How to Start a Record Label

If you want to get into the music business, then starting your own record company could be a great idea. Whether you’re a band or artist that wants to control your own destiny, or you want to sign and promote the talents of others, owning a record label gives you options.

The music industry is adapting to changes in how we all consume music. The rise of social media, a move to digital distribution and the increasing popularity of streaming platforms creates new challenges and opportunities. Small, independent record labels can react to these changes, and with careful planning and execution, they can become a success.

We know it can be daunting to start a record label business, and we’re here to help.

We’ve assisted over 500,000 people with forming their business and provided answers, guidance and support to transform them into entrepreneurs. We’ll guide you through what you need to know to start your record label business and get it off the ground.

From validating your business and doing the research to filing your paperwork and running your business, this guide will help you out. Read on for some insight into creating your own record label business and becoming an entrepreneur. Here’s what you’ll find:

How to validate your record label business idea

Groups, forums and support for record label business owners

Different types of record label businesses

Helpful software for record label business owners

Learn if a record label business is right for you

Facts and figures on the success of record label businesses

Setting up your record label business, including location, equipment, employees, taxes, finances, licenses and more

How to choose whether your record label business should be an LLC or corporation

Record label business planning

Why You Should Start Your Own Music Label

Although the recording industry is driven by a handful of major labels, there’s still room for independent labels to make an impact. Here are some statistics on the power of record label businesses:

$18.9B

Global income from recorded music in 2018, with $7.9 billion generated in the U.S.

$450M

Revenue generated by independent record labels in 2019.

$5B

Global revenue growth over five years, with the U.S. seeing an increase of $2.9 billion.

60
%
of recording industry revenue comes from digital services like downloads and streaming.

There are almost 3,500 independent record label businesses in the U.S.

Streaming is a major growth industry, with a 33% increase in paid streaming in 2018.

Independent record label income is increasing at around 2.5% a year.

This is why record label businesses are so exciting. So how can you be part of that success? We're here to help you figure that out.

Is Starting an Independent Record Label Business Right for You?

Although it can be exciting to form a record label business, there will be significant demands on you as a small business owner. Here are some of the things you can expect.

A Day in the Life of a Record Label Business Owner

Here are some typical tasks you’ll be performing for your record label business on a daily basis:

Finding new artists you want to sign to your record label

Negotiating contracts with artists, producers, distributors and others involved in the industry

Arranging for the recording, manufacture, distribution and availability of music

Marketing and promoting the artist and their music

Spending money on recording and promotion

Collecting royalties from various areas and distributing them as required

Skills Needed by a Record Label Entrepreneur

The following skills will be very useful in your role as a record label small business owner:

An ear for music that other people will enjoy

Excellent interpersonal skills so that you can manage multiple parties with diverse interests

Relationships with engineers, producers, musicians and others involved in creating and producing music

Access to attorneys who can create contracts and help you with other aspects of music industry law

A good understanding of the potential audience for the artists you sign

Marketing knowledge so you can promote your music and other artists

Strong project management skills

Good financial management skills

What Your Record Label Customers Are Looking For

As a record company owner, you’re bringing together artists and the audiences that will enjoy their music.

Artists are looking for:

Fair contracts that properly value the creative work they do

A record label that will promote their music and increase their popularity

Record companies that are friendly and easy to communicate with

Labels with multiple methods of distribution, such as physical copies, digital downloads and streaming

Fans are looking for

New and unique music

Ease of access to music, such as availability on streaming platforms

An idea of who the artists are and what they represent

Ways to see the artists, such as at live shows

What to Know About Creating a Record Label

Let’s break down some of the key facts you’ll need to be aware of if you want to start an independent record company:

Finding artists that can appeal to a range of fans can be tough.

You’ll need to network, go and see bands, talk to audiences and spend time on A&R (artists and repertoire) to find the right type of music.

Starting a record company can be expensive.

From renting studios and hiring producers to spending on marketing and promotion, initial and ongoing outlays may be expensive. You’ll need to keep a very close eye on finances.

Managing multiple areas will be challenging.

You’ll be scheduling recording sessions, arranging to have people in the right place at the right time, promoting music on social media and more. You’ll need to be a master of the calendar and the to-do list.

Learning as you go is par for the course.

Music and creativity can sometimes mean surprises. You'll need to react well to unexpected challenges and keep a cool head.

Identifying the music’s unique selling points is essential.

Music is very personal to people, so understanding what can appeal to a reasonable number of fans is necessary for success.

Marketing is (almost) everything.

There’s a large amount of music already out there. You’ll need unique, distinct branding and advertising to help your artists stand out from the crowd. This will help you get a competitive advantage. Think about radio play, fliers, posters, print media, internet ads and social media.

Understanding distribution is necessary.

You will want to establish how you’re going to get music to fans. Will you opt for a digital-only strategy with downloads and streaming, or will you plan to release physical products like CDs or vinyl?

Making use of digital services is very useful.

Music services like SoundCloud, Bandcamp, iTunes, Amazon Music, Pandora, Google Play Music or Spotify make distribution easier and can help potential fans discover your music.

Your Record Label Business Needs a Plan

Business plans are easily overlooked by record label businesses — after all, if it’s solely creativity and music, you don’t need a business plan, right? Wrong.

You need to define how you’re going to run your record label business, market your artists, get sales, make a profit and grow. This can only come about by creating a watertight business plan. It will help you get your thinking in order and show your commitment to your record label business.

All businesses need a business model, which is how you will generate music sales, pay for services and make money. Think about your business model now in order to start selling music and generating revenue from day one.

You will also need to look at financial projections for your record label business. What are your expected sales and revenues? What is your profitability? How much money will you keep in the business to grow it? How much will you pay yourself, your artists and others?

Business plans do vary slightly, but they should all cover the following areas:

1

An executive summary with the most important points from your business plan

2

Your goals and what you hope to achieve with your record label business

3

A description of your record label business, background information and context

4

A market analysis and likely demand for music

5

An overview of how your record label business is structured

6

Your business model

7

How you will market and sell your music

8

Financial projections, revenue and profitability

9

Appendices

We’ve got the perfect guide to writing your business plan.

Choose the Right Business Structure and Register Your Record Label Business

Now that you have all the background information for your record label business, it’s time to make it into a reality. That starts by choosing the right structure or “legal entity” for your business. In the U.S., there are five main business structures. They are:

Sole Proprietorship

If you don’t choose to form a legal business entity for your record label business, you will be a sole proprietor by default. This won’t give you the legal protections you need, so we do not recommend this.

Partnership Company or LLC

Similar to a sole proprietorship, if you go into business with someone else without forming a legal business entity, you will be treated as a partnership. This doesn’t give you limited liability protections, so we don’t recommend it for your record label business.

Limited Liability Company or LLC

The limited liability company (LLC) is ideal for most record label businesses. An LLC is easy and inexpensive to set up, and has the least administrative requirements of any formal business entity.

S Corporation

This is a more complex type of business and isn't generally recommended for smaller organizations, like a record label business.

C Corporation

These are the largest and most complex types of businesses and are typically far more than the average entrepreneur or record label business owner will need.

For more information on the advantages and disadvantages of different types of businesses, please see our in-depth guide. If you’ve still got questions, we’ve answered them to help you choose the right business structure for your record label business.

In most cases, our recommendation for your party planning business would be to create an LLC. We’ve got a complete guide to everything you need to do. LLC formation does vary from state to state, but we’ve got you covered, wherever you are.

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Setting up Your Record Label Business and Business Operations

Once you've legally created your record label business, you’ll need to get some other things in place.

Marketing Your Record Label Business

Marketing will be a huge part of your record label business and a big part of your budget. Naturally, you will need an awesome website for your record label and artists, but you'll also need to get branding, newsletters, digital ads, social media accounts and other channels in place.

Employees

To begin with, you probably won’t need to hire anyone else for your record label business on a permanent basis, especially if you’re a good administrator. Instead, you’ll likely be making use of contract, on-demand services like producers, graphic designers, engineers and the like.

Finances and Taxes

You will need a separate business bank account for your record label business. You might also want to consider a business credit card. Additionally, you will need to keep careful bookkeeping records and file business and personal taxes. Here at Incfile we can even help you file your taxes.

Location of Your Record Label business

To begin with, you can likely run your record label from home or a shared working space. This is great as it reduces your office costs considerably. You will, of course, need to arrange meetings with artists, producers, engineers and others, so look for local places that let you hire out meeting rooms for that purpose. You’ll also need to make arrangements with recording studios, and you can start by exploring local options. Don't forget that if you work from home, you can write off part of your utility and housing costs against your taxes.

Equipment for Your Record Label business

The day-to-day administration of your business will only need a computer, laptop, tablet or smartphone. Actually recording your artists requires a special studio setup that can cost hundreds of dollars an hour.

Software and Process

Record label entrepreneurs make extensive use of software; see our great list of the top apps at the end of this guide.

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Rules, Regulations and Taxes for Your Record Label Business

You can’t escape real-world licenses, permits and regulations. You will need to explore local, state and federal licenses and permits, and we can also help with researching your business licensing needs

Taxes

Taxes are a fact of life if you’re in business, and there are various ways you will need to file and pay them. This can include self-employment tax, state income tax and federal income tax. Depending on where and how you’re selling products and services, you may also be liable for sales and use tax.

As a rule of thumb, we recommend holding back around a third of your earnings to pay your taxes. We can also prepare and file your tax returns for you.

Maintaining Your Record Label Business

There are certain forms and legalities you need to follow to keep your record label business in good standing.

1

File an Annual Report

Depending on the state you’re located in, you will probably have to file a report every year. This report tells the state about any major changes to your business, and we can file your annual report on your behalf.

Annual Report
2

Pay estimated taxes

You will be expected to pay estimated taxes on what you plan to earn in the current business year. Typically, you will need to pay estimated taxes in April, June, September and January (of the following year).

3

Renew Business Permits and Licenses

Your federal, state, regional and city licenses and permits may need to be renewed on a regular basis, typically once a year.

4

File your taxes

You will need to file your taxes once a year.

5

Pay payroll and sales taxes

If applicable, you will need to make payroll and sales tax payments on a regular basis.

6

Prepare your taxes

You will need to work with your accountant to prepare all the taxes you need to pay.

Insurance for Your Record Label Business

Most record label businesses should have comprehensive business insurance. There are various types.

Workers’ Compensation Insurance for Your Record Label Business

Workers’ compensation insurance provides coverage for job-related illnesses, disabilities or injuries that affect employees. Regulations for this insurance vary from state to state. It typically covers areas like medical costs, loss of earnings, compensation and retraining.

General Liability Insurance for Your Record Label Business

This insurance protects your record label business from claims due to being sued. This may include injury to artists, members of the public, property damage, personal liabilities, legal defense and more. It can help protect your business from financial penalties and bankruptcy.

Home and Auto Insurance for Your Record Label Business

If you are working from home or driving a vehicle for work, check whether your existing home and auto policies cover you for work use of your home or car. If not, you should either expand your policy so you’re covered or get dedicated business insurance.

Useful Online Tools for Your Record Label Business

The right software and apps will make it much easier to run your record label business. Here are our recommendations for some of the best tools out there to make business operations a breeze.

Conclusion

If you love music and can handle challenges, record label entrepreneurship could be right for you. If you can find great artists, manage them well, stay on top of marketing and put together a solid business plan, you will have every chance for success.

Start your Record Label Business with us, today