Advise For My Business?

Question

I'm planning on opening my own art studio/art school with two friend of mine. We have gone to school for art and two of us have teaching experience already. I'm just wondering if anyone can give me any advice whatsoever. You're time is greatly appreciated.

Answer 1

If you want to start an art school, there a hundred and one questions that will need to be answered. You have to be the one to answer them. Who will be your students, who will be your teachers (not your friends, if you want to keep them), how much will it cost to get the doors open in terms of equipment and floor space; and the most important question of all:

how much will it cost each week, month or year to run the enterprise?

This is the most important thing to know. It is known as your break-even number.

In any business there are two kinds of costs. There are fixed costs and there are variable costs. Fixed costs are those costs that happen every day, week or month whether or not you have any students. The variable costs are those costs that increase as business increases. For instance: If you open an art school and have no students for an entire month, at the end of the month you will have to pay your rent. However, since you had no students, you didn't use any paints and therefore your bill for paints is Zero! On the other hand, if you have 100 students the first month, the rent is the same (hence the term "fixed" expense) but your bill for paints will be much higher.

To figure out what your break even cost is, you must have two pieces of information. The first is the total of your fixed costs. The rent, equipment maintenance, insurance, utilities and of course your salary and the salaries of your employees. Say for this example the total is 4200 per month. The second piece of information that is necessary is your gross profit margin. Gross profit margin is defined as your sales price minus your cost of material to provide the service. (labor should be included in this cost if someone who is not on salary is providing the labor) Lets imagine for this example, that all you do is sell drawing classes at $20 each. This simplifies the example by excluding other classes and subjects that may have different profit margins. Lets further imagine that your cost of labor and material to provide the class is $5. That would mean, at a sale price of $20 you have a 75% gross profit, or $15 profit for each drawing class.

So now comes the break even question. In a month you need enough money in gross profit to cover the $4200 of fixed costs and you need enough money to pay for all the costs required to generate those sales. The break even formula is: fixed costs divided by gross profit equals break even. In our example 4200 / 0.75 = 5600 sales per month, or stated another way, you will need 280 students per month willing to pay you $20 each for a drawing class.

Now lets look at gross profit. You say, OMG super, I can't sell drawing classes at $20 each, $15 is the going rate in my neighborhood. I say, that's really great to know because your cost of material has not changed. It still costs $5 to provide the service, since you are now only making 2/3 the profit at $15 as you were at $20 ( $10 profit vs $15) That is a 66% gross profit vs 75%. Lets look at the impact of the new price on break even. You still have fixed expenses of $4200 per month, but now the break even equation looks like this 4200 / 0.66 = 6363 sales or stated another way you need 424 students per month paying $15 each.

Isn't that amazing? Gross profit drops from 75% to 66%, a drop of only 9 points and the number of student you need to break even nearly doubles!

As you can see knowing your break even can answer a number of questions such as How much should I sell my classes for? How many students do I need to make it? Etc.

If you look at the competition and realize that you need $40 a class to make it but all your competitors charge 30 bucks, you are in trouble! But better to know that before you plunk you money down!

You should also see from the break even calculation that controlling costs is one of a business owner's primary duties.
If it requires 4 dollars in sales to generate 1 dollar in profit, you can either generate another 4 dollars in sales or cut 1 dollar in expense. (cutting the expense is usually easier)

Another thing to consider. A good business person can run any kind of business. If you love to teach art, one good way to insure that you do less of it, is to open a business that teaches art.

Answer 2

The best thing to do is get everything in writing in order for the partnership to have some legal ground. Partnerships can get a little dicey so I would make sure that you get a lawyer to review all contracts because partnership break up all of the time.

As far as the art goes. You may want to aim at teaching children art. This may steer them in a positive direction that includes the arts. Good luck.

Answer 3

I would talk to a CPA and or small business Attorney to make sure I get of to a good start. In my area there is a group called SIRS ( seniors in retirement). This is made of a group of retired business people that will give U free advice. I believe they are Nation wide. AARP may be of help.

Good luck

Answer 4

Marketing... lots of marketing... your kind of pushing a tough sell (at least in my area) get your name out there fast, door hangers, cards, flyers... let people know your there.