Imagine this, a man walks into a bakery and says to the baker, “I need a gluten free cake, but I can only pay you 20% of the cost, and you can only spend my money on eggs, but not butter and not on electricity for the oven; you have to find someone else to pay for the oven’s electricity!” Nonprofit funding: Ordering a Cake and Restricting it Too asks the question what it would be like if a bakery operated with the same funding restrictions as not for profit organizations.
Multiple Revenue Sources Arts organizations, like most not for profits, require multiple revenue sources: government operating and project grants, public and private foundation grants, corporate donations and sponsorships, individual donations, gifts, legacies as well as box office revenues. Applying for a grant can be a time-consuming and a rigorous process. Grants are typically annual, and deadlines and grant applications will vary depending on the funder. Fundraising donations, which in addition to grants are the lifeline of an organization’s financial wellbeing, may come with stipulations where the donor attaches terms to their gift.
Capital and endowment fund income is a welcome addition to an organization’s revenue sources. Endowment income is unrestricted - the management and board of the organization make the decision where best to apply this resource. Endowment income is stable, reliable and not subject to an application process, filing deadlines or donor restrictions.
Ontario Arts Foundation Endowed Funds The Ontario Arts Foundation manages endowment funds established under both the provincial Arts Endowment Fund and the federal Canada Cultural Investment Fund – Endowment Incentives Component. Arts organizations benefit from matching grants where privately raised funds can be doubled or even tripled, greatly increasing the value of the fund. Organizations can breathe easy knowing they will receive an annual payout of unrestricted income, that they need not apply for or is restricted by donor’s wishes.
One of the OAF’s fund holders recently told us, “Our struggle is to find sufficient, sustainable operating revenue, while keeping our fees affordable to the communities we serve. The endowment fund income is critical and helps us make up the shortfall in our operating costs, particularly at a time of year when cash flow is stretched.”
At a fundraising event, don’t say that 100% of your donation goes to programming, rather say that your donation will be used to support the organization and its work
Publicly recognize funders who support general operating funds – “Without unrestricted funds, our organization cannot run all of our programs – thanks to this funder, we are able to deliver our mission”
Rather than use words like ‘overhead’ or ‘administrative’, which seem unattractive to some funders, use words like ‘core support’ or ‘critical infrastructure’
Create a line item for reserve funds in your organizations’ operating budget. The presence of some form of reserve protects your organization during times when revenue sources may not be stable
Organizations recognize the importance of revenue from multiple sources, and know that donors may have a particular area of interest. However, don’t overlook the value of a stream of unrestricted revenue, which can be critical to an organization’s ability to adapt and deploy resources wisely for long-term sustainability.
Ontario Arts Foundation - 2013 Was a Good Year for Investing
May 28, 2014
The Foundation holds two types of capital funds: endowment funds where capital is held permanently and only income is available to be disbursed, and restricted funds where capital can be disbursed, depending on the agreement with the donor. Our investment objectives are long term, with the goal of achieving investment returns which allow for annual income payments to arts organizations together with preserving capital and maintaining the purchasing power of income over the rate of inflation. We strive to achieve at least a 5% real rate of return over a five year period. This allows the Foundation board to make sustained income payments each year in the range of 3 to 5 %.
Fiscal Year Ending March 31, 2014 At the end of March 31, 2014, Foundation assets under management were $67 million (subject to year-end audit review), up from $61.2 million in 2013. The asset growth is a combination of new contributions and matching funds received during the year of $850,000 and strong investment returns. This allowed us to make award and payouts and distribute just under $3 millionin income to the 273 arts organizations across Ontario for whom we hold endowments for.
Over the years, the Foundation’s investment strategy has allowed for continued growth in income paid out year over year. This unrestricted income is an important resource for arts organizations in Ontario.
Strong Investment Returns Investment returns for the year ending December 31, 2013 were very positive and the Foundation portfolio achieved 14.9% for one year. Five year returns were 10.2%,which supports our long term goal of achieving long term absolute capital appreciation, with a focus on capital preservation. Investments are made in high quality companies with trusted management teams who have a long term focus. To achieve our investment objectives, the Foundation believes it is prudent to have the assets managed by professional investment managers on a discretionary basis. Active management, where the portfolio managers make decisions regarding asset classes, industry sectors and individual security selection allows the Foundation to structure a risk managed portfolio that is expected to achieve long term positive returns.
In 2013, the Foundation employed three investment managers. During the first quarter, we consolidated investments allocated to the ‘alternatives’ sector from two managers to one, where performance results were stronger and aligned with our long term investment objectives.
What the Future May Hold Despite considerable political uncertainty, and volatility in security markets worldwide, investments returns to March 31, 2014 continued to be positive. Investment performance for the quarter ending March 31, 2014 was 4.0%. Although it is difficult to predict, all signs are pointing to a market correction in 2014. Our focus will be strongly directed to managing the downside risk in the face of market instability and avoid losing capital over the longer term.
Professional Development in the Arts
May 02, 2014
I read a timely blog posting that should be on the agenda of the Board of any arts organization. The thrust is that a greater focus is needed on developing the professional skillsof arts managers/leaders. It is well accepted in the corporate world that an organization’s success is tied with a continuous focus on growing the abilities and skills of today and tomorrow’s leaders. This is equally applicable to arts and culture.
Professional Development Training Critical to the success of any business are the skills of management. Professional development training should be part of running any business entity. Arts organizations are small, and in some situations, large businesses. One of the roles a board can play is to help identify for the organization’s managers, what professional development may be most appropriate for the arts organization, what is affordable and where to source the training. This illustrates the value of a board member with human resources skills or professional development experience.
Cost? We recognize that training has a cost attached to it, and resources are always limited. It is, an investment that can lead to a more efficiently run organization, an organization that retains/develops staff ( impacting productivity ), and one adapts to changing business/economic realities. There is a whole range of skills required to run a healthy organization. If there are opportunities to improve personal and professional skills, the more the arts organization will be positioned to meet the most complex problems. Learning is an ongoing process, both at the creative and management level. Professional development should not be a ‘nice to have’.
Prioritize training The blog recommends that two things need to happen – the arts sector culture should recognize that continuing skills training is critical to survival and should be accessible throughout the organization. This should translate into a line item in the arts organizations’ budget – for board, staff and perhaps even volunteers. The budget line has to align with organization resources, but this is an investment I believe, most funders will understand, and support.
Like any business, the arts sector is experiencing the start of a transition from the current generation of arts managers to the next. Providing professional skills training is critical – be it business management, leadership skills to managing in a new economy and a changing technology environment. Sharing institutional knowledge and life experience is part of that mix.
I found the blog post compelling and a quick read – I encourage you to read it, share it with your Board and incorporate professional development as part of your organizations’ financial plan.
(Barry's Blog is a service of the Western States Arts Federation, WESTAF).