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Financial planning: Money’s too tight to mention

Unless you’ve been living under a rock since early March – in which case, welcome back! You’ve got a lot to catch up on – you’ll no doubt be exhausted from reading about the financial carnage wreaked upon the live entertainment business by the ongoing Covid-19 pandemic.

So spare a thought for the accountants, financial advisers, investment experts, currency specialists and all those who have been on the front line since then, helping the live industry mitigate the impact of the crisis – and whose expertise will be key to getting live entertainment back on track when the time comes.

Creativity
Many firms who work with music industry clients have been forced to reinvent their businesses, as well as help their clients boost non-touring-related revenues in the face of the near-total halt in live music globally.

“We’re taking a hit because a lot of our artists’ income is reliant on touring,” explains Mike Skeet, a partner at Skeet Kaye Hopkins (SKH), the London office of US accounting firm Gelfand, Rennert & Feldman. “Our bigger clients can afford to ride things out, but a lot of our smaller artists are concerned they won’t survive.”

After the rescheduling rush in the first few weeks of the crisis, Skeet says much of his Covid-era work has revolved around helping many of those smaller artists access sources of funding. “Previously, they would tour almost non-stop and be out every summer for festivals,” he continues. “So now we’ve been doing a lot of work with helping clients look at government schemes and trying, where we can, to get them help.”

“When you stop running round like a lunatic and stop to focus, you can achieve big things”

Serena Humphrey, a former accountant who runs the UK-based financial coaching company The F Word, tells IQ she is using lockdown to launch The F Word Academy, a ‘finance school for small businesses’ that has been five years in the making and builds on a popular coronavirus business support group she started on Facebook.

Whereas, “at the moment, my team and I can work with 15 to 20 people,” the launch of the online academy scales the F Word business to reach thousands of potential new clients, she explains.

Lloyd Major of Halo Solutions, an F Word client, has similarly realigned his business after agreements to sell the company’s Halo security system to multiple major international venue clients fell through as a result of coronavirus-era purse tightening.

Major, CEO of the company formerly known as Crest Planning, says UK-based Halo lost six-figures’ worth of business – or 50% of turnover – in four weeks in March/April. Now, though, “we’ve picked up open-air cinemas in the East and West Midlands, a contract for NHS [National Health Service] logistics in Hampshire, and we’re talking to well-known artists about behind-closed-doors shows,” he explains.

“While some people would say we might as well just delete the rest of this year, we’re using the opportunity to look inwards and build better internal processes and have a fresh look at our business plans.”

“We’re hurting just like everybody else is”

International payments and foreign-exchange specialist Centtrip has also been hit by the halt in live events, says Freddy Greenish, the company’s head of music, film and entertainment. “We represent the best part of 600 artists, and the summer touring and festival season is always a big part of our year, so we’re hurting just like everybody is,” he comments.

“On the flipside, we have clients that earn foreign income from various different streams – not necessarily just on the live side – and where there’s been quite a bit of market volatility, that presented great opportunities for clients to sell dollars and euros and buy pounds, for example. When it all started to collapse around lockdown, sterling to dollar went to 1.15 [£1/$1.15]…

“So we’ve seen quite a few artists take advantage of that, where the rates have been preferable.”

“In terms of innovation, I do think, strangely, that the challenges have played well to our skillset,” says Paul Bedford, partner at Edition Capital, an investment company specialising in the entertainment and leisure sectors.

“If you are always making capital of strong financial management in a business and something like this comes along, you benefit massively from the fact that most of those businesses already have good habits, such as regularly reviewing cash flow to ensure that they don’t have issues lurking in the future, or, if they do, corrective action is taken to remedy the situation.”

“The shutdown has forced forward and dynamic thinking … where the ‘normal day’ is not relevant”

As the scale of the crisis became apparent, Bedford continues, “each of the senior staff worked closely with around five or six investors to ensure that a robust survival plan was put in place immediately.”

Now, he says, Edition holds “regular update meetings” with those clients “to tweak the plan and to slowly begin post-Covid discussions as to how the business might bounce back.”

“The pandemic shutdown has forced forward and dynamic thinking as it relates to communication and process, where the ‘normal day’ is not relevant,” says Steven Wren, tax partner at SRLV Accountants. “As always, knowing a client’s business inside and out is pivotal in providing proactive advice, as well as ensuring that we communicate with clients on a regular basis.”

Greenish adds that Centtrip has also experienced increased demand for its prepaid, multicurrency MasterCard during the pandemic. “For us, a big one we’ve pushed right from the beginning is trying to take any production or tour cashless through the card,” he explains. “It’s hugely popular, and those artists who haven’t already taken their tour cashless are certainly looking towards it.”

The card even makes sense from a hygiene perspective, he adds: “Even in lockdown we’re all using less cash anyway, as no one wants to transmit the disease.”

“We’re using the opportunity to look inwards and build better internal processes”

Humphrey comments: “This [Covid-19] is going to be in our lives for years now; you’ve got to focus on where the opportunities are. It’s making us all realise we can do big things very fast. This is a lesson in how when you stop running round like a lunatic and stop to focus, you can achieve big things.”

Wren says he has seen many music businesses take advantage of the various government- backed loans available in many countries, as they are seen “as a great source of cheap finance, with some enterprises obtaining significant amounts.” This, he says, demonstrates the viability of the industry to support such debt.

Solidarity
While every business IQ spoke to for this feature is weathering the coronavirus storm, many companies – especially those just starting out, or yet to find their feet – are not so lucky. “There are going to be so many business failures over the next six months,” observes Humphrey. “So many companies just didn’t have a viable business and never worked out how to make money.”

 


Continue reading this feature in the digital edition of IQ 91, or subscribe to the magazine here.


This article forms part of IQ’s Covid-19 resource centre – a knowledge hub of essential guidance and updating resources for uncertain times.

Get more stories like this in your inbox by signing up for IQ IndexIQ’s free email digest of essential live music industry news.

UK biz watches the markets as election looms

As millions across the UK post their vote in today’s (12 December) general election, financial technology firm Centtrip, which works with over 500 clients in the music industry, has predicted how currency markets may react to different electoral outcomes.

The election, which is being dubbed the “most important poll in a generation” by some commentators, is the third of its kind in less than five years.

According to Centtrip, the pound sterling could fluctuate by as much as 10% depending on the outcome of the vote, as the possibility of a hung parliament looms large and the continuation of Brexit uncertainty rumbles on.

Professionals across the UK industry should closely monitor the vote, say Centtrip, to determine how to mitigate risks to live events in the case of a currency swing, as volatility in foreign exchange markets can have a significant impact on the live industry, affecting touring income, royalty payments and festivals, among other areas.

The FinTech company predicts the election has three likely outcomes:

1. A Tory win of an outright majority will give political autonomy and is likely to end the Brexit deadlock, which will strengthen sterling. However, a Tory win has already been priced in by traders, seeing sterling rally four cents against the dollar over the course of the campaign. If Boris Johnson fails to capitalise on his poll lead and ends up with a smaller-than-forecast majority, the pound will give up its recent gains.

2. While a Labour win is a long shot according to the polls, it should not be discounted. Pollsters have got it wrong before. However, businesses have serious concerns about a Jeremy Corbyn premiership, which could lead to a rapid withdrawal of investment from the UK and a potential run on the pound.

“The music industry needs to think carefully about how it mitigates risk moving forward”

3. However big the gap is between the Conservative and Labour parties, the UK could still end up with another hung Parliament. This will mean a number of things, including no working majority, continued political paralysis, further extensions to Brexit and, inevitably, a weaker pound.

“We have studied the three likely outcomes of the election and our clients are making decisions based on that analysis,” comments Freddy Greenish head of music, film and entertainment at Centtrip.

“This is a historic election, which will have a major impact on the currency markets whichever way people vote and therefore the music industry needs to think carefully about how it mitigates risk moving forward.”

Centtrip predicts that, in the event of a majority Conservative government, focus will shift to the 11-month window of opportunity for the UK to sign new trade deals with the European Union, with the aim of pushing through the withdrawal agreement by 31 January 2020.

The uncertainty surrounding the Brexit deal – and the negative impact leaving the EU is likely to have on the music business – has been one of the main concerns for the UK live industry, with figures including former UK Music CEO Michael Dugher raising the alarm over the potential impact on touring and academics highlighting the risk to festivals, production companies, venues and other parts of the UK live music ecosystem.

The results of the election are expected in the early hours of Friday morning.

Picture: Maurice/Flickr (CC BY 2.0)

 


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Brexit: The final countdown

Aviation

Adrian Whitmarsh, Premier Aviation

There are two vitally important points.

The first is that the UK remains a member of the European Aviation Safety Agency. Although the UK government has stated they want to, currently nothing has been agreed on the mechanism and how much we will contribute.

Without this, UK aircraft and operators would be isolated and unable to continue flying – they would move wholesale to other EU states, as many are already making plans to do. UK-issued EASA pilot licences would no longer be valid outside the UK.

The second point is flight permissions. Without agreements in place, UK operators will no longer be able to fly domestically within EU states nor fly internationally from one EU state to another, as they currently have automatic rights to do. Likewise, EU operators will no longer be able to fly domestically within the UK nor, for example, would an Austrian operator be able to fly from Germany to the UK.

Time is running out to agree these complex rules and, again, the result will likely be aircraft moving off the UK register to operations set up by their owners in other EU states – eg as EasyJet has already done.

This latter point has great implications for the chartering of aircraft on European tours. Already, we are quoting flights for next summer and having to advise clients that operators may not have the necessary permissions.

“We are quoting flights for next summer and having to advise clients that operators may not have the necessary permissions”


Road freight

Richard Burnett, Road Haulage Association (RHA)

There has been so much said and written about Brexit – but much less about what it will mean to the British music industry, an industry we know and love, and one that does so much to drive the British economy.

In August, I attended a pre-Brexit meeting at the Department for Transport (DfT), with the secretary of state, Chris Grayling, and his team, to discuss the implications of a ‘no deal’. Our intention was to establish the best possible outcome for our members and the haulage industry after March 2019.

Frustratingly, we left with very little – apart from a strong indication that neither the DfT nor the rest of government understands even the most basic needs of road-freight operators. Even now, with under six months to go until the UK leaves the EU, there is not even a contingency plan – standard practice for any business, surely?

So far, all we have is the proposal of a lorry park at Dover to prevent tailbacks on the M20 – a proposal that we have already spurned as unworkable. The response of one RHA member was, “We would be sat there for days and days, costing a fortune. […] The truck park would be full in half a day.” These comments were widely picked up by broadcast, online and printed media.

We have got to have a clear government commitment, that in the event of a no deal it will seek an agreement that doesn’t impose new permits, quotas or limits on UK international operators, particularly those for whom the ability to plan far ahead is critical.

For the movers of music, time is the critical element. Forward planning is essential. But with such long lead times, how can a logistics supplier accurately plan, when any date post-29 March is such a grey area? Yes, there will be a transition period but that too remains shrouded in mystery.

Right now, all we have is words. But words alone are not enough. We need clarity, we need a workable no-deal contingency plan in place and we need it now. Without clarity, the industry that employs 2.4 million people, including the operators and employers of the 600,000 HGV drivers that keep the UK’s HGV fleet of nearly half a million trucks on the road, contributing £2.54 billion to the UK economy, will just have to hope for the best.

But for the industry responsible for moving 98% of the UK economy, hope just isn’t good enough.

“Right now, all we have is words. But words alone are not enough”


Insurance

Martin Goebbels, Integro Insurance Brokers

With regard to our specialist area of insurance for the entertainment industry, there have been no indications of change, at this stage, from the insurance markets once Brexit kicks in. Due to the specialist nature of our policies, we generally use UK insurers regardless of whether for EU or overseas policyholders.

There are certain countries, both within and outside of the EU, that have always had their own internal rulings and restrictions on how insurance can be placed and where. Sometimes this has to be placed locally or in the local language, and for these reasons we tend not to work with music industry clients in those countries – any barriers related to insurance never really came down when the UK joined the EU, so leaving it probably won’t make too much difference either!

Perhaps on other types of insurance, such as large, industrial commercial policies involving international insurers, it may have a greater effect.

“Any barriers related to insurance never really came down when the UK joined the EU, so leaving it probably won’t make too much difference either”


Visas and work permits

Tina Richard, T&S Immigration Services

At the moment, only non-EEA acts need work permission to come here for tours, one-off shows, film shoots, etc. The UK government has not yet indicated whether EEA nationals might need some form of work permission post-Brexit.

Tours currently fall into three categories of immigration complexity:

Simple: EU/EEA nationals, who don’t need permission to travel to the UK and perform there. No costs incurred; no paperwork needed. This might change after Brexit.

Medium: Non-visa nationals, from countries such as the US, Canada, Brazil and Australia. They need permission to perform in the UK but just need to present it as an entry document upon arrival. This is very cheap (as low as £21 per act).

Complex: Visa nationals, which include China, Russia, Jamaica, South Africa and more. They need permission to perform in the UK, plus a visa. These are often a nightmare and expensive (several hundred pounds per person).

It’s possible that non-British EU/EEA nationals might be pushed from category one to category two after Brexit. This will mean slightly more paperwork but it’s not too onerous. If any EU/EEA country were to be pushed into category three that would make their lives more difficult, but it seems unlikely at this point.

However, for the last two summers, queues at UK airports have been hellish. It has become almost par for the course to wait two hours or more in order to clear immigration. If they add millions of EU passengers to the lines whose paperwork and intentions have to be checked, then it’s clear they need to hire a lot more immigration officers.

“It has become almost par for the course to wait two hours or more in order to clear immigration”


Taxation and social security

Dr Dick Molenaar, All Arts Tax Advisers

There will be mixed taxation and social security consequences post-Brexit as follows.

Artist taxation: this is based on the bilateral tax treaties and not on the EU treaty. This means that taxation in the performance state and tax credit in the residence state stays the same.

But the Gerritse and Scorpio decisions of the European Court of Justice have given non-residents within the EU the right to deduct expenses and file tax returns. After Brexit, UK artists cannot use this any more and will be paying more tax than now in, for example, Germany.

US artists are better off in the EU than UK artists because the US tax treaties have a minimum threshold of $20,000 per artist per year and allow an exemption for independent production companies. EU artists performing in the UK can keep using the same FEU system because that is a UK unilateral tax measure.

VAT: there will be no reverse charge system any more but goods and services will go in and out of the EU. Administratively, this will be more complicated but will not lead to higher taxes.

Social security: No A1s possible any more for France and other states. If the UK does not create an alternative, this will lead to higher social security contributions without any rights.

The ECJ has given non-EU residents the right to deduct expenses and file tax returns. After Brexit, UK artists cannot use this”

 


Currency exchange

Simon Liddell, Centtrip Music

Big Ben may have stopped chiming but time has not stood still in Westminster. On the contrary, it is quickly slipping away: there are now under 170 days before Britain leaves the European Union, and there is still much to iron out.

While the terms of a transition period have been agreed, negotiations are ongoing on the more contentious matters of the size of the divorce bill and the future status of Northern Ireland. Meanwhile, discussions over how the UK and EU will relate in the future have not even begun.

The biggest unknown remains the true cost to Britain of leaving the EU without a trade deal in place. Once thought remote, the chances of a no-deal Brexit are increasing and that’s already weighing on the pound, which has fallen to its weakest level in a year against both the dollar and the euro. A weaker pound is not good for musicians or labels that have to pay overseas whether for touring or recording. For promoters paying US artists in dollars, the cost per show will have increased by more than 10% over the past few months. Conversely, UK artists touring the US and Europe that are paid in those currencies will benefit.

But what will happen next? A ‘hard’ Brexit is likely to push sterling to parity against the euro and a multi-decade low of £1.18 against the dollar, while a good Brexit deal for Britain would boost the pound to £1.40 against the dollar and £1.20 against the euro.

Artist, managers, agents and promoters can escape the uncertainty of currency movements, though. Fintech companies like Centtrip, which specialise in international payments, foreign exchange and treasury management services, enable you to lock in a rate today for up to two years and mitigate any adverse currency fluctuations. Whichever side of the fence you are on today, you can still have control of your money.

“A ‘hard’ Brexit is likely to push sterling to parity against the euro and a multi-decade low of £1.18 against the dollar”

 


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