare for a Liquidity Event

Optimizing a liquidity event involves timing the transaction to coincide with favourable company and market conditions.

Much preparation can be done to ensure owners are ready to capitalize on attractive market conditions, including the following:

• Reducing key man risk through the development of a strong senior and mid-level management team;

• Reducing customer and supplier concentration;

• Investing in maintenance and capital expenditures to ensure productive capital assets;

• Improving financial systems and reporting capabilities;

• Documenting undocumented business relationships with customers, suppliers, employees and related parties, as well as internal operating controls and governance protocols;

• Obtaining resolution and greater clarity relating to contingent liabilities, outstanding tax and litigation matters;
• Cleansing the balance sheet of redundant assets;

• Developing a growth plan based on sound business strategy and detailed financial assumptions

Successfully implementing the above initiatives will increase profitability while reducing risk and costs to potential buyers thereby increasing the attractiveness, marketability and ultimately the value of the company.

Consult With a Transaction Advisor

Liquidity events are unusual in the business lifecycle and therefore an area where management typically has limited experience. Given the significance of the process to the business owner, it is prudent to hire an advisor to ensure the outcome is maximized.

However, even business owners experienced with the transaction process can benefit from engaging a transaction advisor prior to initiating a liquidity event. These benefits include:

• Signalling that the process will be professional, pragmatic and unemotional;

• Advising on the purification of the balance sheet prior to the transaction to ensure overall value is maximized for the business owner;

• Advising on the optimal transaction structure (full sale, partial sale, management buy-out, sale to family members, etc.) and process that will yield the best outcomes for the business owner; and

• Outsourcing the responsibility for overseeing and managing the transaction process maximizes the efficient use of management’s time and enables them to focus on the day-to-day operations and growth of the business.

This is the first in a series of articles by Nathan Treitel on transactions and valuation issues relating to small and mid-sized privately held companies.

The next article will focus on liquidity and financing alternatives for privately held businesses.

This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.

Commentary on the 2019 Federal Budget

Dear Clients and Friends,

On March 19, 2019, the federal government released the budget for 2019.

This budget was not focused on corporate tax issues. Instead, the budget provided for a few directed measures for individuals with regard to re-training and purchasing a home. There were no changes to corporate or personal tax rates.

Please follow the link below to a summary of the budget presented by our Tax Team.

Federal Budget Commentary 2019

If you have any questions, please do not hesitate to contact your Segal tax advisor.

Best regards,

The Segal Team

Segal Celebrates: Convocation and Honour Roll Night

It was a busy weekend for several members of the Segal team!

On Friday night, our very own Chris Ball was one of the honorees at Chartered Professional Accountants of Ontario (CPA Ontario)’s annual CFE Honour Roll dinner at the Four Seasons Hotel in Toronto. The 2018 Honour Roll is made up of the top 1% of all CFE writers across Canada! Segal Principal, Jason Montgomery, was in attendance at the event and says; “It was a privilege to be there in support of Chris, on behalf of Segal LLP, and to witness him being recognized for his incredible achievement.”

The CFE Convocation was also held this weekend with five members of our team- Chris Ball, Chris Luk, Cheryl Vanderland, Katelyn Li and Victoria Huang- in attendance.

Congratulations to all on your accomplishments!

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Jason and Chris

CFE Convocation

Segal Team Members Take Top Honours

Segal LLP is pleased to congratulate two of our team members on stellar results and achievements.

Our own Cheryl Vanderland is the Recipient of the Alumni Gold Medal for the Lazaridis School of Business & Economics at Wilfrid Laurier University. The gold medal is awarded at convocation in acknowledgment of outstanding academic excellence. Cheryl joined the Segal team last year after completing her co-op terms with us.

Chris Ball, Laurier grad and full-time member of the Segal team, earned a coveted place on the 2018 CFE honour roll. The CFE honour roll recognizes the top one percent of Common Final Examination (CFE) writers across Canada. The CFE is the final examination of the Chartered Professional Accountant (CPA) professional designation in Canada and is the culmination of the rigorous CPA program

To learn more about these talented young professionals, please enjoy these short video interviews: