Business Plans for recording studio

[Ssaidvox1]

Hey Everyone!

I searched around on the DUC for a while, and was suprised to see that no one has really posted about this yet...

I am relocating my studio by the end of this year, and need to sort of reorganize what started as a project studio. So, i'm creating a business plan. I imagine anyone on here who has pursued funding from a bank or other serious lender has run into the need for a business plan, so I was wondering if anyone could offer some help.

Right now, i'm on probably the hardest portion of the entire thing... Market Analysis. How do you analyze our market anyway? Typical market research data is derived from census data. I.E. a shoe store... there are 2500 people in a town, they all need shoes.... shoe company makes shoes for young adults, 25% of the market share is made of young adults, therefore they have a maximum potential of obtaining 25% of the market share for shoes.... At least, I think that is an example

So does anyone have a completed business plan which I could use as a starting point for this? I would really really appreciate it.

Thanks

[Natural Sound]

yeah, but what would happen if you could make your own shoes at home?
No real easy way to keep track of them.

Normal rules of business don't really apply.
Everyone NEEDS shoes (and doctors, food, etc) No one NEEDS to record. That falls more under the heading of recreation. More of a desire than an actual need.
So, what do we do?
Start by checking local music mags. (if any) If there aren't any, well, maybe that's a clue too.
How about clubs that feature live music. More than 5 or less than 2?
any local concerts that feature Local bands?
What kind of acts are at these events. Country bands, Rock bands, hip hop etc?
Are there any radio stations that support the local music scene?
How many recording studio's are listed in the phone book?
How many have been in biz more than 5 years?
Which studio's are consistanly busy?

You can't go by the general population (like you could for shoes) you need to know what the musician population is in your area.
After that it's a piece of cake.

[Ssaidvox1]

Hey,

Thanks a lot for your reply, it gave me some more stuff to think about... thanks for taking the time to reply. I've been doing this market research for about eight hours straight today, and i've found a few more items that i'm going to list here in case anyone needs this info in the future. It's probably a semi decent idea for any full time audio professional to check this stuff out, just to keep an eye on our ever changing industry. Hope you guys find this useful, and if anyone has stuff to add, I would really really appreciate more replies!

A Few facts on finding data about the sound recording industry:

Most of this information was found from the www.census.gov site.
Something important to note. All industries have a specific code called a NAICS code that you can look up census data by. Every industry has one. Ours is under code 51 for information.... to be more specific, we are under 512 for motion picture and sound recording industries.... to get even more specific, the code for Sound Recording Studio is 512240 There are different codes for post production facilities, and even remote recording companies (such as corporate recording services) The more specific you get, the longer the NAICS code gets. You may want to write down 512240 incase you have to do some market analysis research for a future business plan. It took me forever to find it myself

Here's something interesting for everyone.... obviously, this number is only for studios which reported in the last census... there are definitely more out there than what was reported but check this out....
out of all 50 states, only two of them had over 90 recording studios in the entire state.
The two exceptions? You guessed it, New York and California.... Now here is the kicker...
Each of those states have over 200 recording studios!!! Guess that proves what everyone already knew about where the national market share is

Alright, that's enough marketing business crap for one post If anyone has more helpful info to add to this post, please do! Thanks for reading!

[superpenguin79]

Everyone NEEDS shoes (and doctors, food, etc) No one NEEDS to record. That falls more under the heading of recreation. More of a desire than an actual need.

yes, this is a big one right here regarding a business plan. Who are you going to be targeting to sell your services to. Who "needs" your services? Sure there are probably a lot of folks that "want" your services, but when it comes down to it you have to figure out how to get them in and out with a viable product that they will hold in their hands after they get food, take care of their families...etc..

[dynamix productions]

I wrote a successful business plan for my recording studio by doing tons of research. I'd like to give you some rather lengthy advise based on my experience because bankers usually don't take our industry very seriously. Not from mistrust, but usually because they don't understand it. Basically, you have to know who is reading your business plan, and their thought process. In my case, I was going after a bank loan but you may be going after a private investor. I had to slant it towards the conservative nature of bankers. You have to present your business as a totally professional facility, citing lots of facts and numbers. I read other business plans from almost every industry to be able to talk the lingo. I studied manufacturing firms, magazines, research facilities, grocery stores, etc. The things they all have in common are: inventory, cost of goods sold, revenue, costs, marketing, and cash flow (among many others). And remember, a business plan is not only for the bankers, it's also for you. It will help clarify how you will make money. It will continually change as your business does, but I'd rather have a road map that's half right than nothing at all.

So, to compare our industry to a manufacturing business for example, your "inventory" is studio time, duplication, and other services you sell. How much "inventory" do you have? In my case, I figured a maximum average of 5.5 hours per day for one person in one studio (I've been in the business over twenty years, and this has been true in every job I've had). Why not 8 hours? Well, you have to figure in time spent you can't charge for, such as making coffee, getting emails, reading this post, fixing equipment, paying bills, etc. Next, how much of your maximum inventory will you actually sell? This should start out conservatively and build as you increase your marketing and offer new services. Next, how much do you charge? I looked at your web site, and your rates may be too low for a banker to be comfortable with. Try doubling or tripling them, and then you're perceived to have the same level of expertise as similar studios. People aren't always looking for the lowest price in a studio, they're looking for results.

Next, who are your customers? You can record almost anyone that walks in, but you must identify your "core" customers - those that require the least amount of marketing to get in your door. Do you only do music? Then you must figure out where musicians and performers are. Do you have a lot of night clubs in town? A great number would indicate that there are a lot of musicians in your area. This will be hard to determine, but I looked at area databases of musicians (those usually wanting to be hired will try to get there names listed everywhere). My core client base is advertising, though and this was pretty easy to determine.

Who's your competition? I used several sources, but the best is the phonebook. Oh, and BTW, quote ALL your sources like a research paper. Be honest about your competition. I created a grid of my competitors, and what they offered, how they competed, and how I would get clients from them. I also was realistic in pointing out which services they performed well, and how much of their business I probably wouldn't get.

Next, I compared my city to several other cities of similar size in my region. I was able to show that my city was underserved by comparing the populations, number of studios, and the studios per capita from all these cities. For example, City A had 1 studio for every 4,000 people, City B had 1 studio for every 5,500 people, and my city had 1 studio for every 8,500 people. This showed a clear need. If your situation is reverse, you need to be honest and show why people would come to your studio with so many to go to.

How do you market to your clients? You have to have a concrete marketing plan and show dollar figures, shedules, examples, etc. as to how you will reach them.

The financials part is what most usually look at first if they're in a hurry. They always look at cash flow. The bottom line is: if you can't maintain a steady cash flow, how will they get repaid? This is the hard part - predicting 3 or 5 years out. I can tell you that in my three years in business, this is the hardest part to maintain. Revenues will fluctuate, people won't pay, but the electric bill and rent are always due every month, regardless. I based my collections mostly on the fact that 75% my customers take 45 - 60 days to pay, 5% pay now, 18% pay 60 - 120 days, and 2% are deadbeats (bad debt). Bankers love this scenario, it shows them you've accounted for fluctuating payments. Get an accountant to help you with this part if you've never done a budget. I used to work with budgets in a corporation, but I still needed my accountant and scores of other people to look over my numbers. Be prepared to pull out your hair, bite your nails, and dream numbers for this part. This is really the backbone of your plan, and it must be realistic, balanced, and unforgiving.

Go to your local SBA (Small Business Admin) and SCORE if you have one. They can be invaluable, and the best part is: it's free help!

The big picture is you must convince someone to give you a big pile of their money, and that they'll get it back with a little more on top. That's your "thanks" for them trusting you. You have to understand that they get kooks walking in every day with half-baked plans and no collateral wanting money. Good luck, I hope this helps!

Neil Kesterson
Dynamix Productions
Lexington, KY

[Ssaidvox1]

Thank you so much for taking a large amount of time on your post, I can't read the whole thing right now, but i'll come back to it later, and write a better response. You're awesome, thanks!

[Realizm]

That's some insightful info...I NK...I was wondering, how did you fare in your quest for financing? Just curious.
I too had done a few years of hair pulling, mind-numbing research whilst crafting a business plan for a studio. Unfortunately I'm in the NY area, and gee..well, need I say more? Gotta have some really really deep pockets in a supersaturated market. Needless to say, I scratched that and decided (rightfully so) that it was more lucrative wearing the producer hat.

In addition, at the time, I had close ties with someone heading up an SBA office. It's my understanding that it's not that bankers don't necessarily understand our industry...it's more that they're unwilling to provide financing for ventures of such a highly speculative nature. It's easier to get money to open a McDonald's.

[dynamix productions]

Yes, the NYC area is very competitive. Our typical (professional) studio investment here in KY is $50K to $250K. There was a studio that just opened that they put $2 million into. It's a gift from a Dad to a son, and he doesn't have to make money or pay it back. You can't compete against that! From time to time, I have to hire a NY studio, and the hourly rate is just so high. I'm sure they're just scraping by just like the rest of us. My hat goes off to those who start from scratch in a big market like that.

Anyway, I kept running into stumbling blocks with banks, because they wanted more collateral than I had. I was willing to put everything on the line, but it wasn't enough. You're right about the "speculative" nature of it, but I had a proven client base ready to follow me. What wound up happening was having my loan guaranteed by a very generous owner of a video production business. He needed the audio component in growing his business, I needed a video production house to feed me business, and the rest is history. Three years later, we're still under the same roof, and kicking butt in the market.

Neil
Dynamix Productions

[georgia]

FWIW, I put a business plan together almost 10 years ago, with extensive research,review and 12 years of business management behind it.... About 6 months into operation we burned it for light and warmth one night. We learned that a plan seldom survives initial contact with reality.

We've grown from a Protools rig in my apartment by keeping simple rules.. Customer, Customer, Customer, and keep the burn rate down... to where we are now... But being in NYC, with almost zero capital investment, we're crawling our way up the hardway. Thank God i only have to provide for me... I would have never done this if I had a family. Some months i'm just keeping the lights on... but I still Love it.! And slowly but surely we're gaining ground on the competition by doing everything we can to help our clients before, during and AFTER the session, as well as, delivering the best work we can.

cheers
georgia