Strictly Business

These entrepreneurs help keepthe green in rappers' portfolios

Rap artists are often known for their extravagant lifestyles — sometimes at the cost of long-term financial security. But entrepreneurs Horace Madison and Solomon Smallwood are hoping to break that trend.

The pair co-own the money management firm MadisonSmallwood Financial Group, which works primarily with people in the entertainment field. “I think the MC Hammer story scared a lot of people,” says Madison, 37, referring to the pop star’s widely publicized fall from financial grace. “Nobody wants to be the next sob story on [VH1’s] Behind the Music.”

Madison and Smallwood launched their firm in June 2000 and have since serviced the financial needs of clients such as Usher, Outkast, Musiq, and several hip-hop producers. From accounting and tax preparation to estate planning, insurance coverage, and investment portfolios, Madison and Smallwood oversee virtually every aspect of their clients’ fiscal matters. Their watchful eyes, along with their self-described “clean-cut, by-the-rules” approach to money management, have placed the company in an enviable position. Charging a flat 5% of its clients’ annual gross revenues, the firm, which currently manages more than $40 million, boasted 2001 revenues of more than $2.1 million and projects nearly $3 million for 2002. The company has offices in New York and Atlanta and plans to open a third in Los Angeles in 2003.

Although the 20-employee company is quickly expanding, Madison and Smallwood admit they have had their fair share of uncertainties when they first started out. The pair met while working for a firm that provides services similar to MadisonSmallwood. They became better acquainted on a golf trip in early 2000 and decided to quit their managing director positions and create their own firm.

Taking a leap of faith, the determined duo, who lived in separate states during the start-up phase and had only a handful of accounts, established the company using cash flow projections instead of the more conventional method of raising capital. Working from home prevented overspending and ensured profits.

After getting the fledgling firm through a rocky first year, Madison and Smallwood faced a potentially detrimental setback when two of their biggest accounts, platinum-selling rappers DMX and Eve, left the firm. “That was our turning point,” says Smallwood, 34, spinning the upside of losing two multimillion-dollar accounts. “We saw firsthand that we weren’t dependent on any one client to keep us afloat. It was then that we knew we had staying power.”

Now that they’ve broken into the hip-hop realm, Madison and Smallwood’s biggest challenge is convincing their young, nouveau riche clients to live within their means. At times, the pair resort to unorthodox means to curb their clients’ spending. Artists who repeatedly defy the firm’s financial advice are asked to sign what Madison and Smallwood have dubbed “the stupid letter,” a document clients sign acknowledging that their purchases are not in their own financial interest. “If someone wants to spend $50,000 on a car and we can convince them to spend $30,000 instead, it’s a victory,” says Madison. “If you have a bunch of small victories, you can win

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