Crunch
We’re not talking crudités. It’s the economy! And it affects everyone, not just homeowners who are having trouble meeting their mortgage payments. Credit is tighter.
Even though interest rates are down for qualified borrowers, the “qualifications” are more restrictive. What does all this mean to you as a small business owner? As an arts institution? As an educational institution?
Although “art” is a commodity that is always in demand, the arts are particularly vulnerable under unstable market conditions: when money is tight, private donors have less to give, and there are so many worthy causes to choose from. Members of the community whom you formerly counted on to provide additional support for your productions may be unwilling or unable to continue their commitment. Parents may even have trouble continuing to pay for elective after-school activities.
Take a hard look at your books, and do a simple comparison with last year:
o Has your volume changed?
o What do your accounts receivable look like? Are they up from last year? Are they aging at the same rate as last year? In other words, are you being paid less, and more slowly?
o Are you being paid in cash or check or with credit cards? Has the proportion changed? Are you experiencing more bad checks?
o Are your expenses up, especially fuel and utilities?
o Are you being “reminded” by service providers to pay more promptly, even when you’re not late?
o Are you feeling a pinch?
If you are confident that business is basically sound, these uncertain financial times may actually present opportunities. Now may be the time to reach out to other schools and studios within commuting distance, to establish joint programs, share teachers and performance space, expand class offerings. Your local college may be interested in developing a cooperative degree program, allowing your older students to continue their education while they continue to dance. Any such expansion will broaden your student base, raise your profile, and deepen your credibility as a serious performing arts institution. You may need to consult your attorney about creating an appropriate business entity or a not-for-profit corporation, if you don’t have one already.
For too many individuals and entities, real estate is a real problem. But the current market may be advantageous for some. This is definitely a buyer’s market, with good deals all around, and money is available to credit-worthy applicants. The trick is to establish that you or your business is a “qualified” borrower: lending criteria are strictly applied now and verifiable income information is a must. Small business people who traditionally relied on “stated income” or “high equity” loans will probably have to provide tax returns in addition to their accountant’s “asset and liability” statement. Fortunately, the annual audited statement that your CPA prepares for your not-for-profit corporation should satisfy your lender, assuming it shows sufficient income to repay the loan.
If you are risk-averse, however, consider how to make your business more efficient without taking a loan or investing substantial capital. Do a cost-analysis of your classes to determine if each class you offer pays for itself. Cut the losers (you can’t afford to be sentimental!), and combine classes to maximize their return. Consider low-cost advertising on the internet, promotional activities to attract new students, like “bring a friend to class” or “two-for-one deals”, and development of new curricula for younger (or older) students. Market your unused space aggressively, for special events and photo shoots, in addition to auditions and rehearsals.
Be realistic about your numbers. If you’re thinking about expanding, an appointment with your lawyer may be useful. If you’re in trouble, an appointment with your lawyer is essential. She can help you restructure your business to stay afloat, and work with you to deal with unpaid bills, both the ones you can’t collect and the ones you can’t pay. If closing seems unavoidable, you will need her to deal with unexpired leases, unpaid wages and employment-related expenses, prepayments by students, and any other liabilities your business may have incurred.
No matter how creative, promotional activities and cost-cutting may not be enough to save a troubled business. Don’t be afraid -- or embarrassed -- to seek bankruptcy protection.