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electronic MUSICIAN

Taking Care of Business

By Michael Cooper | June 1, 2004

Running a successful commercial recording studio takes more than great technical and creative chops. It also requires good business sense. Maintaining a healthy cash flow — a steady revenue stream that exceeds your operating expenses — is critical to your studio's success. One aspect of this is controlling and budgeting for both capital expenditures (new equipment acquisitions) and recurring expenses such as phone and utility bills, advertising costs, and inventory replenishment (CD-R and DVD-R blanks, recording tape, and such). It's equally important, however, to protect your business's revenue stream, and that means, in part, making sure that studio bookings don't dissolve and that you get paid for the sessions you execute for your clients.

Every time a flaky customer cancels on the eve of a session or, worse yet, fails to pay your invoice for completed sessions, you lose precious time and energy that could have been spent serving a paying client. These problems have a direct impact on your cash flow, top-line (revenue) growth, and bottom-line (net income) growth. Over the past 20 years, I've developed my own business guidelines to help preclude these kinds of setbacks.

I WANT YOU COMMITTED

If you held a staff position at a “normal” job, you wouldn't tolerate your boss deciding at the last minute whether or not you'd be working and getting paid on any given day. Neither should you put up with clients who fill up your work calendar, only to cancel without giving you enough notice to rebook the sessions with other, more responsible clients. Hey, it's no skin off your client's nose if you lose money due to their cancellation! That is, unless you require them to pay a deposit to reserve a session. Once you're holding their money, they share a common interest with you to make sure the relationship proceeds smoothly and equitably.

You'll need to decide for yourself how big a deposit to require from your clients. For new clients and those who have established a perfect prior payment history, I feel that demanding full payment in advance is not reasonable. Instead, I ask for a deposit equal to one-third of my full-day rate (one-third of my typical pay for a full day's work) for each day a client wants to reserve a studio session.

You'll also need to decide how hardcore you want to be about receiving a deposit for every single session. Some studios require a deposit in all instances from each of their clients, but I've decided to place limited trust in established clients who have a long and perfect payment history with me. For this group, I relax the deposit requirement for reserving a single session and insist on receiving a deposit only if they want to book multiple dates, either in one contiguous block or scattered across the calendar (because in those cases a major cancellation would really hurt me). If a formerly reliable client cancels a session with insufficient notice for me to book with someone else, I require a deposit from him or her thereafter for any and all sessions they wish to reserve. Of course, I always make an exception if the cancellation was necessary because of illness or a family emergency.

I almost always require a deposit from first-time clients. First-time clients are an unknown entity: they have no payment history with your studio, and there is no practical way to know ahead of time whether they usually keep their commitments. I'll waive the deposit requirement for first-time clients only if they contact me from out of town at the eleventh hour to reserve a date that I have open and that's not otherwise likely to be booked (that is, when there is insufficient time before the session for their deposit to arrive by mail or FedEx).

For clients who have cancelled sessions repeatedly in the past, even with plenty of notice, I always require full payment in advance to reserve any session dates, because these people have demonstrated that they are not serious about their commitments. The same policy applies to clients who have had trouble paying their studio bill in the past, whether or not they've ever cancelled any dates.

CANCELLATIONS

If a session goes as scheduled, I apply the client's deposit as a credit toward their bill. If, on the other hand, the client cancels a scheduled session with less than 48 hours notice before the session begins, and I can't book the cancelled date with an alternative client who previously requested the same date, I will politely insist that the client who cancelled forfeit their deposit. I won't keep the deposit if I manage to book the cancelled date with another client. Nor will I keep the deposit if nobody else was initially interested in the cancelled date. I keep the deposit only if I turned down another client for the same date, subsequently suffered a cancellation, and lost business income because I couldn't rebook with the client I previously denied.

I always forgive a last-minute cancellation if my client falls ill or has a family emergency. That's only fair. However, clients who conveniently become sick or suffer family “emergencies” time and time again on the eve of reserved sessions will eventually challenge my good nature and be subjected to stiffer deposit requirements and penalties for cancellations. The only way to handle such ambiguous situations is to follow your gut instinct and do what you feel is equitable. You might even decide you no longer wish to work with such unreliable people. No matter how you decide to handle such clients, however, it's important that you warn them, in advance of their next infraction, the exact penalty they'll incur if it deviates from your standard policies. Nobody, not even a flaky client, deserves surprise treatment.

In all cases, it pays to have a waiting list of alternative clients who have expressed an interest in booking dates that are already reserved for someone else. In the event of a cancellation, a simple phone call or two to people on that list may be all it takes to book the cancelled session.

TIME IS MONEY

Is it just my imagination, or are musicians more time-challenged than other folk? Many of the clients I've worked with could never seem to arrive at my studio at the scheduled time for their sessions. For this reason, I've instituted a policy wherein the “clock” starts rolling within 20 minutes of the scheduled start time. That is, if a client has still not arrived 20 minutes after the session's scheduled start time, I begin billing them at the full rate from that moment on. If you feel that 20 minutes is too long to sit around without getting paid, set a shorter time limit. I prefer to be a little more relaxed about it while still covering my butt.

If a client is more than 20 minutes late for a session, I call them to see if they're on their way. In fact, it's always a good idea to confirm a session's date and start time with a client the day before a session is scheduled. What if the hours pass, you are unable to contact your client, and they still have not shown up for the session? Once enough billable time has elapsed for the full amount of the client's deposit for the day's session to accrue, I cancel the remainder of the session and move on to doing self-sufficient work, such as performing studio maintenance or installing new software. That policy keeps me from waiting around all day for a client's arrival when only one-third of the day's potential pay (in the form of the deposit) is in my pocket.

GETTING PAID

I require the majority of my clients to pay any outstanding balance, minus the deposit amount, at the end of each single session or, in the case of multiple bookings, at the end of a contiguous block of sessions. The latter arrangement gives clients a convenience incentive to book back-to-back dates, thereby reducing the amount of time I spend setting up and breaking down mics and repatching gear for alternating clients.

I often give select clients who represent large accounts and who have a long and perfect payment history greater flexibility in paying their studio bill. For example, they might be permitted to pay a portion of their balance within 30 days, instead of being required to pay their balance in full immediately after each session or block of sessions. (Because I operate a small studio, the exact concessions I'm able to offer vary according to my cash flow requirements at the time.) A flexible payment plan encourages my very best clients to rack up extra studio hours while maintaining their positive cash flow.

Occasionally, clients forget to bring their wallets or checkbooks to the studio and will have no way of paying the bill at the end of a session. This is usually an innocent oversight, but it can also be a ploy used by dishonest people who don't ever intend to pay the bill. In any case, I always insist that nonpaying clients sign a statement on their bill before they leave the studio that acknowledges that they are responsible for paying the bill and agree to pay the invoiced amount. At least in the state of Oregon, failure to secure such signed documentation leaves you without any power to collect payment, either through the courts or a collection agency. It's a good idea to find out how your state's laws handle such matters.

Beyond maintaining their personal integrity, what inducement does a client have to pay their bill? That's simple: no payment, no masters. I never release finished product — even to clients who have a perfect credit history — before receiving full payment for work performed to date. I have no problem with releasing rough mixes upon receiving a signed promise to pay any balance due, but final mixes and mastered product are never released until I get paid in full for my work.

SPELL IT OUT

Most clients will accept all of the above policies if you spell them out ahead of time in written form. Prepare a policy sheet (see the sidebar “A Matter of Policy”) that details your studio's rates and how your business handles such matters as deposit requirements, cancellations, and scheduling of payments. You should also note any fees for bounced checks and damaged studio equipment on this form. Regarding the latter, inform all prospective clients in writing that they will be held responsible for paying for the repair of all damage to studio equipment arising from their abuse, negligence, or misuse.

As a routine procedure, hand out copies of your studio-policy sheet to all people who tour your studio, or mail copies to those who book sessions over the phone. If a client later takes issue with the details of their bill, you can remind them that such matters were fully disclosed in the studio policy sheet they received before their first session. If you really want to cover your butt, have your clients sign a statement acknowledging receipt and acceptance of the terms disclosed in your policy sheet.

The business policies I've outlined here may seem too corporate or hard-nosed to the studio owner who just wants to make great music and form creative bonds with clients. But you will only come off as being hard-nosed if you present and enforce these policies without empathy and respect for your clients. Your delivery is what determines whether your clients perceive you as reasonable or pushy. Be polite, but take care of your legitimate financial interests. It's all part of running a successful business.


EM contributing editor Michael Cooper is the owner of Michael Cooper Recording, located in beautiful Sisters, Oregon. Cooper's studio offers recording, mixing, and mastering services.

A MATTER OF POLICY

Here are some ideas about what to discuss in your studio policy sheet.

Studio rates (for arranging, recording, mixing, mastering, and archiving)
Costs for archival and recording media
Costs for renting ancillary equipment, if available
Deposit requirements
Cancellation policy
Billing for late arrivals and no-shows
When payments are due
Penalties for bounced checks
Qualifying for flexible payment terms with your studio
Responsibilities of clients who damage studio equipment

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