Performance Music School
A Business Plan
By: Celeste Smith
Class: Comm 447
Date: April 9, 2015
Performance Music School
Executive Summary
Performance Music School is a one-stop-shop for music education in the old time
and country music genres. It offers music lessons, instrument rental, and retail items
for many different instruments. This music school will be located in the Stonebridge
neighbourhood of Saskatoon, Saskatchewan, and will target school-aged children
and senior citizens.
I will be the head teacher and manager of the school. As the number of customers
increases, I will hire an administrative assistant as well as seek out other music
teachers that will act as independent contractors. Sales are expected to grow at forty
percent per year due to word of mouth advertising, Kijiji, and posters in local
schools, churches, and senior centres.
Through personal experience teaching, I have found there to be a lack of fiddle
teachers in particular, and a surplus of students, which is why I see this as a good
opportunity. Because of this, not being able to find enough teachers is a potential
risk. However, the business would still be profitable even if I were the only teacher
at the school. The profits are expected to grow steadily for about five years, when
the number of customers approaches the capacity limit. At that time, the business
should be earning nearly $63,000 in net profit, which yields a total owner
compensation of just over $96,000.
This business offers a high return on investment, an acceptable owner’s salary, all
with minimal risk. This would be a great business opportunity for someone, but I
will not be pursuing it at this time because of undesirable working hours and my
ability to find a secure, similar-paying job elsewhere. This business is definitely
feasible and would be a good opportunity in the future.
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Performance Music School
Table of Contents
1.0 Introduction ..........................................................................................................4
1.1 Vision Statement................................................................................................................................................5
1.2 Mission Statement.............................................................................................................................................5
1.3 Company Values ................................................................................................................................................5
2.0 Operations Plan ....................................................................................................6
2.1 Location .................................................................................................................................................................6
2.2 Floor Plan .............................................................................................................................................................7
2.3 Hours of Operation ...........................................................................................................................................7
2.4 Business Structure ............................................................................................................................................8
2.5 Credit Policy ........................................................................................................................................................8
2.6 Supply Analysis ..................................................................................................................................................9
2.7 Capacity Limit .....................................................................................................................................................9
2.8 Margins and Cash Conversion Cycle ..........................................................................................................9
2.9 Planned Capital Budget ................................................................................................................................ 10
2.10 Operating Expenses .................................................................................................................................... 11
2.11 Working Capital............................................................................................................................................ 12
3.0 Human Resources Plan ........................................................................................ 13
3.1 Employees ......................................................................................................................................................... 13
3.2 Independent Contractors ............................................................................................................................ 14
3.3 Attracting and Retaining the Best Employees/Contractors ......................................................... 15
3.4 Five-Year Labour Cost Forecast ............................................................................................................... 16
3.5 Five-Year Benefits Cost Forecast ............................................................................................................. 16
3.6 Training Program Timing and Costs ...................................................................................................... 16
3.7 Average Business Day .................................................................................................................................. 17
4.0 Marketing Plan .................................................................................................... 18
4.1 Services and Products .................................................................................................................................. 18
4.2 Prices ................................................................................................................................................................... 18
4.3 Sales Projections ............................................................................................................................................. 19
4.4 Market Size........................................................................................................................................................ 20
4.5 Marketing Strategy ........................................................................................................................................ 20
4.6 Past Performance ........................................................................................................................................... 21
4.7 Competition ...................................................................................................................................................... 22
4.8 Customers.......................................................................................................................................................... 23
4.9 Target Markets ................................................................................................................................................ 23
4.10 Marketing Plan Budget .............................................................................................................................. 25
4.11 Revenue Projections ................................................................................................................................... 25
4.12 Customers Per Week .................................................................................................................................. 26
5.0 Financial Plan ...................................................................................................... 27
5.1 Five-Year Income Statement Projections ............................................................................................. 27
5.2 Five-Year Balance Sheet Projections ...................................................................................................... 27
5.3 Five-Year Cash Flow Statement Projections ....................................................................................... 27
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Performance Music School
5.4 Planned Capital Spending ........................................................................................................................... 27
5.5 Financing ........................................................................................................................................................... 27
5.6 Depreciation ..................................................................................................................................................... 28
5.7 Dividend Policy ............................................................................................................................................... 28
5.8 Economic Forecast......................................................................................................................................... 28
5.9 Ratios................................................................................................................................................................... 29
5.10 Critical Variables .......................................................................................................................................... 29
5.11 Net Income and Cash Flow ...................................................................................................................... 30
5.12 NPV and IRR................................................................................................................................................... 30
5.13 Owner’s Compensation ............................................................................................................................. 31
5.14 Summary of Financial Results ................................................................................................................ 31
6.0 Summary ............................................................................................................ 33
6.1 The Opportunity ............................................................................................................................................. 33
6.2 The Customers................................................................................................................................................. 33
6.3 The Competitive Advantage ....................................................................................................................... 33
6.4 People Involved............................................................................................................................................... 33
6.5 Risk Analysis .................................................................................................................................................... 34
6.6 Feasibility – Worth the Risk?..................................................................................................................... 35
List of Tables ................................................................................................................
Figure 1: Building Exterior……………………………………………………………………………………6
Figure 2: Location……………………………………………………………………………………...…………6
Figure 3: Floor Plan……………………………………………………………………………………………...7
Figure 4: Initial Capital Budget……………………………………………………………………………10
Figure 5: Operating Expenses……………………………………………………………………………..11
Figure 6: Working Capital…………………………………………………………………………………...12
Figure 7: Five-Year Labour Cost Forecast…………………………………………………………….16
Figure 8: Five-Year Benefits Cost Forecast…………………………………………………………..16
Figure 9: Five-Year Sales Projections…………………………………………………………………..19
Figure 10: Five-Year Student and Revenue Growth……………………………………………...20
Figure 11: Marketing Budget………………………………………………………………………………25
Figure 12: Five-Year Revenue Stream Projections………………………………………………..26
Figure 13: Five-Year Projected Customers…………………………………………………………..26
Figure 14: Five-Year Capital Budget…………………………………………………………………….27
Figure 15: Five-Year Depreciation Forecast…………………………………………………………28
Figure 16: Five-Year Net Income and Cash Flow………………………………………………….30
Figure 17: Five-Year Owner’s Compensation……………………………………………………….31
Figure 18: Five-Year Summary of Financial Results……………………………………………..32
Appendix A: Financial Model ..................................................................................... 36
References ................................................................................................................ 37
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Performance Music School
1.0 Introduction
Performance Music School will be a one-stop music school for all ages, focusing on
old time and traditional country music. Lessons will be offered for as many of the
following as possible, depending on the availability of teachers and demand from
students: fiddle/violin, piano, guitar, banjo, mandolin, double bass, voice, and
songwriting, with the opportunity to expand into other avenues in the future.
missjacobsmusic.blogspot.com; get-tuned.com; dreamatico.com;
plantsvszombies.wikia.com; tech-kid.com; zzsounds.com
Performance Music School will not only offer music lessons, but also everything else
you need to learn how to play an instrument. This includes retail of a variety of
music books, CD’s, instrument rentals/sales, and supplies such as strings, picks,
music stands, and tuners. It will also offer in-house recitals twice per year as an
added perk for students. In this genre of music in particular, students need the
opportunity to play their music with other people, or “jam”. This music school will
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Performance Music School
help its students find other musicians and organizations to practice with in a group
setting, and help prepare them for performance.
1.1 Vision Statement
To make Saskatoon a musical city.
1.2 Mission Statement
To teach music lessons to everyone to keep traditional music alive.
1.3 Company Values

Education

Enjoyment

Encouragement
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Performance Music School
2.0 Operations Plan
2.1 Location
The planned location for the music school is 121-118 Cope Crescent in Saskatoon,
Saskatchewan. This is a newer office building in the South end of Saskatoon. This
particular office is 880 square feet, and is currently available for lease through
Colliers Canada. The lease price is $25 per square foot, which will total $22,000 per
year. This location was chosen for a few reasons. First, there is no music school
business in the Stonebridge neighbourhood, yet many young families have moved
there and there will likely be a school constructed there in the near future, which
will help drive demand for a music school. Second, this particular office building is
good because it is less expensive than many business locations because there is no
street-front view. This music school doesn’t need to be seen from the street because
it will not be catering to walk-ins, but instead will be serving scheduled students
who will be procured through other avenues.
Figure 1: Building Exterior
Figure 2: Location
http://www.collierscanada.com/13183#.VLLrH1oZ4sI
https://www.google.ca/maps/place/Cope+Crescent,+Saskat
oon,+SK+S7T/@52.0855652,106.6426249,17z/data=!3m1!4b1!4m2!3m1!1s0x5304f1020
76886c9:0x170cbac86a634489
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Performance Music School
2.2 Floor Plan
The diagram shown below is the proposed floor plan. There will be five individual
teaching rooms to allow for five students at once. In the reception area there will be
some chairs and a couple of coffee tables for clients to wait for their lessons, a desk
for the administrative assistant, and a showroom for the retail items and instrument
rentals. This room will have the ability to be transformed into a small recital room
for events a few times per year. On the floor plan, there are also two lockable closets
to store extra inventory and extra chairs for the recitals. There is no need for a
washroom, as the building has one just down the hall.
Figure 3: Floor Plan
2.3 Hours of Operation
The hours of operation will really depend on lesson bookings. Because the retail
part of the business is basically just for the school’s students, there won’t really be
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Performance Music School
any people coming to shop off the street, so it only needs to be open when there are
lessons happening. The planned operating hours are as follows:

Monday & Tuesday: Closed

Wednesday, Thursday & Friday: 2:00 p.m. to 9:00 p.m.

Saturday & Sunday: 10:00 a.m. to 9:00 p.m.
Again, the above schedule could be changed depending on the availability of
teachers and demand from students. During the time that no one is at the school, all
phone calls would be forwarded to my cell phone so I could still take bookings and
help clients at any time. The school will be closed for two weeks per year, one over
Christmas and the other over the school break in February. In total, the school will
be open fifty weeks per year.
2.4 Business Structure
Performance Music School will be set up in the form of a corporation for a few
reasons. The main reason is lower tax rates on profits of a corporation compared to
an individual. Other reasons include the elimination of personal liability as well as
the capability of the business to survive through potential changes in ownership.
2.5 Credit Policy
In the music lesson industry, the accepted way of paying is either writing post-dated
cheques for all lessons for the year, or paying for a whole month of lessons on the
first lesson of the month. This is very beneficial for a start-up business in particular
because the clients finance most of the required operating capital. Performance
Music School will not offer credit except on potential instrument rent-to-own
arrangements.
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Performance Music School
2.6 Supply Analysis
Performance Music School will have many different suppliers for its inventory and
instruments, depending on exactly which instruments end up being taught. Below
are many of the suppliers to be utilized:

Michele Amy – music books

Gordon Stobbe – music books

Hal Leonard – music books

Coast Music – instruments and accessories

Music Distributors – instruments
2.7 Capacity Limit
With the proposed schedule of five days per week and the hours outlined in “2.3
Hours of Operation”, the capacity limit would be 430 students (215 hours) per
week. At $50/hour, the gross income from lessons only would be $10,750. The
school will be open 50 weeks per year, yielding a total of 10,750 hours per year.
2.8 Margins and Cash Conversion Cycle
For music lessons, the gross profit margin will be 25%, as that would be the fee to
the independent contractors for using Performance Music School as their place of
business. The cash conversion cycle on lessons would be an average of thirty days,
because customers pay at the beginning of the month, and the teachers would be
paid at the end of the month.
On retail, the gross profit margin would be approximately 35%, based on cost and
suggested retail from suppliers. The cash conversion cycle on this is estimated to be
sixty days, as most of the inventory will be turned very quickly in September when
most lessons begin, and minimal inventory will be held for the rest of the year.
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Performance Music School
2.9 Planned Capital Budget
The planned capital budget is shown in the table below. It estimates the costs of the
required leasehold improvements, as well as factors in a contingency cost for
unforeseen expenses. Additionally, it lists the equipment needed to start the
business. The only capital items that will need to be purchased in the future are
additional musical instruments for rental purposes, and this will depend on the
number of students wishing to rent or purchase their instruments.
Figure 4: Initial Capital Budget
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Performance Music School
2.10 Operating Expenses
The estimates of the ongoing operating expenses are listed in the table below. The
figures listed are for Year 1. The accounting and legal cost is based off estimates
from a professor and a local business owner. The breakdown of the advertising
budget can be seen in Figure 11. Benefits are based on projected labour expenses,
calculated on the minimum required amount of benefits in Canada. The phone, cell,
and internet expense is based on current offerings from Telus and Shaw. A
breakdown of the labour compensation cost can be seen in the Excel file in Appendix
A. The building is 880 square feet; with a lease cost of $25 per square foot and
occupancy of $10 per square foot, the total cost is $30,800. General supplies
includes stationary, cleaning products, and other office needs. Repair and
maintenance accounts for any expenses related to the damages and wear and tear to
the school. Capital cost allowance is a result of depreciation of assets; the
breakdown can be seen in Appendix A.
Figure 5: Operating Expenses
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Performance Music School
2.11 Working Capital
I will personally contribute $30,000 to start this business. $24,150 will be put
toward beginning capital costs (see Figure 4), $3,000 will be put towards inventory,
and $500 will be held as accounts payable. The result is $8,350 in total working
capital.
Figure 6: Working Capital
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Performance Music School
3.0 Human Resources Plan
3.1 Employees
Performance Music School will begin by employing only one person: myself.
Because the forecasted customers would require only slightly more than one fulltime employee, I will be able to take care of everything. However, by the third year,
having grown significantly, the business would benefit from having a part-time
administrative assistant/caretaker, at which point one will be hired. All other labour
will come from independent contractors. While the music school is this size, I don’t
anticipate needing any additional employees. Eventually if the school needs to be
open more than seventy hours per week, I would consider hiring an additional
administrative assistant and make the two of them part-time. I will personally train
the administrative assistant(s).
Manager/Head Teacher Job Description

Coordinate all marketing activities

Do all HR management

Manage all contractors and employees

Take phone calls outside of business hours

Open and close the school

Resolve any issues between students and teachers

Approve bills and payments

Oversee schedules

Coordinate year-end/tax and financial work

Evaluate teachers and their teaching styles

Teach music lessons

Full-time position
Manager Skills and Abilities:
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Performance Music School

Teach music

Bachelor of Commerce Degree in Management

Organized

Proactive

Strong human resources/management skills

Five years of teaching experience
Administrative Assistant/Caretaker Job Description:

Take phone calls and schedule appointments during business hours

Clean the office

Take payment for all retail and rental items as well as lessons

Pay bills and contractors

Open and close the school if the manager does not

Part-time position
Administrative Assistant/Caretaker Skills and Abilities:

Customer service skills and experience

Strong computer skills

Organized

Business training an asset
3.2 Independent Contractors
Every music teacher will operate as an independent contractor. They will each get to
define their own hours of work, and use their own teaching style as long as it is
accepted by the manager and matches the students’ needs. They can also help
decide how much to charge per lesson, as the price will depend on the teacher’s
level of experience, education, qualifications, and demand. The music school will
charge the teachers twenty-five percent of the lesson cost as a service fee for the
venue, booking services and payment services. I will get as many teachers as
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Performance Music School
necessary to fill up the instruction rooms as much as
possible. I anticipate that some of the teachers will be new
to the profession, and therefore may need some training. I
would offer training to new teachers to teach them
effective ways of helping different people learn and as a
test, have them teach myself and another person a lesson
or two to evaluate their effectiveness.
susiepeek.com
3.3 Attracting and Retaining the Best Employees/Contractors
To attract a good administrative assistant, I will offer a good wage of $15/hour for
the position, as well as allow for a flexible work schedule. This person will work full
time, but since the school will be open slightly more than forty hours per week,
likely many more in the future, I will allow this person to choose which days they
want to work and I will personally take over the position for the hours they choose
not to work.
Attracting the best contractors will be a bigger challenge because the school will
need many of them. One main reason for contractors to choose my school is because
they take home more pay than at competitors’ places of business. Performance
Music School will take 25% of its teachers’ income, whereas a leading competitor
takes 33%. Second, there are no other music schools within a short distance of
Stonebridge, so for teachers that live in and around that area, the location will be
more convenient for them to come to. Third, the services the music school will
provide to the contractors will make their experience hassle-free. The school will
find students for the teachers, and will take care of all scheduling, billing, recitals,
and maintenance of the teaching space.
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Performance Music School
3.4 Five-Year Labour Cost Forecast
The calculations for the below labour costs can be found in Appendix A. Both the
manager’s salary and the administrative assistant’s wage increase by the inflation
rate, while the administrative assistant’s hours also increase according to the
number of students in the school.
Figure 7: Five-Year Labour Cost Forecast
3.5 Five-Year Benefits Cost Forecast
The cost of benefits is based on the applicable government required benefits (i.e.
Canada Pension Plan and Employment Insurance). The rates are different between
the manager and the administrative assistants, and the breakdowns can be seen in
Appendix A.
Figure 8: Five-Year Benefits Cost Forecast
3.6 Training Program Timing and Costs
The manager will conduct training of the administrative assistant, and no external
training will be required. Therefore there will be no additional costs to the salaries
they are already being paid. The independent contractors will already have all the
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Performance Music School
necessary training, but a brief introduction and orientation will be conducted by the
manager on the contractors’ own time.
3.7 Average Business Day
On an average business day, either an administrative assistant or myself will open
the school ten minutes before the first scheduled lesson. The students will purchase
most of the required music books at the beginning of the year, but may buy more at
various times of the year. The administrative assistant or myself will handle such
sales, as well as answer the phone, organize schedules, and collect payments. Either
the administrative assistant or I will do a quick cleanup and close the school when
all of the lessons have been completed for the day.
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Performance Music School
4.0 Marketing Plan
4.1 Services and Products
Performance Music School’s main offering is traditional and country music lessons.
This includes fiddle, guitar, piano, double bass, banjo, mandolin, voice, and
songwriting. In the future, if there were both teachers and students for other
instruments such as dobro or steel guitar, it would also branch into those areas.
This business’ second area of focus is instrument rental. I expect approximately half
of the students will not own their own instruments, but will instead choose to rent,
so the music school will supply those instruments for rental. If a student wished to
purchase one of the instruments, I would sell one to him/her as well for its value.
The third line of offerings is retail music books and instrument supplies. The school
will sell all music books required for lessons as well as additional ones that students
may find interesting and voluntarily purchase. Instrument supplies include things
like strings, picks, rosin, and shoulder straps; I will also sell small gifts and novelty
items.
interstatemusic.com; musicroom.com; amazon.com; fiddlebooks.com
4.2 Prices

$25 per half-hour lesson, once per week
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Performance Music School

$30 per average music book

$21 average rental per month
Lessons will be booked in half-hour increments, and it will be mandatory that the
students come for one lesson per week. If a student wishes to have hour-long
lessons, they can book two lesson slots per week. Music books approximately range
in price from $20 to $40, so the average book would cost $30. Instruments have a
wide range of values, and the rental price would be calculated such that the cost of
the instrument is realized in twelve months of rental. Based on the beginning
inventory, the average instrument would rent for $21 per month. These prices are
based on the industry standard, and as such are very comparable to competitors’
prices. I anticipate being able to charge the same price as I have indicated above
plus inflation every year, but if I need to find more students, I would consider
offering some kind of discount or “first lesson free” marketing strategy to get
customers in the door.
4.3 Sales Projections
For the first year, I have estimated to fill 40% of capacity, which equals 86 students.
Approximately half of these students will rent instruments from the school, and
each student will likely spend approximately $60 on retail items and books per year.
Music lessons will account for around 87% of the revenue, rentals at 9%, and retail
at 4%. The graph below shows the sales projections for the first five years.
Figure 9: Five-Year Sales Projections
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Performance Music School
I have personally taught music lessons out of my home for five years, and have
averaged a growth rate of 110% per year. This is likely not realistic for a brand new
business of a much larger size than my current studio, so I have estimated the
growth rate to be 40% per year until it reaches 80% of capacity. I anticipate that the
studio will never reach 100% capacity as there are simply some hours of the day
that music lessons would not fit into most people’s schedules.
Figure 10: Five-Year Student and Revenue Growth
4.4 Market Size
In 2011, Saskatoon had approximately 46,650 school-aged children and 31,533
seniors, for a total market size of 78,183 people (Statistics Canada, 2012). There are
plenty of potential clients; the important part is reaching them effectively and
convincing them to take music lessons at my school.
4.5 Marketing Strategy
The most important part of my marketing strategy is word of mouth and referrals. I
have many close connections in the traditional music industry, so with some e-mails
and phone calls, the word would start to spread about my new music school. A few
of my competitors (individuals, not businesses) do not have room to take on any
new clients, and would be happy to send inquiries over to Performance Music
School.
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Performance Music School
The second part of my marketing strategy is in relation to online presence. I will
post advertisements on Kijiji because they are free and many people look there. I
will also design my own simple website that will appear when potential customers
search for music lessons in Saskatoon. To more closely target seniors, I will also list
the school on SaskTel 411.
The third part of my marketing strategy is to hang posters in places that my target
market would be, such as schools, churches, and senior centres. By putting a poster
in one third of the city’s facilities, about one hundred buildings would carry
advertisements for the school.
One competitive advantage of Performance Music School is convenience for the
customer. Because most of the people teaching traditional old time and country
music are individuals teaching out of their homes, they do not offer instrument
rental or retail. At Performance Music School, customers can get the same quality of
teaching, but with the convenience of only ever needing to go to one location.
There has recently been many articles spreading across the internet arguing that
music is very good for children’s development, encouraging parents to enroll their
students in music lessons. This is a very good trend for the music school business,
and I could use this as part of my promotion.
4.6 Past Performance
I currently teach fiddle lessons out of my home, and have done so for five years. Out
of fifteen students, every one has come for more than one year of lessons, with the
exception of four that only started this year, but I anticipate will be coming back
next year. Out of these fifteen, thirteen have been children, one is a senior, and one
is a young adult. Over these five years, I have only lost two students, one because
she pursued different activities instead, and one because he felt he had learned
enough to go out on his own and just return for check-ins on occasion. Nine of my
students found me through referrals and word of mouth while six saw my Kijiji
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Performance Music School
advertisement. None have had any problems with the pricing (currently $20 per
lesson) and the revenue is all profit because my time is the only expense.
4.7 Competition
My major competitors are listed below. Some are music schools while others are
individuals teaching out of their home.

Long & McQuade

St. John’s Music

12 String Studios

Saskatoon Academy of Music

Custom Music Lessons

MusicTeachersDirectory.org

Everett Larson

Kim de Laforest

Anna Bekolay
Based on speaking with people in the industry, most of the individual teachers are
either fully booked to capacity or nearly full, and one of the major restraints for
music schools is finding enough teachers to cater to the demand. Finding teachers
will be a challenge for Performance Music School, but I will meet this challenge by
offering teachers a higher percentage of lesson revenue than other schools as well
as by using my network to inform potential teachers of the benefits of contracting to
my school. One of the music schools tried to recruit me to teach there, but I was not
anxious to give up thirty percent of the income when I thought I could teach out of
my home instead. However, if I did not have a space at home to teach in and the
school took a lower percentage, I would be far more likely to work at a music school
and I think many other potential teachers would feel the same way. That is what
Performance Music School is going to offer.
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Performance Music School
4.8 Customers
Most of the customers will be children, and their parents will pay for the products
and services. Other customers will be seniors, as seen in section 4.9 Target Markets
below. Customers will be signed into a contract agreeing to purchase one half-hour
lesson per week for a year, and should they decide to break the contract, they will
have to pay a penalty. Most customers will want their lessons after school and in the
evenings, but seniors will likely want to come earlier on in the day. Customers will
buy because Performance Music School will help musicians of all levels excel
through education, enjoyment, and encouragement. We firmly believe that music
should be fun, so the teachers will teach what the students want to learn. Factors
influencing the customer’s decision to enroll in music lessons include instruments
taught, available lesson times, teaching quality, and the school’s proximity to their
home.
4.9 Target Markets
The primary target market is school-aged children. This is the easiest market to
enter because those are the people that typically begin taking music lessons, and
parents encourage them to. Word of mouth is also more prominent for this age
range because they have so many peers in school that they talk to about what they
are doing, and word would quickly spread to other children’s parents. This market is
also very attractive because these students are mostly at the beginning of their
musical career, and so they are more likely to be long-term repeat customers. This
market is the most attractive because of its size and potential for growth.
famia.co.uk
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Performance Music School
The secondary target market is senior citizens. It would be a bit more difficult to
target this market because they are less likely to use the internet to find out about
the school, but word still travels quickly among seniors, so it is still a viable market
worth targeting. Additionally, it will still cost very little to target this demographic.
There is much potential in this market because often, music lessons are seen as
something that children take; in reality, music lessons are perfect for seniors
because they have more time to practice and are self-motivated.
blog.kennedyviolins.com
The third target market is music teachers; they are an integral part of the business.
As mentioned under “competition”, I will attract them by offering above-industry
compensation and a comfortable, low-stress work environment. Performance Music
School will take care of all business-related items such as recruiting students,
booking and billing. Not having to worry about administration would appeal to
people with not very much experience in the industry, busy people, and ones that
just want a low-stress job. Most of the music teachers I will target are university
students and young adults who have lots of experience through playing music most
of their lives. I will recruit these people through word of mouth, as well as by
responding to their advertisements on Kijiji promising them students if they come
to teach at Performance Music School.
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Performance Music School
4.10 Marketing Plan Budget
Below is a breakdown of the marketing budget for the first five years. Kijiji, word of
mouth, and Facebook are free methods of advertising. The cost of posters was based
on a quote from Staples and would be enough to hang posters in one third of
Saskatoon’s churches and schools. I personally made a website last year for an
unrelated project, and it cost approximately $300. I plan to make a similar website,
but have added a $200 buffer in case of unforeseen expenses. The additional
website costs in years two to five account for ongoing maintenance.
Figure 11: Marketing Budget
4.11 Revenue Projections
The revenue projections below are broken down into the three revenue streams:
music lessons, instrument rental, and retail. All three of these are expected to grow
at a rate of 40% per year until Year 6. Based on personal experience, I expect that
half of the students will choose to rent an instrument in lieu of purchasing one.
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Performance Music School
Figure 12: Five-Year Revenue Stream Projections
4.12 Customers Per Week
In the graph below, the horizontal line is the capacity limit, and the sloping line
represents the number of customers in the base case. The capacity limit was
calculated based on the hours of operation in section 2.3, five rooms in the studio,
and each lesson being 30 minutes. The customers increase by 40% per year, and are
expected to cap out in Year 6 at 85% capacity. The actual numbers can be seen in
Appendix A.
Figure 13: Five-Year Projected Customers
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Performance Music School
5.0 Financial Plan
5.1 Five-Year Income Statement Projections
See Appendix A.
5.2 Five-Year Balance Sheet Projections
See Appendix A.
5.3 Five-Year Cash Flow Statement Projections
See Appendix A.
5.4 Planned Capital Spending
The schedule below shows the total capital spending for the first five years. I will be
purchasing more instruments every year to accommodate the increased number of
students that wish to rent instruments.
Figure 14: Five-Year Capital Budget
5.5 Financing
Performance Music School will require $24,150 in capital for the first year, as shown
in the above capital schedule. I will contribute $30,000 of my own equity to fund this
project. The nearly $6,000 extra will be used as a buffer in case of unforeseen
expenses, and also for costs to be paid up front, such as the building lease. No debt is
required for this venture.
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Performance Music School
5.6 Depreciation
Performance Music School will have two classes of assets to be depreciated. The
first class is leasehold improvements (Class 13), and it will depreciate at a rate of
four percent. The second class is furniture and fixtures (Class 8), including musical
instruments, which will depreciate at a rate of twenty percent.
Figure 15: Five-Year Depreciation Forecast
5.7 Dividend Policy
The dividend policy is based on the amount of cash remaining at the end of the
previous year. Ten thousand dollars will always be held in the account as a safety
net; all additional cash will be paid out the following year in the form of dividends.
5.8 Economic Forecast
There are many economic factors that come into play when forecasting financial
aspects of a business. The expected inflation I have used in the forecasts is 2.5%, and
I have used this figure to estimate the growth in expenses, wages, and product and
service pricing. The projected growth in sales is based on both an increased number
of customers and higher prices. I anticipate the number of clients will increase by
40% per year, based on my personal experiences in growth rates in my own studio.
The prices are raised based on the inflation factor of 2.5%.
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Performance Music School
5.9 Ratios
Analyzing ratios are an important part of any business plan because they help in
determining profitability and sensitivity, which help investors decide if it is
something they want to invest in. Below is a list of key ratios for Performance Music
School:

Gross profit margin:

Net profit margin:

Key operating expenses as a percent of sales:

Revenue growth:

Cost per lesson:

Overhead cost per lesson:
5.10 Critical Variables
Performance Music School has two critical variables, one more important than the
other. The most important variable is the number of teachers I can secure. People
who want to be full time teachers and are able to find enough students typically
teach out of their own home so they do not have to give up any income to a studio.
This leaves me with using mostly part time teachers. These would likely have to be
mainly university students, as people not in school usually have full time jobs and do
not take on extra work outside of that. Even though there can be a lot of money in
the music lesson world, people often choose a different career because working
hours tend to be evenings and weekends, when people are available, and when
someone has the option to make a good wage at a different job, they are likely to
choose that instead. Because of these reasons, I do not anticipate having the same
teachers for more than a few years, and they would mostly teach for less than
twenty hours per week. However, if I can offer full time teachers a good wage with
no hassle, I may be able to convince them to work at my studio instead of out of
their home. The second critical variable is the number of students I can secure. I do
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Performance Music School
not see there being a lack of demand for the most part, but it is possible that
eventually there might not be more students in the Stonebridge area to grow to
capacity.
5.11 Net Income and Cash Flow
The chart below shows that the projected net income and cash flow are very
healthy, and are positive right from the beginning. They also increase at a good rate.
The cash flow in Year 1 is high because of the extra “buffer” equity contributed at
the beginning. It spikes down in Year 2 because the extra cash will be taken out in
dividends. All of these contributors indicate that this is a feasible and profitable
venture. The actual numbers can be seen under 5.14 Summary of Financial Results.
Figure 16: Five-Year Net Income and Cash Flow
5.12 NPV and IRR
For this type of business with such a small initial capital requirement, NPV and IRR
are not the most accurate predictors of whether or not it is a good investment.
Regardless, I have included these numbers for reference; they show that there
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Performance Music School
would be an extremely healthy return on investment. Recall that the equity
investment is $30,000.

NPV: $91,406

IRR: 104%
5.13 Owner’s Compensation
In this type of business with such a small investment, a much more accurate
measure of feasibility is the owner’s compensation. The table below shows the total
owner’s compensation for the first five years. Beyond five years, the compensation
is expected to grow marginally; the main growth would be from inflation only, as by
the fifth year, Performance Music School will be near capacity. The average
compensation over the first 5 years is $74,145.
Figure 17: Five-Year Owner’s Compensation
5.14 Summary of Financial Results
Figure 18 below shows the most important projections in the five-year forecast.
More details and calculations can be seen in Appendix A.
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Performance Music School
Figure 18: Five-Year Summary of Financial Results
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Performance Music School
6.0 Summary
6.1 The Opportunity
I have seen a significant need for music lessons in Saskatoon, particularly of the old
time fiddling, bluegrass, and country genres. This need has been apparent from my
personal experience of increasing student numbers every year and recent inability
to find replacement teachers. The inability to find teachers is concerning for
Performance Music School, but on the other hand, if I can offer teachers enticing pay
and convenience benefits, I will likely be able to secure new part time teachers.
6.2 The Customers
The majority of the customers will be school-aged children, but their parents will be
paying for the lessons, so it is important to target both groups of people. A smaller
group of customers will be senior citizens.
6.3 The Competitive Advantage
Performance Music School’s competitive advantage is the convenience it offers as
well as the scarcity of the services offered. Scarcity in this context is referring to the
limited availability of lessons in the old time and country music genres.
6.4 People Involved
In this business’s infancy, I will likely be the only staff member required, or I may
seek help from a very part-time administrative assistant and supplementary music
teacher. As the business grows, the school will require many part-time or few full
time music teachers and upwards of one full-time administrative assistant.
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Performance Music School
6.5 Risk Analysis
The main critical variable in this business is the number of contractual music
teachers I can secure. Qualified individuals are fairly rare, and it may be difficult to
get a good quantity and variety of teachers in order to match the amount of demand
as well as provide the range of instruments that I would like to, especially for the
rarer instruments such as mandolin and double bass. To manage this risk, I will
focus much effort on recruitment and advertising for teachers. If I simply cannot get
enough teachers, I will likely close the school and teach out of my home again, with
no loss in the company. Figure 19 below shows the number of full-time or
equivalent teachers required for each of the five years. I will count as one full time
teacher, so the number of additional teachers required for each year will be the
number less one.
Figure 19: FTE Teachers Required
The second variable is the number of customers, and I see this as being moderately
critical. The first reason for this is that I see huge demand for these lessons all the
time, indicated by the growth in my own studio. Secondly, the business will turn a
profit even if I am the only teacher, so as long as I can get forty customers per year,
the business will stay afloat.
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Performance Music School
6.6 Feasibility – Worth the Risk?
Using the base case projections, Performance Music School will turn a healthy profit
and will offer good owner’s compensation every year in its existence. The return on
investment is definitely acceptable, and the business is quite low risk because it is
not very sensitive to the number of customers, and the number of customers is
completely predictable from week to week. By taking all of these factors into
account, I would say that opening this business is worth the risk. However, by
teaching out of my home, I could earn approximately $100,000 per year with full
time hours, or close to $80,000 with taking summer off, so I would choose to do that
instead. Additionally, I realize that no matter where I teach, the majority of hours
worked would be evenings and weekends, and I think I would choose to find a good,
secure job with more standard hours instead.
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Performance Music School
Appendix A: Financial Model
See attached Excel Spreadsheet.
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Performance Music School
Reference
Statistics Canada. 2012. Focus on Geography Series, 2011 Census. Statistics
Canada Catalogue no. 98-310-XWE2011004. Ottawa, Ontario.
Analytical products, 2011 Census. Last updated October 24, 2012.
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