Tuesday June 27, 2017
08
Feb 2013

#BrandU

 

An Artist’s Net Worth

Part 2: Measuring Your Incurred Liabilities

By: Anthony Villiotti

 

keeping-your-liabilities-under-control-85546206As you learned last week, it’s very important to have an accurate picture of your worth as an artist (See article: An Artist’s Net Worth – Part 1: Accounting for Assets as an Artist).  Now that you know what you own (assets), it’s time to figure out what you owe, or what’s being claimed (liabilities).  You subtract your liabilities (what you owe) from your assets (what you own) and there you have it: your Net Worth!

A liability, for accounting purposes, is referred to as ‘something that you owe.’  However, for situations dealing with your net worth we like to define it as any future claim on your income.  This has two implications: 1) It means ‘claims on your income.’  You get paid and you must give some of that money to your phone bill, studio bills, etc.  2) It could mean that something will take away the income that would have been.  (This will make a lot more sense as you continue reading.)

Remember how your biggest asset as an artist is your brand?  Well, similarly, your biggest liability as an artist is anything that compromises your brand – a claim on your brand.  Here is an example: Chris Brown and his domestic abuse charges.  Not only was Brown liable for these charges, but his brand was also liable.  Brown’s brand went from being associated with “pretty boy,” “sweet,” and “boyish charm” to being associated with much harsher and less favorable terms.

This is not only a subjective measurement.  Let’s take a look at Brown’s album sales in relation to the Rihanna mishap that happened on February 8th, 2009.  Preceding this incident, Brown’s album, “Exclusive” (2007) sold 294,000 copies in its first week.  Brown then released an album several months after this catastrophe called “Graffiti” (2009).  This album sold a mere 102,000 copies in its first week.  Could there have been other factors to impact this drop in sales?  Sure!  But there’s no denying that a 65% decrease in albums sold is not natural, and that it’s reasonable to assume that Brown’s brand liability shares some of the fault.

While your biggest liability may also be compromised to your brand, there are other liabilities to keep in mind.  Literal liabilities, meaning ‘any legal trouble that you may get into’ – as they usually end in some sort of claim on your income.  Also, you are liable for any expenses that you incur while creating your album, which will come to haunt you in the form of a big fat bill.  Finally, loans are big liabilities, and almost all of you will incur a loan-related liability. Whether it’s from a bank, a family member, or a friend, you are liable to repay this loan with any incurred interest.

Why are we talking about liabilities? It’s not just to keep you cynical and mindful about everything you might owe – it’s to get an accurate measure for what you’re worth.  Remember: Net Worth = Assets – Liabilities.  We want to make sure that you have an accurate snapshot of your current financial position as it is very important when running your business.  But also, it is information that potential “door openers” (i.e. managers, labels, and/or publishers) would want to know prior to becoming interested/involved in your project.

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