I am often asked “When is the right time to hire a business manager? I think this is an important question for those people working in the entertainment industry. It is usually asked around the same time as the question “When is the best time to setup my loan-out company?”
I think these two questions should go hand in hand as the answer to the second question will help answer the first question. The right time to set up a Loan-Out company is when the entertainer is earning in the range of $100,000 to $200,000 annually. Since there are costs with setting up the company, as well as costs associated with maintaining the company, it is in your interest to make sure you are earning enough money to pay the costs and be able to reap the tax benefits afforded by using the Loan-Out company.
Since setting up a loan-out company has accounting, insurance, tax and various other requirements this is usually the “right” time to bring in a business manager. The business manager will guide the artist through the process of setting up the right type of entity, get bank accounts setup, provide the required bookkeeping and tax preparation services, put the proper insurance in place, and make sure that the loan-out is providing all of the advantages that it was intended to provide.
I have seen too many Artists create Loan-Out companies without proper guidance and accounting assistance. If the proper maintenance and filing requirements are not done these newly formed companies will become disqualified to do business. This could keep the studios and other companies from paying your entity as well as create tax and penalty problems as you try to get your company back in good standing.
Having a professional like a business manager guide the artist through this process is always worth the costs of doing so.
If you have any specific questions about setting up a loan-out company or hiring a business manager please feel free to contact me. Look forward to hearing any comments or questions on this blog.
In this and subsequent blogs I will initially address the concept of the ” Family Office” an often heard but not always fully understood concept in the high net worth community.
Traditionally and historically the family office was organized to manage and administer the affairs and fortunes of a single wealthy family. The focus was on managing and coordinating investments, trusts, legal affairs, accounting, taxes, insurance, real estate, foundations, philanthropic endeavors, wealth transfer to future generations and much more.
Typically the complexity of such activities required the hiring of extensive professional and support staff and even legally organizing in the form of an LLC or corporation. Clearly such level of activity required an operating budget at least in excess of half million to a million dollars and certain minimum levels of family wealth (ca. $50mm- $100mm) or several million in revenues to make such an undertaking feasible.
While there are many families operating their own family office with assets/revenues in this size range or indeed much larger there are those that have found that consolidating activities of several families into one office can produce many synergies. Such arrangements are referred to as “multi-family offices” consisting of up to a dozen families often organized by the families themselves. Alternatively, “ multi-family offices” have come together as result of one or two smaller families employing the services of professional services providers such as larger accounting firms, asset managers or business management firms.
Indeed it is actually the more traditional business management firms (those that have historically simultaneously serviced numerous large entertainment clients on the east and west coast) that have the experience, pre-existing infrastructure and the multitude of professionals (CPA’s trust, investment, etc) to attend to the service requirements of wealthy families who are considering a family office structure but who do not want to go it alone. A family may not want to go it alone because the matriarch or patriarch of the family may not have the knowledge, business experience, energy or confidence to assimilate the pieces for an effective office or co-equal members of a family can simply just not agree which path to take.
This is where the existing “multi-family” office could certainly assist. I look forward to your comments and please check back for subsequent Family Office related blogs.