How to Avoid Your Studio Going Bust
How to Avoid Your Studio Going Bust
Hey, in this video I want to talk about something that's quite serious but it's going to be a real must-watch because it's going to help save you potentially from your studio going bust. Now there's a lot of studios, large, small, doesn't matter the size, but they can be growing but they can actually go bankrupt, they can go bust. And so I want to show you one of the models on how that happens so you can be aware of it and you can make sure that it doesn't happen to you.
Okay so the chart that I'm going to put on screen with this cycle that we need to watch out for, this comes from a book Beyond Entrepreneurship 2.0 by Jim Collins. He's an incredible business author, one of my top three favorites and you should definitely check out basically anything he's written if you're into reading business books. So let me walk you through this chart, I was going through it with our BAM Squad, it's our Build A Music School community. Quick shout out, grab a free trial down below if you haven't done so already and you're running a studio then you are nuts to have not grabbed a free trial and just tried it out first. Anyway let's get into what this is all about and I'm going to walk you through it.
So if you want to go deeper you can read that book Beyond Entrepreneurship 2.0 but I'm just going to walk you through this chart. So here's what often happens, people have a rapid growth year, might be hey you've gone from 30 to 50 students or 50 to 100 students. Gets your confidence up, and then they often have another rapid year, confidence up even more and so you start to build an infrastructure, you start hiring people and building inventory in expectation that hey this is the new normal, we're just going to keep growing rapidly like this and now because you've built all this infrastructure, you've hired more people, you've you know bought more equipment, you might have changed buildings, studios etc. Well now you have to continue because you've got all these new costs that have increased and then you continue to plan for that growth so you say hey we made a hundred thousand dollars last year, last year before that we only made you know seventy-five thousand so we went up twenty-five thousand in one year, I think we'll do even better this year so let's budget and say we're going to make a hundred and thirty thousand. The scale obviously changes just depending on the size of your music studio and so you start to continue to plan for that growth even if it's not realistic and then the company is forced into a rapid growth spiral, you're like crud we need to like we need to grow like mad to keep all of this going and then the next point here, the company infrastructure is strained, people are burned out, you know your services decline, you know the lesson quality drops, your customer service drops, the quality of everything has problems, he's got inventory gets out of control, it's probably not a main issue for you guys, you know people are giving unrealistic deadlines, you're creating new products, the example here would be like trying to fix the main thing by diversifying into lots of different areas in your music school before you fix the main thing and getting the main thing really cranking and working, you want to make sure you do that before you add all those extra layers and so then after that eventually you have an unexpected slow growth year or you can even go backwards a little bit or it just stalls but if you've planned to earn an extra twenty grand or fifty grand but you just stay the same as last year, where's that missing chunk going to come from? It's going to come from your pocket and so this is what happens eventually you have that unexpected growth year, big cash flow crunch happens often resulting in severe or painful setbacks or even bankruptcy and going out of business.
I was walking BAM Squad through this recently and I wanted to share some of the things that I shared with them. Two things before I get into some advice is to check yourself and say hey am I kind of like a risk-tolerant person or am I anti-risk, am I risk-averse and there's risks with both personality types right the risk type the risk takers like myself we can let our emotions, our egos, our excitement spend money before it's earned. The risk-averse they can be hindered by fear or excuses or self-doubt and so they can often end up living you know the same year to year not really experiencing any growth in their business. So we have to make sure we know what kind of person we are and know how we can move forward in a way that's healthy because growth is a good thing we just need to grow smart.
Here are a few of the tips that I gave BAM Squad thinking about this having gone through this myself. Here are some of the best lessons that I've walked the BAM Squad through:
- Save an emergency fund: Aim for at least two months of expenses as a cushion to protect your business during unexpected setbacks.
- Consult with mentors and mastermind groups: Before making any big financial decisions, seek advice from experienced individuals who can assess your plans and help you make informed decisions.
- Test before launching: Before going all-in on a big growth idea, try testing it on a smaller scale to see if it's viable. This allows you to minimize risk and make adjustments before committing fully.
- Take calculated risks: While it's important to take risks to grow, always ensure that they are calculated risks and not ones that could potentially bankrupt your business.
- Hold monthly financial meetings: Stay on top of your numbers by regularly reviewing your finances, analyzing trends, and making necessary adjustments.
- Focus on fixing the main thing: Prioritize improving the core service or product you offer before diversifying into additional areas. Get the main thing working well before adding more layers to your business.
These are just a few of the lessons I've learned and shared with the BAM Squad. There are many more, and you can find a more detailed breakdown in our Build A Music School community. If you're interested, grab a free trial and search for my name and Jim Collins to find the post where I discuss this topic.
So, in conclusion, it's crucial to be aware of the cycle that can lead to a studio going bust and take proactive steps to avoid it. By following these tips and being mindful of your financial decisions, you can protect your business and ensure long-term success. If you want further support and guidance, join the BAM Squad by grabbing a free trial and let's help you thrive in the music education industry!
I hope you enjoyed this video. Leave any comments, and feel free to ask questions that you might want in the next video. Until then, take care and be well!
#BAMSQUAD
