Re-posted from the Balancing Your Checkbook blog.
Over the years, NAF has worked with a wide range of arts organizations: small, large, urban, rural, and spanning an array of mediums, audiences, and missions.
Our partnerships with these nonprofits have yielded great lessons and insights into the finances, pitfalls, challenges, triumphs, and life cycles of arts organizations. We recently published a collection of eight case studies that highlight some of the profound lessons we’ve learned through years of partnership with these organizations.
We hope these lessons can serve as a guiding light to other communities across the country who are looking to support their own creative cultures in a fiscally aware and sustainable manner.
Here are a few of the lessons we’ve learned about working with arts and culture organizations:
- Get involved early and stay with the organization. Relationships need to evolve and extend to more than one person.
Arts nonprofits, like any business or organization, are prone to growing pains—including the presence of multi-decade leaders whose vision enabled the creation of the institution but whose skills (or current, defined internal responsibilities) need to adapt as the organization’s mission grows and changes.
When Park Square Theater undertook an ambitious expansion, both in operating budget and physical space, NAF’s long relationship with the theater enabled us to provide business-plan consulting in addition to financial assistance, shepherding Park Square’s management structure into a sustainable allocation of talent, skills, and workload. (Read the full Park Square case study here.)
- Understand the organization as a whole, not just an event in isolation.
A degree of artistic risk is often baked into cultural organizations’ work, but if they are to weather changing times and shifts in philanthropy and sponsorship, they must be built on the foundation of a solid business model.
When Penumbra Theater, one of the nation’s most prominent African American theater companies, faced a financial crisis in 2011-12, NAF was able to help them return to stable ground not just by addressing the current financial shortfall, but by cultivating a nuanced understanding of the full range of circumstances that led them to that point, providing customized financial training, and helping them tighten their focus and strategy. (Read the full Penumbra Theater case study here.)
- Understand the business models of arts organizations, and the external environment in which they operate.
It’s important for funding partners to understand the unique context within which an arts organization operates—particularly culturally specific organizations that often work within chronic shortfalls in funding and support.
Mu Performing Arts, an Asian American arts organization, experienced two years of deficits during a period of leadership transition that coincided with two large grants expiring. NAF was able to provide an evaluation of Mu’s business model and financial support that was both monetary and strategic, all in the context of a funding environment that presents structural challenges. In balancing Mu’s creative ambitions with its financial bottom line, it was crucial to consider the value of its role in the local and national arts ecosystems (as well as the historically difficult path for theaters of color). (Read the full Mu Performing Arts case study here.)
- Artists have significant capacity for nonprofit financial management.
Many arts organizations start small, founded and run by people motivated more by a passion for creating than for managing the bottom line. But by no means does this mean that artists are incapable of gaining a sophisticated degree of financial savvy, discipline, and management.
Juxtaposition Arts CEO DeAnna Cummings calls herself an “accidental CEO.” She stepped into the business management role early in the organization’s life, while her two co-founders focused on artistic direction. She attended classes at NAF that focused on financial management, budgeting, managing cash flow, and using dashboards. She has since become a prodigious executive. In 2016, she was selected to be a fellow at Washington, D.C.’s prestigious DeVos Institute of Arts Management. She has demonstrated the profound evolution of an artist to the driving strategist of an innovative and forward-looking community placemaker. (Read the full Juxtaposition Arts case study here.)
- Build financial knowledge throughout the organization, and convey the joys of embracing and practicing financial rigor.
Investing in financial training and development within an arts organization can help it to grow and thrive, and allow its creative mission to become even more ambitious.
Over the course of the last few years, through a renewed focus on financial rigor and some help navigating the finer points of cash flow and projections, TU Dance has gone from needing a loan to cover payroll to running surpluses and budgeting a cash reserve. The organization’s financial culture has become razor-focused on smart spending—in particular, getting away from the culture of smaller nonprofits in which all cash available is often budgeted out and spent. (Read the full TU Dance case study here.)
- Challenge or crisis can provide opportunity.
Organizations in duress often have storms brewing (or raging) on multiple fronts, requiring strong and visionary leadership to keep the organization intact. Finding an agent of change who is willing to truly listen, internalize needed lessons, and take charge can make all the difference in turning crisis into opportunity for renewal.
Andrew Peterson joined Independent Filmmaker Project Minnesota as interim Executive Director in 2012, when the organization was in crisis. Funders’ trust was frayed, accounting procedures were inadequate, and they were stuck under an onerous lease in an unsuitable home. NAF worked closely with IFP Minnesota and Peterson to tighten its accounting and reporting structures—an essential factor in restoring the faith that had wavered in IFP’s funders. With new leadership that was open and eager to learn and adopt new, disciplined assurances and procedures, IFP was able to pull through the storm and is currently thriving in greater stability and alignment with its vision. (Read the full IFP case study here.)
- Access to working capital is critical for stability and growth.
Circumstances that lead to restrictions in working capital, such as owning a home building, can be both a strength and a liability for an arts organization. Activities intended to strengthen and deepen an organization’s footprint or bond with its community can also tie up funds needed for regular operations in shifting economic conditions, as well as restrict growth and core mission.
Following the revaluation of its Art Deco cinema house, In the Heart of the Beast Puppet and Mask Theater saw the credit attached to its mortgage veer into dangerous territory. A $237K loan enabled the theater to refinance its mortgage and shift the obligation to NAF at a lower interest rate. NAF also used a forgivable loan product that will enable HOTB to convert part of it to a grant if it is able to contribute to a bank account dedicated to creating a cash reserve— thus using financial instruments to aid the organization in building capital for both its own present stability and future growth. (Read the full HOTB case study here.)
- “Good” collateral isn’t critical to make a good loan.
If the leadership, strategy, and business model are strong, it’s worth looking beyond a lack of traditional “good” collateral when formulating a loan.
St. Paul Neighborhood Network, a nonprofit with a mission of building community through media, was forced to move out of its downtown St. Paul home in 2015 on short notice. NAF worked with SPNN after a new home was identified and provided them with both a bridge and term loan to fund the move, operations, and technological investments. With technical and consulting assistance from NAF, budgets for 2016 and the following year were based on financial discipline, combining cuts in expenses with diversifying revenue. Because of strength in leadership, strategy, and business model, NAF ascertained that its loan was right for SPNN despite an absence of “good collateral.” (Read the full SPNN case study here.)
PHOTO CREDIT: MICHAEL SLOBODIAN