A while back I was contacted by another teacher requesting input on the protocol for selling her piano studio. Since I’ve never been in the position of buying or selling a business, I had to tell her that I didn’t have a clue! However, after getting some additional counsel and going through the process herself, Suzanne Karpinski graciously agreed to write a guest post about her experiences. I think what she has to share is valuable for any of us to consider should we ever be in the position of needing to buy or sell a studio. So, without further ado, here is a special guest post:
Selling a Piano Studio as a Business
by Suzanne Karpinski
Running a piano studio is just like running any other small business: you have clients, provide a service, collect payments, and if you are in more competitive markets such as larger cities, you must also advertise. Your personality, temperament, skills and time are your product, so in order to continue to teach, you must generate a positive image and reputation in order to continue to thrive. This is a process that can take several years, much work and advertising dollars to achieve. So if the time comes for you as a teacher to move on from your business, what should you do with that investment?
This was a question that I recently had to address as am getting ready to make a huge cross-country move to begin my MFA degree on the east coast. I cared deeply about my students, so first and foremost, I wanted to ensure that the teacher who took over for me could maintain the standards and quality of instruction for my students that they had received from me. Here it is also important to recognize that this is also a business transaction.
In every specialty practice where clients are involved, it is common for the sale of the business to include the selling of the client list and the businesses’ “good will”. This is a term used to denote what was previously mentioned – your reputation. Yes, it has monetary value in the business world! People will pay for the guarantee of a quality product – you in this case. Therefore, it is highly advantageous for the purchaser, in this case the incoming teacher, to have that reputation already established for him or her. (This is yet another reason for carefully choosing the new teacher who will be purchasing your studio.) The client list represents all the time and effort you put into establishing that reputation, and any teacher worth her salt should be compensated for that effort.
In this instance, both I and the teacher taking over my studio needed to reach an agreement about what this “good will” was worth. Very tricky indeed. We looked at the incoming teacher’s advertising costs and calculated how many advertising dollars it typically required to see one student sign up with her studio and stay for at least 3 months. This was done by looking at the ratio of students to dollars spent. In this instance, we calculated that each student was worth about $50 a month in advertising. In normal business practice, a client is typically valued at what their worth is over the course of a full business year. We decided that in fairness, 6 months was likely more appropriate given the typical commitment of an average student in our area was 3-6 months. The final agreement said that for every student that signed with the new teacher, that teacher would pay the seller (me, in this case) $50 for every month they remained with the teacher, for a maximum of 6 months. Partial months would be pro-rated. Additional clauses that are typical of sale of business documents were also chosen to be included, such as a non-indemnity clause and an arbitration clause, which protect the buyer and seller from any potential disagreements later on.
At the end of the day, my students are sad to see me go, but excited that they’ve got a new teacher that they feel comfortable with. Parents are satisfied that they will continue to receive quality instruction. The new teacher is relieved to have spent her advertising budget on a new roster of dedicated, continuing students. And I, the outgoing teacher, can depart with a clear conscience and compensation for all of my hard work!