If you’re just learning about royalty accounting or want to try doing it all yourself, our free statement template + guide is a good way to learn the ropes!
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Catalog — the entity receiving/spending money on behalf of payees (label, publisher, management company, self-releasing artist, etc)
Payee — the entity receiving a split/share of profits (artist, producer, individual band member, etc)
Period/date range — the time period the statement is covering (e.g. “first half of 2021”)
Income — money received by the catalog
Expenses — money spent by the catalog
Net — Income less expenses
Transfers — money sent/credited to or from a payee (advances, payouts, etc)
Payee Split — the % of the net the payee is entitled to
Payee Share — the amount resulting from the Net multiplied by the Split
Payee Balance — the final amount owed or yet to recoup (from the payee perspective) for a particular release/track/etc
Amount Payable — the total amount owed to the payee
The Magic Formula
All profit share accounting follows this basic formula:
multiplied by the Payee Split
= Payee Share
plus Transfers and/or Previous Balances
= Payee Balance
In plain english, this formula is saying:
- Take all the Income, and subtract all the Expenses to find the Net
- Multiply the net by the agreed-upon Split to find the Payee Share
- Combine that number with any Transfers (advances/payouts/etc)
- Finally, factor in any Previous Balances to find the new/current Payee Balance
Here’s a quick example version:
= $500 net
*50% payee split
= $250 payee share
-$1000 transfer (advance)
= -$750 payee balance
Why You Need A Statement
You could try and stick to this basic formula and leave it at that — you don’t even need a spreadsheet! — but the numbers in question are inevitably summaries of the data/info lurking underneath.
The more data/info you leave out, the harder it is to keep track of everything, be accurate and transparent, and offer more custom deals (like varying splits by format/source or having uncrossed balances).
On the flip side, there are advantages to providing as much data/info as possible. Including the data is:
- the smart thing to do — cover your ass!
- the transparent thing to do — nothing to hide!
- the pro thing to do — unlock the ability to offer more custom deals!
With that in mind, our template is built with multiple tabs that act as increasingly detailed views into what’s really going on beneath the surface. Here’s a quick breakdown of what each group of tabs is for:
SUMMARY — the at-a-glance overview of everything in one place
Income, Expenses, Transfers — summaries specific to those types of transactions
data tabs… — the raw data, straight from the sources themselves
How To Use It
- Add in your catalog name and the period/date range (e.g. “first half of 2021”)
- Copy/paste raw data from your source files into data tabs
- Add a tab for each source
- If there’s too much data to fit, you can always add the raw file to a cloud drive/dropbox, and hyperlink to it from within the statement
- Summarize the raw data in the Income, Expenses, and Transfers tabs using formulas
- SUM and SUMIF tend to be the most helpful here
- Note that raw data can include income, expenses, OR a combination; you’ll need to parse this for yourself, and make sure everything is accounted for
- Add any “additional” transactions
- These can be added directly to the Income/Expenses/Transfers tabs as one-off transactions, or you can have them all in one data tab and summarize as you would any raw data
- Summarize the Income, Expenses, and Transfers tabs into the main SUMMARY
- Again, SUM and SUMIF are helpful to keep different releases/tracks separate if needed/desired
- Add any previous balances and/or payouts to find the new/current balances
- Make a copy of the completed statement, remove all the data, but keep the formulas in place; save this copy as your new template for the period, and keep making statements as needed
That’s it! Of course, there’s a million different ways you can execute these steps, with many hurdles, twists, and turns along the way. That said, it’s a great place to start, and you’ll gain deeper understanding (and appreciation!) of the challenges of royalty accounting in the process.