In a time of a global financial deficit for the arts and culture sector, identification and gathering of stable financial resources in cultural organizations with a non-profit, public or charitable status becomes quite difficult. Many business companies have already cut their sponsorship involvement and other forms of corporate support for the arts. Foundations’ granting policies are different, depending on their status and the way they accumulate funds-from private donors, community involvement, regional or national cultural funds, percentage of the annual profit of corporations, etc. Governments in some countries have already announced decrease of the state support for arts and cultural organizations and projects. Others are reconsidering the methods to subsidize the cultural sector without much certainty about the future….
My impression is that arts and culture managers in general do not favour mathematics and accounting. Financial analysis is certainly not their strength. This is somehow normal as creativity and figures seems like two different worlds. In many cases cultural managers do not realize that financial information is a “universal language” and is internationally recognized. Financial statements are done by people, about peoples’ relations and in a way to be useful for people. Gathering, analyzing and interpreting financial information is a key to success in any organization or project. Financial documents are the “mirror” or any organization as they can provide an overview on how an organization functions, where the major problematic areas are, and how the future is foreseen. The three main financial statements which form the basis for analysis of an organization’s performance are: the balance sheet, the profit and loss statement and the cash-flow statement. To be able to manage efficiently any cultural organization or project, it is important to be able to read and analyze financial statements and reports, as they are the ‘wheels” in any management process. They are the background of successful management strategies.
Managers’ job and accountants’ job in a financial process is different. Elaborating the budgets at the beginning of a financial process and analyzing and interpreting the data at the end of the same process is a managerial job. Once when the budgets and the fundraising strategies are planned and the organization has started operating, there is logically a need to monitor and record all financial relationships and connections. Data gathering, processing and recording is an accounting activity. Cultural managers should certainly not be accountants, but they should be able to prepare and understand budgets and analyze financial statements so that their decisions for further development consider all aspects of the cultural process-creative, marketing, organizational and financial one. Therefore, an ongoing relation between top managers (directors) and accountants is required in order to secure smooth coordination between creative and financial activities in an arts organization. This is certainly one of the pitfalls in the cultural practice – that in some cases artistic directors and top managers of cultural organizations and projects can not analyze financial statements, while on the other hand, financial managers and accountants are unable to fully understand artistic and cultural process and its specificity.
The ongoing communication and joined work between the creative and financial top-managers and directors in an organization is of utmost importance for effective management and future strategies, especially in relation to decisions on:
– Choosing of the optimum size and most effective structure of financial sources and conditions of financing, while at the same time considering the creative potential, the core mission of the organization and the expectations of the main stakeholders;
– Securing stable and long-term relationships with the sponsors, foundations, donors, investors and other external support structures;
– Optimizing the structure of the expenditures and balancing the expenditures with expected incomes (revenues) in order to manage the organization in a situation of financial surplus, or profit while at the same time secure maximum motivation packages for the whole staff and contractors;
– Securing a positive cash-flow and accounting liquidity at any time and a full control on it;
– Identifying priority areas in the capital investments and innovative strategies which needs major financing;
– Considering the ratio between the investment costs and the operational costs and the critical point of return of investments;
– Using effectively the innovative online tools for fundraising, such as crowdfinancing and others;
– Elaborating financial strategies for sustainable development of the organization and seeking sources of innovative entrepreneurial ideas.
Do we know what is the level of financial literacy of cultural managers and project managers in the arts and their training needs in this respect? What could be done to decrease cultural managers’ fear of figures and financial statements? How to better train arts managers in financial analysis and prognosis? There is a need for a research on these open questions.
Read the blog also on LabforCulture: http://www.labforculture.org/en/moderators/lidia-varbanova/51495/42657
Image copyright: Oleg Dergachov