Top Five Ways to Fund a Start-Up Business
MTNA Business Digest, Volume 2, Issue 2
The business aspects of starting your teaching studio can feel like a daunting task. Teaching materials, technology, piano upkeep, accounting and organizational software—all of these initial needs cost money and prevent many teachers from taking the first critical step towards opening their own studios. The good news is that there are many ways to gather the funds you need to start your business without breaking your bank. Read more.
While there are many possibilities beyond what is written below, here is an introduction of five ways to build the start-up funds needed for a business.
When we think about businesses, whether they are small LLCs or large S-corporations, we often assume a business produces and sells products, and that is how they make money. That is certainly the case with teaching studios: lessons are conducted for a set amount of time and the teacher (or studio) is paid by the customer for each lesson. This is an example of earned income. It is easy to assume that businesses (or business owners) can only acquire money in this basic, transactional way. After all, the alternative model is a 501(c)(3) non-profit organization, which relies heavily on contributed funds for income.
What is often overlooked is that businesses can adopt a hybrid strategy and legally accept both contributed income and earned income without having to register as a non-profit organization. We certainly saw this model thrive in 2020, when small businesses accepted COVID relief grants, and it is an option open to anyone who currently owns their own business or is looking to start one.
When looking at funding sources that rely on contributed income, it is incredibly important to know your worth as a musician and teacher. Almost all of the five ways listed below require teachers to advocate for themselves, which can sometimes feel uncomfortable. I can personally relate to this and would encourage any readers to remember that contributed income, no matter its source, is a vote of confidence in your skills and expertise as an educator. The support is there, and you deserve it!
- Pricing strategy is probably the most intuitive and traditional method of gathering funds and relies entirely on earned income: it is basically establishing a savings, which we are all (hopefully) already doing! There are vast options for determining prices; however, at its core, pricing strategy should always be justified by cost in some way. For example, if, hypothetically, it costs $200 dollars per month to run my teaching studio and I have 5 students per week, my baseline cost per student is $10. So, after determining what I would like to be paid for each lesson, I would need to add $10 to cover costs. There are several ways to break this down and it is necessary that taxes, space, books and materials, and anything else that is necessary for teaching be factored into cost. To build funds for start-up costs using pricing strategy, start-up costs become one of the determinates of the regular teaching rate. So, if I need $5,000 six months from now to start my business, my baseline cost per student in the above situation becomes $10 (regular cost) + $41 (startup cost). This is a big rate increase in this situation; however, divided among a large studio, raising funds by building the cost into a pricing strategy can work well.
- Crowdfunding is another popular method of raising funds and operates through contributed income. There are several crowdfunding platforms, including Kickstarter and Kiva, that offer mediums for raising funds for specific projects, one of which could be a start-up business. Crowdfunding requires putting significant effort into crafting a compelling message and campaigns are often centered around social causes. If you are confident in your business idea and can come up with a great message about how it will impact your community, then crowdfunding is the way to go! A best practice with crowdfunding is to start with a “quiet phase,” during which you personally ask people to donate before you officially launch; this is key to the success of the campaign, as it jumpstarts giving and creates momentum for donors that are not in your immediate network.
- Another form of crowdfunding is the subscriber model, made popular by Patreon and Ko-fi. These platforms rely on a rewards system for subscribers that donate at different levels and is great for establishing monthly supplementary income that can be utilized for start-up costs. The challenge with this method is creating content for subscribers: If you are creative and are consistently producing materials or lesson plans that can be formatted to share with your subscribers, this option will work well! With all the crowdfunding options, make sure that you are aware of the fees associated with each platform and bake those into your rates.
- Grants are the most reliable and consistent form of contributed income for potential business owners. Grant opportunities for teachers looking to start their own studios can come from several sources: local and regional arts councils, state arts commissions, arts organizations (Music Teachers National Association, included), and more. Each grant typically serves a specific funding purpose, and the burden of this method is its time-intensive nature: The research needed to find the right opportunities and the grant-writing process itself both require significant, but rewarding, effort. A quick Google search renders a plethora of resources, but it is recommended to start with the arts commission for your state. It may seem tedious, but grants have a snowball effect: Once you get one, you can use it to legitimize your project (or business) for larger grants, and so on.
- Fiscal sponsorship is another option for new business owners to raise start-up funds in a somewhat non-traditional way. While businesses and non-profit organizations alike can accept contributed income as a legitimate form of profit, the status given to non-profit organizations allows their contributed income to be tax deductible, which is an enormous advantage. Fiscal sponsorship can take many forms but is essentially an agreement between a business and a non-profit organization, which allows the business to accept tax deductible funds through the non-profit. The 501(c)(3) accepts funds from donors on behalf of the business and, in turn, allocates those funds to the business. This potentially allows businesses to be eligible for additional grants intended for non-profit use as well. Usually, the non-profit organization charges a fee, and, in many situations, they take on administrative duties for the business. The challenge with fiscal sponsorship is finding a non-profit organization with a mission that aligns with the business that is also equipped to offer these services. One resource is the online platform The Field, which offers fiscal sponsorship specifically to artists.
It is the hope that any teacher who wants to set out on their own and start their own business can do so confidently! This article merely scratched the surface of funding that is available to new business owners. You can learn more about each of these five methods at the links above. If you are seriously considering starting your own business, research is key and is time well spent!
is a pianist, teacher and administrator on staff at the Indianapolis Symphony Orchestra and on faculty at Pacific Piano School. Tim is currently a doctoral candidate at IU’s Jacobs School of Music.