Building a Sustainable Theater: How to Remove Gatekeepers and Take Control of Your Artistic Career

Chapter 22: Income

It’s time to talk about money again. Business Model Generation defines Revenue Streams as “the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings).” This is inadequate for our purposes because it focuses solely on cash. That makes sense for a traditional startup business, but not for a theater startup, at least the one I’m envisioning (and I hope you are, too).

Remember that the goal is to create a company where you control the means of production in order to provide yourself with a sustainable living and as much time as possible to create your art and develop your artistry. Revisit your Quality of Life Statement to remind yourself about what you want your life to look like.

For our purposes, I want to once again draw our attention to Shannon Hayes’ wonderful book Redefining Rich: Achieving True Wealth with Small Business, Side Hustles, and Smart Living, where she identifies four kinds of income sources that are much more useful for us: (1) meaningful employment, (2) business income, (3) nonmonetary income, and (4) passive income.

Four Kinds of Income Sources

Meaningful employment

I know this sounds an awful lot like “day job,” and truth be told a day job might be necessary until you get to scale. The problem with having a day job, Hayes tells us, is that it is expensive. There’s the cost of the commute, the cost of the clothes you might have to buy, the money you might spend on lunches out, the cost of not having the time to cook your own evening meal, the little rewards you give yourself (“I deserve this because I have to work this crappy job”), and so forth. (Your Money or Your Life makes this point very persuasively.)

But according to Hayes, it is worse than that. Employment income, she says, “is the most expensive income to bring home.” Why? Taxes. Quoting Robert Kiyoski, the author of Rich Dad’s Guide to Investing, “The government taxes [employees] when they earn [income tax], when they save [earned interest is added into your annual income], when they spend [sales tax], and when they die [estate tax].” I described in the introduction to this book how many slices are taken out of the Actors Equity members’ minimal paycheck: taxes, union dues, agent fee. 

In addition, Hayes notes that “a person who buys an asset” (by which she means anything you buy that could be business-related) “must do it with the money that’s left over after the taxes have been pulled.” By contrast, she says, "a business owner can acquire an asset with pretax dollars, and then he or she pays income taxes only on what remains.”

I don’t want to get too far into the weeds here. Suffice to say, it takes a lot of money (and time) to be employed.

However, Hayes says, if you choose to make paid employment as part of your contribution to the company, “then it needs to be meaningful. It needs to help you gain experience and growth.” For example, you might take a job at a marketing firm in order to learn marketing techniques that can be applied to theater.

Regardless, working a day job should be regarded as income of last resort, and should go only as long as absolutely necessary. (I don't know about you, but this idea totally blew my mind. Normally, day jobs are the go-to approach to generating money for living.)

Business Income

Hayes really makes a case for Business Income and Nonmonetary Income. I will do my best to summarize this, but you really need to read this chapter of Hayes’ book yourself to get a full understanding. The case she is making is that tax law works against employees, but it works for businesses, and that there are ways to benefit from that. She makes her case through a story she tells about a fictional brother and sister, Responsible Burt and Reckless Betty, who each inherited $100,000 from a grandmother (in your mind, think of this money as whatever sum your company members have paid for a share of ownership). Burt, who has a job where he earns $95,000 a year, “used the money as a hefty down payment on his three-bedroom house in a nice neighborhood with a big backyard and a beautiful carriage house” (these details become important later in the story).  Therefore, Hayes tells us, each year

“he pays roughly $20,000 in taxes, leaving him around $75,000 to take home. From that, he pays $6,000 in property taxes on his beautiful house, $1,500 for homeowner’s insurance, as well as his mortgage—$2000 per month—and other expenses. He takes an annual budget vacation ($2,500), maintains a professional wardrobe ($1,000), buys his lunch each day and eats dinner out twice per week ($6,000), and pays the cost of commuting to work ($7,000). At the end of the year, Burt has less than $8,000 in net earnings.”

He’s “paying himself” (i.e., saving) more than 10% of his take home pay, which isn't terrible. What about Reckless Betty?

“Reckless Betty set up an LLC [Limited Liability Corporation], Crunchy Girl, and funded it with her $100,000. Crunchy Girl made a down payment on a building in a slightly down-and-out neighborhood where Betty currently rents. Betty moved into the apartment upstairs and went to work opening the Crunchy Girl Health-Food Store downstairs. Betty knew that she was making her financial situation more complex, so Crunchy Girl, LLC, hired the services of an accountant, Assiduous Al, to help her stay above the board. Al tells her that she must pay the LLC rent for the apartment she uses upstairs.
     To keep our accounting simple, we are going to assume that she pays herself a salary, $12,000, and from that salary she writes a check back to the LLC for $200 each month. [In a footnote, Hayes writes: “Hey, she owns the company. She can cut herself a break on the rent!”] Reckless Betty is also serious about eating well, so Crunchy Girl, LLC, which doesn’t always have a lot of cash flow, gives her another perk: a $5,500 food allowance. Assiduous Al makes sure she records it on her taxes. Meanwhile, Crunchy Girl, LLC, pays the mortgage on the building, the property taxes, and the insurance.
     Betty doesn’t have to commute to work, but she does decide she needs a car to get to some of her suppliers. So, Crunchy Girl, LLC, leases her a vehicle and pays for the insurance and gas. It also pays for the internet connection in the building, her cell phone, and the heat. Betty doesn’t eat out much, but when she does, it’s usually when she’s out visiting her suppliers, so Crunchy Girl, LLC, pays her restaurant bills, too. Betty is really interested in direct-trade coffee, and she thinks it would be a great addition to the store, so she takes her annual vacation to Brazil, where she visits organic coffee growers in addition to enjoying some sunny R & R. Crunchy Girl, LLC, pays for that, too. Crunchy Girl buys the aprons Betty wears in the store, but she does need to buy some clothing. But she owns the business and writes the rules, so no need for a professional wardrobe! Betty gets by with a $500 annual clothing budget.”

Hayes provides a spreadsheet, showing how Reckless Betty’s $12,000 salary and her $5,500 food allowance (total: $17,500) leaves her $12,305 at the end of the year, compared to her brother’s $7434. Hayes concludes, “Reckless Betty’s salary is less than a fifth of what Responsible Burt earns. And yet she’s making 65% more money.” Then she delivers the capper:

“What’s more, Betty’s low taxable income qualifies her for Medicaid, so her health insurance is just as good as what Responsible Burt gets through his job. Plus, whenever she wants to do any continuing education programming, or if she had a kid who wanted to go to summer camp or college, that low income qualifies for hefty financial aid or even scholarships.”

I don’t know about you, but my head is spinning. Who knew any of this was possible? Suddenly, being a freelance theater artist in New York looks even worse than when we looked at employment statistics!

Of course, in order for this to continue, Crunchy Girl, LLC, will need to generate enough income through sales and any other income streams, or else that $100,000 will be gone very quickly. But Hayes makes her point: what seems like a small initial salary for Reckless Betty becomes, when she works for her own business, not poverty but abundance.

This reinforces my argument for creating a for-profit LLC for your theater rather than following the nonprofit model which limits your ability to use the US tax system to your advantage.

Once you are starting to think this way, the next step is to consider revenue streams a theater company might generate.

Theater artists tend to think solely in terms of ticket income, and that is certainly a major revenue stream (one hopes). When you are adding up your costs (next chapter), you’ll want to keep in mind each item’s impact on this revenue stream. You’ll also want to be sure to do the math when you are setting your ticket prices: how many tickets will you have to sell in order to not break your budget, and is that reasonable? Will your target audience pay that amount for a ticket, and what will they expect for it? And while you’re scaling up to sustainability, be sure to budget at a very low estimated attendance. Really low.

But ticket sales need not be your only revenue stream. Remember, you are a company, one with many talents, some of which might be put to use generating additional income. What do I mean? Some examples off the top of my head (I'm sure you could come up with many, many more):What I’m saying is use your imagination! Think of things like this as "theater adjacent income"--jobs that use theater skills in non-theater places. Ultimately, the goal is to control how you use your skills and resources in order to provide yourself with a fulfilling and sustainable life. It matters less what you are doing than who you are doing it for. For instance, suppose there was a company member whose dayjob used to be working as a barista at Starbucks. Now the company decides they could create a new revenue stream by carving out a small part of the space they own to create a small coffee shop with this company member using their barista skills and knowledge of the coffee business to operate the store. They might be doing exactly the same thing they were doing before, but what makes it different is that they are doing it in order to extend the living of the company and are themselves in control of the working conditions, the hours worked, and so forth. And each different revenue stream could have its own set of side benefits just like Reckless Betty!

Nonmonetary Income

Hayes defines nonmonetary income as “any need that can be met without having to shell out dollars for it….Any opportunity [a company] can take to reduce their expenses through nonmonetary income helps them sidestep inflation.” To illustrate this, Hayes returns to the story of Responsible Burt.

You may remember that the house Burt purchased with his inheritance has a large yard. At some point, Burt (who has fallen in love and moved in with Harry, who has a small business called Life Coaching through Circus Arts, where he uses his physical comedy and circus skills to help people to relax and have more fun [note: theater adjacent income! Seriously! Could that be another side hustle?]). Harry, like Burt's sister, has “crunchy” interests, and he gets fascinated by composting, and soon Burt and Harry use the compost to start a garden in the back yard. They grow lettuce, tomatoes, and zucchini in the summer, use cold frames to provide fresh greens in the winter, plant grapevines and berry bushes, and get a beehive to help with pollination. Burt learns how to make kombucha, and uses his berries to make his own for much less than they were paying at the grocery store. Then Harry and Burt buy a freezer and start buying meat shares from a local grassfed farmer, and they learn to cook and use every part of the animal, even the bones which they boil into broth and add their homegrown vegetables to make soup. “Their grocery expenses fell by half,” Hayes tells us, “and they stopped dining out entirely because they preferred to eat at home.” Here's the key: “By honing their radical homemaking skills, they added nine thousand dollars to their household net, increasing it by nearly 40 percent.”

That’s nonmonetary income.

It doesn’t have to be gardens. Let’s say one of the company members has a child, and if she were working a day job or going out on a national tour with a Broadway play, she’d have to pay for childcare while she is away at work or on tour. If, as a company member, she can take care of her child onsite at the theater, the saving is nonmonetary income.

If the company members get leftover coffee and baked goods from the coffee shop, that’s nonmonetary income.

Remember Robert Porterfield, who started the Barter Theater during the Great Depression? Porterfield based his business model on barter, on trading tickets for food. Looked at another way, food (which otherwise would have had to have been paid for with money) served as a substitute for money, which meant that the personnel of the Barter could make ends meet more easily. That food was nonmonetary income.
Porterfield had a lot of these: housing was donated by a closed school—nonmonetary income; a performance space was donated by the town government—nonmonetary income; and food was traded for tickets.

So the question raised by Robert Porterfield, dear theater-future-entrepreneur-type-person, might be: what other things might be bartered for?

On August 3, 2020, the New York Times published a nice article by Shilton called “Can’t Find It At the Store? Try Bartering: Here’s How to Do It Right (and Fairly),” about the upswing in bartering that took place during the pandemic. Where have you gone, Robert Porterfield?

The point is that we’ve become addicted to thinking in terms of paying and being paid for everything with money. But if you had a roof over your head and food on the table and clothes on your back and the time to create theater, how much more cash would you need? You’d need some, of course–just enough, and then a little more–but you’d need less than if you had to pay for rent, food, and clothing in addition.

For now, setting aside trading tickets, what skills do you have that might be bartered? Or what skill might you be willing to develop in order to barter it? It costs nothing to imagine. For instance, do you love to make pies or your own Very Special brownies? Or maybe you have computer skills that someone else might benefit from? Or what kinds of things might you need that you could exchange tickets for? An annual dental appointment with a local dentist? Maybe someone who’s a home improvement kind of guy would be willing to help you build a box office or add some electrical sockets. What if you created an “Adopt an Artist” program where once a month a patron hosted a company member or two for supper—what a great way to strengthen your relationship with one of your “Thousand True Fans,” as well as provide a meal you don’t have to buy.

Hayes also mentions an additional approach that saves money through nonmonetary income that is a real gamechanger. “With the help of my own accountant,” she writes,

“I learned about Section 105 HRAs, a reimbursement-based health plan that lets me reimburse an employee for medical costs tax-free. I am the Sole Proprietor of Shanny’s Ink, which is a different company from Sap Bush Hollow, LLC. [My husband] Bob works part-time as my employee. As compensation, he receives a small salary and a large benefit package: Shanny’s Ink reimburses Bob for 100 percent of medical costs, including insurance purchased in the health-care marketplace, for him and all his dependents (including me, his wife). And Shanny’s Ink is a really great employer, because she doesn’t limit medical expenses to typical doctor visits. Shanny’s Ink pays for chiropractic, acupuncture, massage therapy, and the vision therapy that [our daughter] Ula requires. That enables me to cover all our medical expenses as business expenses, which means I don’t have to pay income tax on them. Further, with Shanny’s Ink’s taxable income reduced, Bob and Shannon’s household net income is lower on their tax return. Lowered income on the tax return translates into greater savings when buying insurance in the health-care marketplace.”

Again, you’re limited only by income tax laws and your imagination, which is something you have in abundance now that you’ve forgotten how things are supposed to be done. For Shannon Hayes, “nonmonetary is our family’s single largest source of income, totaling around $73,000.”

Passive Income

This is “income that can be earned from doing nothing, or next to nothing, or as close to nothing at all.” It’s not that you have never put work into whatever this thing is, but that once it is created it can generate income for you with little or no additional labor.

If you’ve ever made a national TV commercial or done a TV show that goes into syndication, you put in a lot of work up front, but the residual checks you received later were Passive Income. If you publish a book, either with a publisher or as a self-publisher, you work hard up front in writing it, and then the royalties you receive are passive income. (If your theater becomes sustainable, write a book telling others how you did it!) Contributions you receive through Patreon are passive income. If you create an online class, or you stream your productions on demand, the money made is passive income. If you have your own space and rent it to another group, that fee is passive income. OK, you get the picture.

The go-to expert on passive income is Pat Flynn , who over the past fifteen years of doing the Smart Passive Income podcast has built a massive audience of Super Fans who buy his books, take his online courses, listen to his podcast, and buy his products. Plus he’s a really nice guy. I recommend his books Will It Fly?: How to Test Your Next Business Idea So You Don't Waste Your Time and Money and Superfans: How to Capture Attention, Foster Community and Build the Most Loyal Following You Could Ever Imagine.

For a theater company, the internet provides opportunities to create passive income. I’ve already mentioned podcasts and streaming productions—if you sell advertising for these, or require a paid subscription to view or listen to them, you are creating passive income. If you have a playwright in the company and you self-publish their plays (just like the King’s Men did with Shakespeare’s), and the company also licenses professional and nonprofessional productions, you’re creating passive income.

Shannon Hayes recommends trying to integrate three of the four types of income into your business model. That seems like good advice. Every dollar generated or saved helps move you toward your goal of a fulfilling, sustainable life in theater.

But remember your Quality of Life Statement. If you find that your company is taking on so many different projects to diversify your revenue stream that you no longer have the time to live your life, then it is time to re-evaluate your choices and cut back. You don’t want to trade one burn-out lifestyle for another!

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