Businesses fail due to the following reasons:
a) The price of the product exceeds the demand:
As a band, you and your team need to create and maintain the demand. For some people, this is their outlet for creativity. Also remember that if your product sucks, then there will be NO demand for it. (well... unless Universal pumps all kinds of money into it and teams you up with Ashlee Simpson) Price it as low as you want, but after your friends and family all have a copy, the other 950 copies will sit in your basement. Also, the demand for your band will dwindle unless it is being refueled by new material. How many copies of your CD is any given person going to buy, after all? How many times will they come out to see the same show? Fortunately, though, if your goal is to get signed and release an album with major label support, the industry is on your side. The record companies know that the industry is very flavour-of-the-week oriented, and they approach the business that way. If you get signed, there will likely be language that the label will want to include into the contract that will suggest an option for them (not necessarily you!!) to re-evaluate the contract and choose to (or not to!!) renew it after seeing how the first album does. (remember the entertainment lawyer??) When they sign you, they are interested in making a quick buck and moving on. Few artists survive in the industry long enough to have what is traditionally considered a "career."
This is where a lot of mistakes that should be avoided aren't. Here is a classic example. Your band just played and got paid $200. Great! Now what? The bass player drives in from Brantford and won't be able to get home unless he gets at least part of his $50. The singer has to take his $50 because his girlfriend rang up his phone bill and Bell will cut them off if it isn't paid by Monday, etc. After six months of this, you're still digging into your own pockets for rehearsal space, recording a demo, etc. Does it make sense to use 100% of all gross revenue to pay salaries? Duh! You HAVE to re-invest in your product!! Create a budget - rehearsal space, promotion, guitar strings, gear, equipment rental, etc. might all come out of this, but these budget areas will all depend on the goals and visions of the members. Plan in advance, and be in agreement with where the money from gigs, CD and merch sales, etc. is going to go. This will also prevent arguments later. Get a bank account for the band, and have an agreement in place between you and the bank regarding how the money will be accessed. The more money that is made, the more contentious this all becomes. Best to plan early!
c) The team breaks down:
This is often related to mismanagement. People get tired of paying their own money for stuff, even after months of gigging. As a result, they start to get down about it. Not always, but it happens. Also consider other things that happen to wear down the spirits of the band members. Inequities in participation - people skipping rehearsals, or showing up consistently late; not pulling their weight in promotion (posters, etc.), bruised egos from creative issues, etc. The more agreements that can be in place, and the sooner they can be in place, the better your team will operate. Be careful of micromanaging things though. There needs to be room for flexibility. People respond better when they are valued than when they are just automatons working within inflexible parameters. Consider regular "closed" meetings where people are comfortable to voice things - positive and negative - but in a constructive manner.
Oh, yeah... did I mention the importance of re-investing? Good management = smoother and more purposeful sailing.