Running a small business effectively is somewhat of a science. It takes time, careful analysis, and tenacity to turn possibilities into profit. The U.S. Chamber of Commerce says that, each year, only 40 percent of small businesses are profitable; of the other 60 percent, only half break even. I’m sure the “40 percent” owners vividly recall the first year when their investment of time, talent, and treasure paid off.
To sustain profit growth, every program, service, or goods sold in a business must subsist on its own. A dance studio is no different. A successful preschool program cannot sustain an unprofitable senior competitive company; recital profit cannot carry the pre-professional ballet program deficit. Yet as artists-turned-businesspeople, we frequently allow “passion programs” to underperform financially. Creating efficient financial systems within your studio allows you to not only be a good steward of the resources given to you by clients, but it brings in the financial abundance needed to best serve your students, staff, and community.
Consider running each aspect of your studio as a “microbusiness:” an independent entity responsible for a profitable bottom line and with a small team of staffers. Children’s classes, competitive teams, adult classes, dancewear and merchandise, summer programs—each is a microbusiness within the greater whole.
For example, over the past three years my competition director and I have worked diligently to hold the program accountable as a microbusiness. Competition programs require much more time and attention than a 30-minute weekly preschool class. They also occupy more mental and emotional space than other parts of the studio warranting compensation. To obtain the result the organization needed, we raised company tuition, maximized our costume discounts through early buying and volume discounts, staffed the competitions with minimal director hours, and negotiated prepayment discounts with competition companies.
Granted, this microbusiness concept isn’t the way studios historically were run. Gone are the days when one program (such as recreational or preschool) carried all the others to a profitable year’s end. Today, strong business success depends on every team member, every marketing campaign, and every program pulling its weight and contributing to the business’ bottom line.
Where to start?
Look at how your classes are grouped within your studio management software. Match the categories in your studio management software with the “accounting classes” in your financial software (such as Quickbooks) for reporting purposes. (Accounting classes differ from the kind of dance “classes” you and I normally think of. They are subset classifications that allow you to track finances within each subset. Examples of category groupings include Preschool Classes, Elementary Classes, Recreational Classes, Competitive Teams, Birthday Parties, and Special Events. Create a category for every program in your business that you believe could function as a financially-independent microbusiness. These groupings in all software systems should make sense and match across platforms.
Create a budget for each of these accounting classes/microbusinesses, preferably within Quickbooks or another financial reporting software. Each program’s budget should look just like your general studio budget, with all totals added to that general studio budget. Each should include projected revenue and projected expenses (teacher costs, props/class supplies, curriculum fees, travel expenses/meals, etc.). Allocate a percentage of your studio’s overhead (rent, utilities, insurance, office staff) to each based on its unit enrollment percentage.
Make sure all that hard work of budgeting pays off by assigning one employee—a “champion” —to assure each program’s success. Champions can be office administrators or a teacher involved in a department who will be responsible for the budget. A competition director should manage all of the expenses of hotels, travel, competition fees, and costumes; making sure they all stay within that program’s budget. Hold regular meetings with champions to review budgetary goals and assure accountability.
As these new microbusinesses take their first tiny steps, remember that the goal isn’t to balance each budget down to the cent, but to strengthen your business’ financial health. Don’t be tripped up by details: the idea is to educate yourself on each area’s costs and profits. If a microbusiness is deemed unprofitable, first consider why. Are you marking up the cost of competitions enough to cover staff payroll, travel, meals, and hotel? Is enrollment low? Is there suitable staff to champion the program? Next, consider options that offer a fix, such as a price increase or other adjustment. Perhaps the microbusiness once contributed to the studio’s vision but no longer does? It may be time to eliminate it. Choices like these are hard but necessary for the health and future sustainability of your business.
It’s a good guess that the 60 percent of businesses that are not profitable each year don’t have directors doing this level of work. It is tedious to give this level of attention to each program, but the payoffs over time compound. Set yourself up for success by holding the microbusinesses within your studios accountable. Imagine the possibilities—scholarships for that struggling family, employee benefits, facility renovations, a vacation for your family—if not just one or two but all programs lead to profitability!