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Protect Your Success

In this section we are going to examine what, in my opinion, can go “right” and “wrong” financially with your studio. What are the financial pitfalls and how can you avoid them? What financial alternatives are available to overcome the ever-present problem of not enough time or money available to run your business properly? What are the financial tools that you should be aware of, and how can you use them on a daily basis to help you maintain the proper leadership and positive direction of your company?

Not long ago I was contacted by the owners of a well-known and respected recording studio and asked to provide them with financial and marketing consulting services. They could not meet their financial obligations, and their very expensive console and ancillary equipment was about to be repossessed by their leasing company. They were in a daze. They truly did not know what had happened to them nor what they had done (or not done) to deserve this fate. For many previous years they could do no wrong, and now they were suddenly facing bankruptcy as one of their few alternatives. Perhaps by examining their situation, you can avoid the same fate for your business, large or small, no matter what your niche (records, post, advertising, mobile). It happens to the best of us. I know. It almost happened to me.

Military strategy dictates that one of the key elements of survival is to “cover your flanks.” Always be on guard for an attack from any direction, and know your enemy. Outsmart him and you win. Get cocky after some small victory, relax your vigil, and you lose. In war, that means death and dishonor. While it is not that tough in our pro audio industry, it comes close. If you don't constantly keep your finger on the pulse of the marketplace, study your competition, review your alternatives, and seek the advice of your trusted employees and your best clients, you are apt to lose control of your business.

This requires almost daily review of the financial status of your business: where you are, where you have been, and where you are going. Even more importantly, how are you financially going to progress while keeping all the important elements of your business in balance? By balance, I mean the proper levels of the following:

1.  Studio Bookings (Sales, Revenue): this week/month vs. the same period last year, average billing per hour, advance booking hours, daily market canvas to fill studio time vacancies

2.  Personnel Management: salaries, benefits, number of employees as a percentage of gross sales

3.  Marketing: press relations, sales promotion, mailings, client endorsements, client relations

4.  The “Look” of Your Facility: cosmetic appearance, cheerful employees, a feeling of energy and order at the facility

5.  The Right Level of technology for Your Niche: only as much of the “best” equipment as you need and can afford to get the job done at the market rate for those services that will satisfy your clientele

6.  Diversification: regular reviews of the level of efficiency of personnel and the use of equipment in your facility vs. other services that could be offered to provide additional billing and profit for your company.

7.  An Efficient “Back Office”: easily understood business forms for all functions of the recording process, cost controls, proper cash flow management, financial statements, projection techniques, credit and collection, and maintenance of a good credit standing with your vendors

THAT FINE BOTTOM LINE

There is continual tension between technical obsolescence and financial overextension. You want to get that “new toy” (sometimes costing hundreds of thousands of dollars), which you may be buying out of ego and not out of necessity. As said before, be certain you can afford it, and of equal importance, make sure it can pay for itself by bringing in new clients or keeping the ones you have by doing the job better and faster at a higher hourly rate. In the aforementioned studio disaster, it was “an ego thing.” The equipment was purchased (almost a million dollars’ worth, backed by the real estate value of the studio building) without the thorough market study and due diligence necessary to verify that the current studio business would be protected/improved by the purchase. When asked if they had truly researched whether their clientele demanded this level of technology for the relatively low prices that were being charged by their facility, they responded that they had never considered it. They just thought they needed it to keep up. To my way of thinking, it was as if they were asking to be put out of business!

NEVER UNDERESTIMATE YOUR COMPETITION

The recording studio that almost went bankrupt was a clear case of underestimating the competition. The owners thought that the top end music-for-records business would last forever and that embracing audio postproduction for video and film was for those other guys who couldn't attract the big rock stars. Because they did not cover their flanks by constantly seeking new information from trade magazines and organizations, clients, and friends in the business, they failed to keep up to date. In short, they believed their own PR and assumed that everything written about their studio made them infallible. They failed to study industry trends with regard to client requirements, equipment innovations, and competitive pricing. They did not charge what their services were worth. When they needed more business they just dropped the hourly or daily rate, until they were not even covering fixed costs. They thought that being booked almost to capacity meant that they were profitable. In short, they totally lost the objectivity necessary to run a competitive business and chose instead to believe that any setback was temporary. It was a big mistake, which almost caused them to totally fail. In short, from a financial point of view, they did almost everything wrong.

WHO PAYS THE BILLS?

It is imperative that you provide excellent service to your clients and give them what they want. Your minimum requirement is equipment that doesn't break down and courteous employees who understand that the client is always right even when he or she is wrong. The client pays the bills. Failure to manage and train your employees so that they can provide your clients with the proper care and treatment is unforgivable and rests completely upon your shoulders. It is never the client's fault and rarely the fault of your employee. Once again, you can delegate authority, but you cannot delegate responsibility. The responsibility to see that clients are happy and that the business is competitively focused on your special niche market rests with you, the owner, and never with anybody else. Your motto should be: “Anything less than perfection will not be tolerated.” Not seeking perfection could quickly put your business behind the more efficient competition in your marketplace.

Protecting your business success demands constant vigil for the predators who seek to destroy it. Your personal physical vital signs and regular medical checkups indicate whether or not you are physically and mentally healthy. The same holds true for your business. Monitoring the vital signs of that business is the only way you can be assured of continued success. Assume nothing. Cover the downside, and the upside will take care of itself. Physician, heal thyself—it could save your business life.