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SMALL BUSINESS | Business Make-Over

New Flight Plan

School Operator's Thin Profit Margins Leave Her White-Knuckled


Candy Robinson traded the sedate life of a corporate computer programmer for the uncharted skies of small-business ownership when her decision to take flying lessons ended with her buying a small, struggling flight school.

The 24-year-old was charmed by the homey atmosphere of the three-airplane Long Beach Flying Club: the owner's old wooden desk, his honor system for payment, and the dogeared ledger used to keep track of the 37 members and the leased planes. For $1,800, he said, it was all hers.

"He said if, in six months, I didn't want to do it anymore, he'd give me my money back," Robinson said.

That was 17 years ago. Today Robinson sits at the same battered desk, but the operation has grown to 20 airplanes, seven employees, 500 members and annual revenue of about $1 million.

The company, which sells flight-training services and rents planes for recreational use, says it has about 20% of the market at the Long Beach Airport. Its low-price strategy has made it "kind of the Price Club of flight schools," Robinson said.

"My planes aren't the newest, but I have the best price and the most airplanes available at one location at this airport."

The private corporation has hit some turbulence lately, though, as long-simmering pressure from the city of Long Beach to take over the site for redevelopment has reached a boil, and a boost in insurance rates and in the price of fuel--a major expense for the company--have slashed already-slim profit margins.

Summer, the busy season that should allow Robinson to stockpile money for the slow holiday period, hasn't been as profitable this year, despite her decision to raise prices 3% in July.

"That's what's so scary for me," Robinson said. "All I need to have happen is a hiccup."

Tight margins and the crimp they put in a company's flexibility are a serious problem for most small-business owners, said business consultant Alan Carsrud, a professor at UCLA's Anderson School of Management.

"If her fixed costs [continue to] go up, she's dead," Carsrud said. "She has very little margin to put more money into things like marketing."

Better marketing would help Robinson expand her client base and generate the cash flow she needs to weather the bumps in business and to relocate her operations nearby, he said.

"She's collecting data on her clientele, she's invested in mailing lists, but the trouble is, she doesn't know how to use the information," said Carsrud. "She needs an effective way to get answers on who her customers are . . . and where they are physically, so she can find them easier."

In addition to narrowing her target market, he suggested the company upgrade the materials it sends out. Better-quality brochures and a redesign to include customer testimonials and specific information on how many thousands of pilots the company has trained would help attract customers, he said. "She might want to see if the marketing class at a local college could work her out a detailed marketing strategy."

The consultant was impressed with the company's networked computer system but said Robinson still needs to improve the speed and management of the internal information flow.

"I have a sneaking suspicion that she doesn't know on a weekly basis, or maybe even on an end-of-month basis, exactly what her cash position is or how well they do revenue-wise," he said.

Robinson said she checks the company checking account daily but acknowledged she may need to broaden her efforts.

Carsrud recommended that she take a quick course on the fundamentals of accounting, concentrating on the concept of cash flow, at a local college, or ask her accountant to teach her. A business owner needs to know "if I do X, what is it going to do to me in terms of cost," he said.

The ability to do cash-flow projections would also help Robinson determine if the company can afford to buy and relocate to the site she has had her eye on at the other side of the airport.

Because the company has a lot of money tied up in its inventory of plane parts, Carsrud recommended that Robinson create a computer inventory-tracking system or buy a software package to do the job.

"Does she turn 25 of one part over in a day, a week or a month?" he asked. Knowing that will help her "plan and get a little better use out of that cash."

Robinson has done a good job building her capital asset base--the 10 training planes she owns and the 10 that are leased--he said. She should continue to do cost-benefit analyses before acquiring new planes or leases, taking into consideration both the price and the type of aircraft, he said. Her two-seat propeller planes, for example, are often booked far in advance.

"She should sit down and examine her inventory mix," Carsrud said. "The types of planes she has may be driving her ability to meet the market demand."

Robinson has shopped around for lower insurance rates, but Carsrud suggested she ask her insurance agent to visit the site to help her streamline workers' compensation insurance costs.

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