When you start your own record label it goes without saying that meaningful financial reporting and analysis is crucial to your record company’s success.
The overview of accounting information for your record label will show you how healthy the business is and not only that but will illustrate any necessary changes that need to be implemented in terms of long-term strategic planning.
NOTE: When we say “financial reporting” we are referring to both internal and external financial reporting. Therefore, it is important as record label owner to be able to interpret financial statements such as:
- The Balance Sheet (i.e The statement of financial position or Statement of Financial Condition)
- The Income Statement (i.e The Statement of Operations or The Profit and Loss Statement)
- Statement of Cash Flows
So in the event that you may want to borrow money to cover short term expenses or capital to invest in the business the creditors or investors will definitely want to take a look at the record label’s financial statements and this is why you should be familiar with the objectives of financial reporting.
The Objectives of Financial Reporting for Your Record Label
There are a certain number of goals that should be met with the noble task of financial reporting and we are going to look into those objectives in the context of a record label.
The “first financial reporting objective” is to keep track of your record label’s cash flow. By doing so you should ask yourself the following questions:
- How is your record label generating income? For example, is the record label making money from interactive music streaming services (Spotify & YouTube) or from digital downloads (Amazon & iTunes)
- How is the record label spending that money? For example, how much of the revenue is being used to meet the payroll and paying royalties to the artist?
- When the record label has met all it’s financial obligations how much profit or loss is it left with?
The “second financial reporting objective” is to monitor the changes of record label’s assets, liabilities and owner’s equity by asking the following questions:
- Are there any changes in the value of resources owned by the record company? For example, changes in reference to the record label’s assets.
- Are there any changes in the claims that creditors have against the record company? For example, changes in terms of liabilities that the record label owe to creditors or financial institutions.
- When it’s said and done does the record label have sufficient economic resources for future growth?
The “third financial reporting objective” is to provide information to potential investors and financial institutions for securing loans and long term investments by addressing the following questions:
- Is the record company in a favorable position to secure a long-term loan for further business expansion?
- Does the record label have quality management to warrant capital injection into the business due to good management of resources?