My buddies and I put a band together, and we've started playing lots of shows and making pretty good money. We all realize the need to start treating the band like a business, so what's the best way to do that?
The first recommendation I have might feel a bit uncomfortable, but I wouldn't set up the business side as a partnership. Very few partnerships work out smoothly, because of the unavoidable personal and professional drama that creeps into things.
I live in Nashville, and I've seen stuff like this happen more than once. Drama is a business killer, and the bands I know that have been the most successful are the ones that function with a primary or controlling owner. They have someone who owns the band, and the other musicians are employees of the band. You can pay an employee per gig, or even a percentage of the net profits the band is making. You can do a lot of those things, but there's still a question at the end of the day - who owns the name? If the drummer quits, does he get to take stuff with him? You don't want to get into a bunch of that stuff, because in most cases making decisions by committee doesn't work. Just ask the government!
Imagine this. A guy stays with you for three years and shows up late half the time and drunk the other half. He finally quits, and then four months later the band gets a $2 million record deal. I guarantee you he'll come around wanting a piece of it. That's the kind of drama I'm talking about, and it's something you just don't need from a business aspect.
If you want to agree upon and set up a system where money goes back into the business, that's fine. There's nothing wrong with holding back 20 percent for growing the bank, then splitting the rest between the members. There are lots of formulas you can work from that will provide for the band as a whole and its members. But I don't recommend partnerships at all. And I strongly advise you to stay away from one in a band!
Dave Ramsey is America's trusted voice on money and business. He's authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. His newest book, written with his daughter Rachel Cruze, is titled Smart Money Smart Kids and is out now. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.