Financial predictions for business plan?

[Savernake]

I have written a pretty solid business plan for a small studio which is running into the ground. I have found somewhere to potentially get a lot of money (including running costs, equipment, AND a fixed salary!) All I need is a solid financial cash flow and profit and loss sheet.

I need to project for the next three years, to show it will be able to run itself by then. This is NOT the place to debate whether it can survive or not - this is a great oppertunity and I'm having a go at it anyway. There will be no personal money going into this, so there is no risk at my end. It is not theoretical either, this is for a real report I am giving to an interested company.

I don't want to overlook anything, so please add to these lists:

Income
Funding
Recording and Production
Mixing
Mastering
Podcasts
Artwork
Online music sales
Tour income

Expenses
Advertising
Equipment
Acoustics
Consumables (paper, ink, blank discs)
Van purchase (This is a maybe!)
Insurance
Online Distribution
Design fees
Artist fees
Assistant engineer fees
Session musicians
Touring expenses
Staff Salary (one person)
Miscellaneous

Am I missing anything? Are there other avenues of income I should look into? Obvious ones would be audio for computer games or films, but I'm not currently connected to anything there.

I'm also at a bit of a loss for what to put for some figures - for example, my annual salary - what do I suggest that isn't cutting myself short but doesn't take the piss either? £12,000 - 15,000 I'm thinking. This is my first job out of Uni but I have my own family to pay for. Bear in mind I would also get commission on the work coming in, but I want a safe minimum. Also, the advertising budget - how the hell much do I need to spend?! It seems £300-500 a month would be plenty but I have a feeling people will tell me otherwise.

Your thoughts?

[Savernake]

Add merchandise to income :D

[Clueless]

Originally Posted by Savernake

I have written a pretty solid business plan for a small studio which is running into the ground. I have found somewhere to potentially get a lot of money (including running costs, equipment, AND a fixed salary!) All I need is a solid financial cash flow and profit and loss sheet.

A solid business plan usually articulates the key assumptions about the general and particulars you are contemplating, and also articulates concrete milestones that enable go/no-go decisions.

I need to project for the next three years, to show it will be able to run itself by then.

This is actually the easy part, assuming you do have a solid business plan, and that you have a basic knowledge of accounting. First, you need to know the difference between cash, revenue, and profit. For example, if your funding people give you 50,000 cash, you have 50,000 cash, no revenue, and whatever negative profits accrue from being paid for the day it takes you to collect, count, and deposit the cash.

I don't want to overlook anything, so please add to these lists:

Income
Funding
Recording and Production
Mixing
Mastering
Podcasts
Artwork
Online music sales
Tour income

First of all, funding is not income, it's cash. Second of all, the breadth of this list does not look like anything that a small studio could reasonably sustain, especially if it's already running into the ground. I cannot imagine, for example, how a small studio has anything to do with touring income, unless it's a mobile studio, in which case I cannot see how it could do any serious mastering work.

Expenses
Advertising
Equipment
Acoustics
Consumables (paper, ink, blank discs)
Van purchase (This is a maybe!)
Insurance
Online Distribution
Design fees
Artist fees
Assistant engineer fees
Session musicians
Touring expenses
Staff Salary (one person)
Miscellaneous

Here, too, there's a muddle of two types of expenses, which is not relevant for helping you understand your cash position, but which makes all the difference to the P&L, namely operational expenses vs. capital expenses. Equipment and acoustics are capital expenses, which means they depreciate over (longer) time, whereas salaries are operational expenses. To the extent that you are outsourcing various services (designers, artists, asst engineers, etc), that represents a potentially scalable cost (meaning more business translates to more cost, less business to less cost, no business to no cost), but it also raises the very real question of what is the sustainable value add of booking all business through the studio. The more profit skimmed from transactional service relationships (like designers), the greater the pressure of the client and designer to meet without the middleman.

Am I missing anything? Are there other avenues of income I should look into? Obvious ones would be audio for computer games or films, but I'm not currently connected to anything there.

Every new avenue of revenue represents an additional avenue of expense, in terms of advertising, reputation-building, etc. I think you should focus less on whether you are being paid by gamers or film people or rockers or whomever, and focus instead on "what do you do best". If you are a great composer, compose. If you are a great mixer, mix. If you are a great producer, produce. If you need to also run the board in order to produce, that's a small studio for you. But if you advertise yourself as jack of all trades...

I'm also at a bit of a loss for what to put for some figures - for example, my annual salary - what do I suggest that isn't cutting myself short but doesn't take the piss either? £12,000 - 15,000 I'm thinking. This is my first job out of Uni but I have my own family to pay for. Bear in mind I would also get commission on the work coming in, but I want a safe minimum. Also, the advertising budget - how the hell much do I need to spend?! It seems £300-500 a month would be plenty but I have a feeling people will tell me otherwise.

I have no idea what to advise here. I spoke with a friend who runs a rehearsal studio. He found that advertising was worthless to him because the cost of advertising was based on how many people were within the demographic. He said "if I sold pizza, advertising would have made sense, because everybody eats pizza sooner or later. But there are only 1000 practicing musicians in the market, and I'm paying for access to 50,000!"

Your thoughts?

I think you should make friends with a bookkeeper, or at least buy them a beer and see how the numbers of your plan really add up.

[joelpatterson]

And... that beer is deductible as a business expense, right?

[shaneoconnor]

depends, a percentage of it is.

[joelpatterson]

Well then screw it, just give me Tequila shots, bartender.

[TheChariot]

This is a fun game, albeit a scary one at times. The financial path is actually my first step into the studio business after spending just under a year as an assistant. I'm still in the planning stages... but it sounds like we're in the same boat. My day job is bookkeeping, so it's sort of a fit.

1) Get a copy of Quickbooks.
2) Categorize every expense.
3) Save every receipt.
4) Learn how to do a balance sheet. This should include the value of property and building (if you own). This may involve some "rough" numbers (example: you need to figure out the going rate for gear that is only found on the vintage/used markets and count them as assets to your business)
5) Set price lists and figure out how many days of work you will require to meet your financial liabilities.
6) If you have set prices, perform a Break-Even Analysis. This will answer #5. Make damn sure you've thought of every expense or the number will be inaccurate and relatively useless.
7) Talk to a Tax Guy


Do you own the building you are working from? If there's rent or mortgage, that's obviously a big liability.

As far as salary goes... you need to figure out the rest of the numbers first.

So.... yeah. Sucks, huh? But it's definitely the only way to keep things remotely predictable. I'm sure some of the more experienced GS cats have some tricks for keeping things stable and under control. They also might say that the entire thing is cumbersome and means nothing. It's all in your perspective. If you consider yourself an artist, then you might detest the idea of thinking of your recording studio as a bunch of combating $ signs. You've got a family, so my guess is that you will have interest in trying to keep things accurate.

I'm building our Quickbooks account next week. If a light bulb goes off in my head while I'm setting up I'll make sure to share.

Good f'n luck. We both need it.

[Clueless]

You can also download a copy of GnuCash instead of Quickbooks. Runs great on my Linux machine, but runs on other platforms, too.

[The Byre]

You need to go to the business pages at audiotalk.org and look at the 'Additional Income' section.

You seem to be missing most of the usual addition income for studios from your plan. Certainly, the ones that actually earn money - as opposed to the ones that studio owners THINK will earn them money.

The stuff you have listed is the stuff that is pretty much core to the studio business and a studio should be doing these theings already. Well, except touring, which is a totally different ball game to studio work.

More importantly, you should read all the section, especially the one on economic reality.

[Taproot]

Originally Posted by Savernake

I need to project for the next three years, to show it will be able to run itself by then.

There is no such business on Earth or anywhere else that runs itself. Don't fool yourself or let yourself be fooled.

My advice (and this has worked well for me ) is to be very up front about the reality of the sometimes "feast or famine" aspect of the studio business. It let's the potential lender know that you actually have a working knowledge of the business and not just someone jumping into the fire with their money.

1. Advertising is generally a waste of money for studios. Call some local papers and music rags and get them to do a feature on the studio and, then and only then, couple it with some small ads.

2. Don't spread your services too thin. A few services done well will gain far more than a multitude of mediocre ones.

3. As far as "no risk to yourself"; well, I smell a rat. Nothing is free or without consequence. I would certainly hire an attorney if there's paperwork and if you're smart, there will be paperwork (i.e.- contracts). This is to protect both parties.

Good luck!

[rkwyent]

I've been here. Wrote many busness plans for myself and others.

You will probably hate me for this but;

You don't have financials worked out yet... Your plan is NOT solid.

Financials are supposed to be realistic and will tell you if it will work or not.

As far as i can tell from your post, you are over optimistic at this point. NOT GOOD.



If this plan is for a recording facility focus on that.

Artist expenses and income? That is something seperate from the recording facility. BIG MISTAKE do not put these things together.

A great portion of your funding should be put into marketing efforts not just buying stuff.

If you are buying stuff the investor may feel more cofortable if you declare purchased equipment as collateral for the Loan (partially at least).

You MUST have a great USP (Unique Selling Proposition).

You want to aim for a ROI (Return On Investment) of at least 30% or they investor may not think your project is worth the investment.


I can say alot more but will leave it here for now

[John Suitcase]

Originally Posted by rkwyent

You MUST have a great USP (Unique Selling Proposition).

This is so key. You need to do an honest appraisal of your market and your competition. If you're hoping to work with bands, what kind of bands? Is there already an established facility the everyone uses? If not, why not? Did the last 5 guys go under? That's not a good sign!

What are you going to market? What's going to make a potential client come to you instead of someone else?

As far as the plan goes, it's good to have something on paper, to get an idea of what your expenses will likely be. Of course, a few months into the business, you'll likely find that your predictions were way off the mark. You need to plan for things to go much more slowly than you estimate, plan for expenses to go up, and have as much cash in reserve as you can get.

Good luck, it's a tough business to get into, especially as another generic facility. But if you become the go-to guy for (niche service here) you can make a good living and last a long time.

[CDS]

Originally Posted by rkwyent

I've been here. Wrote many busness plans for myself and others.

You will probably hate me for this but;

You don't have financials worked out yet... Your plan is NOT solid.

Financials are supposed to be realistic and will tell you if it will work or not.

As far as i can tell from your post, you are over optimistic at this point. NOT GOOD.



If this plan is for a recording facility focus on that.

Artist expenses and income? That is something seperate from the recording facility. BIG MISTAKE do not put these things together.

A great portion of your funding should be put into marketing efforts not just buying stuff.

If you are buying stuff the investor may feel more cofortable if you declare purchased equipment as collateral for the Loan (partially at least).

You MUST have a great USP (Unique Selling Proposition).

You want to aim for a ROI (Return On Investment) of at least 30% or they investor may not think your project is worth the investment.


I can say alot more but will leave it here for now

Reading this thread before I was about to respond, rkwyent is giving you great advice here.

I was going to write you should hire someone to do this for you, maybe rkwyent would be able to offer services if you asked him.

It is SO important to show ROI when trying to get capital and you have to be realistic about it. The first thing your potential investor will want to know is how are you going to market and promote this business and how much you expect to spend on advertising. Unless you have found a great Angel investor, please get as much assistance with your business plan as possible from an experienced freelancer..

Stay away from Business Plan pro apps and the such, any experienced investor will see through the template fun.

[Savernake]

Thanks for some great advice. All has been noted and considered.

The thing is, and I'm sorry I can't further elaborate until at least September, but there really is a source of money that won't even require a lot of these serious points. There doesn't need to be much of a USP (well, it will be the only studio around with this great equipment), and even if there is little money coming in from people recording there - I will still be on a full time wage for three years. At this point, we will be very unlucky for the plan not to go through. After today, I have been told to ask for even more, to make a plan of my dreams, because then if they undershoot it, I will still be getting a ridiculous amount to work with. No, it's not like a million or anything silly - but beyond the dreams I had!

Reading this thread again makes me realize how lucky I am to be in this situation. Obviously business plans have been a lot harder for other people because they're having to go to banks or investors with a lot of money, who take it very very seriously. I have found a source who is literally willing to give this money away.

And gearslutz will be welcome to rent the studios for a reasonable price. I would love to meet you there. I will keep you updated, wish me luck!

[Clueless]

Originally Posted by Savernake

Thanks for some great advice. All has been noted and considered.

Except that it has not been.

[...]Reading this thread again makes me realize how lucky I am to be in this situation. Obviously business plans have been a lot harder for other people because they're having to go to banks or investors with a lot of money, who take it very very seriously. I have found a source who is literally willing to give this money away.

And if you take the attitude that you are just lucky and have nothing to worry about for three years, then they will be doing just that: giving their money away. Will you be so lucky a second time?

My advice (for what it's worth), is to take it seriously as if you had to do this according to proper planning and accounting practices. This will greatly increase your chances of looking like a hero instead of a bum. And who knows, with your luck maybe the next guy along will offer you 10x what you had with this gig. But I'm fairly confident that if you do only the work needed to land this deal, and you depend entirely on avoiding any sort of reality checks for three years, you may find the rest of your career not quite so charmed.

Now is not the time to rest on your laurels. Now is a time to dig the garden!

[Taproot]

Originally Posted by Clueless

Except that it has not been.



And if you take the attitude that you are just lucky and have nothing to worry about for three years, then they will be doing just that: giving their money away. Will you be so lucky a second time?

My advice (for what it's worth), is to take it seriously as if you had to do this according to proper planning and accounting practices. This will greatly increase your chances of looking like a hero instead of a bum. And who knows, with your luck maybe the next guy along will offer you 10x what you had with this gig. But I'm fairly confident that if you do only the work needed to land this deal, and you depend entirely on avoiding any sort of reality checks for three years, you may find the rest of your career not quite so charmed.

Thanks for saving me the time of typing all of that out, Clueless. Something, actually lots of things, are just not quite right in this scenario. I smell a rat.

[rkwyent]

Originally Posted by Taproot

Thanks for saving me the time of typing all of that out, Clueless. Something, actually lots of things, are just not quite right in this scenario. I smell a rat.

I agree guys. Savernake doesn't seem to be ready for this mentally. This can be a serious opportunity that can determine the future and it is being taken in an extremely careless manner.

[Savernake]

Everyone is right to give me a stern grounding. It's important.

The point in my last post was that this isn't as impossible a thing to try as it would going to, say, a bank - there is no way I could pull off getting money from a bank and paying it on time every time. People were right to warn me of the perils of something like that.

I don't mean to sound lax, I'm taking the plan and finances I've written very seriously, and will do so for the duration of my time at this studio. I DID however want to emphasize that I have found a very fortunate situation where a studio is a very good idea for this funding body.

Maybe a little too much pessimism here, but the comments are all reasonable. I'll keep you updated whether it's all good or not. Could go either way.

Now to make the ultimate wish list

[rkwyent]

Originally Posted by Savernake

Everyone is right to give me a stern grounding. It's important.

The point in my last post was that this isn't as impossible a thing to try as it would going to, say, a bank - there is no way I could pull off getting money from a bank and paying it on time every time. People were right to warn me of the perils of something like that.

I don't mean to sound lax, I'm taking the plan and finances I've written very seriously, and will do so for the duration of my time at this studio. I DID however want to emphasize that I have found a very fortunate situation where a studio is a very good idea for this funding body.

Maybe a little too much pessimism here, but the comments are all reasonable. I'll keep you updated whether it's all good or not. Could go either way.

Now to make the ultimate wish list

I think you are over optimistic.

I think some of what you listed as expenses are not necessary and have no real bearing on creating a profit.

I think your list of possible income is too broad to be seriously implemented on the scale your project seems to be.

I have been here. I started my studio boot strapping from the ground up.

I wrote a business plan a few years ago and turned down a $30,000 investment because the terms that the investors wanted in return were totally unacceptable for me.

I think i gave you some good points in my previous posts.

I have yet to hear what you have attempted to change or improve from your original thoughts.

[The Byre]

Originally Posted by Savernake

Now to make the ultimate wish list

Wrong!

"Now to do a customer survey to find out what your customers will want!" is what you should have written.

[Taproot]

Savernake, I mean no disrespect, but do you have much experience working in the music business? Engineering, managing, etc. The more I read this thread, the more your viewpoint seems to be more theory than application. Almost as if pulled from a book. Again, I'm not trying to rain on your parade, I'm just curious as well as concerned.

[Sqye]

Originally Posted by joelpatterson

And... that beer is deductible as a business expense, right?

joel, you're hilarious.

obviously, only martini olives are deductible.

.

[Savernake]

There's some really negative thinking in this thread now, where's the encouragement?

Taproot, I am a young graduate. I have worked hard for years getting high-end industry placements and now I'm free from Uni to work hard, I'm aiming high. I'm surprised at the lack of encouragement here, considering all most other graduates do is beg for internships expecting things to happen for them for free. I'm working hard, I will probably make mistakes but I will to my best to find the right opportunities and make things work out.

Rkwyent, don't assume that the sum of this whole project and the ever changing developments can be summed up in a daily report for you. I appreciate the advice as I do from everyone but just because I don't reply to every specific point doesn't mean things aren't moving forward for the better.

Eventually i will be able to reveal why this is a low risk business opportunity. Until then, get over it!

[Savernake]

Originally Posted by The Byre

Wrong!

"Now to do a customer survey to find out what your customers will want!" is what you should have written.

BTW - this kind of thing has been done long ago

[Taproot]

Originally Posted by Savernake

There's some really negative thinking in this thread now, where's the encouragement?

Taproot, I am a young graduate. I have worked hard for years.........
Eventually i will be able to reveal why this is a low risk business opportunity. Until then, get over it!

This is the reason I don't post in audio forums that much any more. It's nearly impossible to get your true intentions across without being face to face. It's hard to talk with a keyboard, because words are only a small part of communication. As I stated in my last post, "I'm concerned" and I'd love to help. Also, I was right, you're coming from inexperience and I'd love to help you out as I was helped early in my career. I'm layed up in bed from surgery right now, so I've got time.

I'm trying to get across that a traditional business plan will almost never apply in the music business. Specifically with studios, because the income can be so volatile and come from sometimes odd, unpredictable sources. When I submitted my business plan for my place six years ago, the banker looked at me like I was crazy! I put in $0 income months and some months, $10,000+. Also, the almost non-existent advertising budget blew their mind. All based on experience. They gladly gave me the loan and told me point blank that the only reason I got it was because I demonstrated a true working knowledge of an obviously whacky business.

In a nutshell, I'd like to help you with a business plan that will work, not one that just "looks" impressive. If you don't use the "zero liability" as a crutch, you can take this opportunity to amazing heights if you do it right.

[Savernake]

Wasn't referring to you when I said about negative people, your constructive feedback is what I want to hear!

[Taproot]

Originally Posted by Savernake

Wasn't referring to you when I said about negative people, your constructive feedback is what I want to hear!

Fair enough. That's what I'm talking about. It's hard to understand a keyboard sometimes. Best of luck to you and I'll stay subscribed to this thread for updates.

[rkwyent]

Originally Posted by Savernake

Rkwyent, don't assume that the sum of this whole project and the ever changing developments can be summed up in a daily report for you. I appreciate the advice as I do from everyone but just because I don't reply to every specific point doesn't mean things aren't moving forward for the better.

Eventually i will be able to reveal why this is a low risk business opportunity. Until then, get over it!

Ok. I will shut up. I am a realist and if you posted something that sounded worthy i would not have been so critical of you.

Anyway good luck and don't ask for advise unless u can disclose enough information so the sum of the venture can be evaluated. I only answered according to the info you provided.

Go on with the silver spoon in your mouth and the red carpet rolled out for you. Some people have to do it right the first time or they don't get another chance. At least thats the world i live in. GoodBye

[NeekRusher]

Just joking. Young blood how long have you been in the field of music?
what's your claim to fame? IE: Have you been to an audio engineering school,have you produce records or even worked in a recording studio? The reason I ask is just to
get to know where your coming from,so I can give you the best sound advice
about owning your own studio. I work in a small recording studio now,for that "SMALL"
side paper. It helps when I want to buy a red bull or get a hair cut.

Whats your true passion? If it's producing music, brother I'm going to run it to you right
LEAVE THIS SHIT ALONE. Are you going to be doing the engineering work or do you have somebody else to do it? See this is were you have to be honest with yourself. DO YOU LIKE PEOPLE? DO YOU LIKE DEALING WITH THE IGNORANCE OF MAN OR WOMEN?

If you do, then owning a studio is for you,if not just build yourself a private studio and
enjoy making the music you like and get your money on. Now. I know thats not what you want to hear,YOU SEEM VERY HELL BENT ON GETTING THIS STUDIO POPPING. Scrap.....The business plan is the least of your troubles. It's the clientel your going to encounter. Some days I want to JAP n artist, for not using their ears and their brains.
True story scrap.

Now if you can deal with the people that your going to be encountering, then brother DO IT!!! GO FOR IT!!! but if you have a short temper and your patience is thin. Don't waste your time or the investors. You will only drive yourself to hit a couple of those white lines, on a jay-z album cover, venting to your homeboy, who really don't give damn all he want to know is, where the hoes at.


Yeah man studio owning is very serious,and you will be spending a lot more money than making money. Just make sure you have another stream of income to hold you down so when it slows up, OHHHHH AND IT WILL SLOW UP, DON'T GET IT "YOUNG BUCK" CONFUSED

Anyway best of luck to you and may the U87 be with you. @ least n your mind.

[Savernake]

Thanks for the 'advice' some months ago (and to the encouragement from NeekRusher). Some unusually harsh responses but criticisms accepted.

I didn't want this to be one of those threads where it seems like it all just failed and went quiet, because we've got £25,000 coming in this week (plus much more on the way, ka-ching!) so it's all still happening. I'm about to make a thread over the afternoon (slowly adding bits to the list while I give everything a newer price check) with the final equipment list incase anyone has advice on how it could be tweaked before the big buy.

The reason it's a low risk venture is because it's not my money. It's the governments money, this is a recording studio in a youth club that is totally dead, and almost a year ago I worked my way into a position where I could take it on myself as a manager. Several funding applications later, we have the money coming in, the first of which is the 25k.

The studio's not been looked after in the past, but with this budget I can start from the ground up and really make something of it.

Sorry to be all 'mystique' about it before, I know it must have sounded like bullshit but I'm glad to be able to explain it all now.