Industry sector: Business services

Record label: Cash sales

'Cash sales' means all income from your main business activity which is received at the time of sale. While some of your customers may pay you in actual cash, remember that Cash sales can also include:

  • cheques
  • debit and credit card payments
  • payments made through online payment services like PayPal
  • BACS transfers from the collecting society PPL, if you decide to join

To prepare your cash flow, you need to estimate how much income you will receive over the next 12 months, including VAT. This may be very difficult, as it is almost impossible to guess the level of sales that an artist will achieve unless they have a considerable track record. Make realistic (possibly conservative) estimates - these can always be revised later on.

There's a number of things to consider when you make your estimates:

How you will sell your records

You need to decide how you are going to sell your records. Many small record labels initially find it difficult to secure a decent distribution deal as they and their artists have no track record. For those without a distribution deal, a commonly used method to sell physical format records is to take them to record shops and try to persuade the shop to stock them. If a shop agrees to stock your records it will usually be on a sale-or-return basis.

If you have managed to secure a distribution deal you are likely to get your records in more shops as the distributor will be more efficient at placing records than you will, they will have more contacts and they are likely to have more people dedicated to the job of distribution. However, you should remember that they will deduct a percentage of your sales in return for acting on your behalf.

You may decide to offer music for sale in physical format (for example vinyl or CDs) or MP3s to download through your own website. Alternatively you may be able to secure a partnership deal with an online distributor or even with one of the major music download businesses, such as iTunes Music Store, eMusic and so on. Many online download businesses invite applications from independent record labels and can provide online marketing and sales help and even software. As with distributors, digital service providers like iTunes will deduct a percentage of your sales. If you can't get a direct deal with a digital service provider, think about using the services of an aggregator.

In recent years, streaming music services like Spotify have become increasingly popular with music listeners and provide an excellent business opportunity for your label. You may find that unless you already have a digital delivery platform, you won't be able to enter into a direct deal with a streaming service and will instead need to use the services of an aggregator. The streaming service will pay a royalty every time it plays one of your songs. If you're using an aggregator, this amount will be paid to them and then the aggregator will pass this on to you, minus their percentage. Aggregators' payment terms vary but they'll typically pay you what you're owed on a monthly basis.

It's likely that all sales income you receive from record shops, via a distribution deal to shops or from downloads should be treated as 'Cash from debtors' rather than Cash sales - as it is unlikely that you'll receive the money directly after the sale. Instead, a record shop is likely to request a 30 to 60 day credit period in which to pay either you or the distributor and then a distributor is likely to want a further 60 days to pay you. If you provide digital content for download to an online distributor you are likely to receive your royalty payments every 30 to 60 days depending on the download partners you use.

Any sales that you make directly to the public should be treated as Cash sales. For example, you may sell records and other merchandise online or at gigs and club nights or from your own website.

Don't forget to include any income that you will receive from the collecting society PPL, if you choose to become a member. The main annual payment for PPL royalties is made in June each year with further payments made in September and December.

What prices will you charge?

You need to decide the level at which you will set the Published Price to Dealer. This is essentially the wholesale price that you will sell your records at. For example, if an album will retail in a record shop for £10.00, your wholesale price may be £6.00, which is the amount you will receive when the record shop sells the album (figures used for illustrative purposes only). Do some research to find out what products similar to yours sell for or talk to distributors. The price of music has fallen in recent years due to the increased volume of digital downloads of single tracks. If you make your music available for download via an online download business it is worth applying to as many as possible to find out who can give you the best price (or take the least percentage) per download. Similarly, if you plan to use streaming services like Spotify you might choose to use the ones that pay the highest royalty percentage.

If you are selling direct to the public as well as through other sales channels, then you are likely to sell at close to or the same as the recommended retail price so that you do not alienate record shops and distributors who also take your records.

You also need to know whether there will be a demand for your artists' music and what has been going on in the sector as a whole. To help with your decisions, click on the checkpoints for guidance. Once you have worked out a Cash sales figure add it to the relevant field in your cash flow forecast.