Financial Management in the New Economic Reality
September 24, 2012
The last four years have adversely affected the ability of many arts organizations to raise funds and plan future arts programs: investment returns have been volatile, market declines impacted donations of securities, government funding is more variable and audience levels declined (and have not yet returned to pre-recession levels for much of the sector). Managing an organization’s finances in this environment is challenging, and can take time away from the key mission of delivering an organization’s arts mission.
The Non Profit Quarterly recently published a very readable article commenting on financial management issues in an environment of lower and variable sources of public/private funding. It offers simple observations on areas to focus on to wisely to use the resources you have.
As an organization dedicated to managing long term capital funds (endowments, awards, scholarships), I spend time talking with arts organizations about growing existing capital funds or creating new funds. The article makes the point that endowments can be valuable assets (secure capital, steady source of income), but efforts placed on growing an endowment fund can take resources away from regular annual fundraising and capital raised for this purpose is not available in the short term. If the arts organization is facing financial challenges and needs operating cash, it is probably not a time to allocate resources/donations to endowment. Every organization will know if their financial plans can accommodate a focus on building a capital resource that delivers a stream of income to support its operations, or fund a particular outreach program.
Long term capital, held in a form of endowment fund is attractive to some donors whose personal philanthropy is long term in nature (planned gifts, special projects, legacy giving). Opportunities for raising matching funds, such as the federal matching program through the Dept. of Canadian Heritage Endowment Incentives Program should be considered. We know that donors respond positively to matching opportunities. In today’s environment, what is most important is that long term gifts, have flexibility so that the capital is set aside on a long term basis, but is not ‘locked away’ in perpetuity. The trustee’s or board should have discretion, in defined situations to be able to continue delivering returns, which may have to comprise both income and capital.
Arts managers are nothing if not resourceful, I’ve quickly learned, and sustainability over time is a blend of the new – public/private partnerships, collaborations, social investment, together with attention paid to balance sheet management and aligning costs with sources of revenue. The article concludes that “nonprofits that can proactively take stock, plan and respond to the changing world will have the competitive advantage, and more important, best be able to deliver on mission.”