Cash Is Still King
As an industry we must start talking about working capital. It’s something few arts journalists spend a lot of time writing about unless there’s a major bankruptcy, which is too late. That’s why I found this blog post, “Report Shows Precariously Low Cash Reserves for Most Arts Organizations,” particularly interesting — and frightening.
Working capital is often defined as the amount of money your organization has on hand for continued operations. It is typically measured in months or years. We all know that the vast majority of arts organizations have a threadbare financial situation, and this blog post documents that situation well. In the performing arts, many organizations spend next year’s subscription money on this year’s expenses, which is an accountant’s nightmare and a devil’s bargain for many organizations.
The blog post posits a few specific things that organizations and their boards should be doing to ensure a better financial underpinning, all of which I agree with. I won’t recount them here, but I hope you’ll take a moment to read them.
The bottom line is that our entire industry would benefit from spending a lot more time focused on strategies to increase working capital. I’m not saying it’s easy; nor am I saying donors want to fund working capital. Most of them want to fund things they can put their names on, unfortunately.
But that doesn’t negate the fact that running an organization with only one or two months of working capital often leads to bad decision-making. It also increases the stress level of executives and their staff.
And when cash is short, decision-making often becomes extremely short term. Decisions about investments for the future (such as things near and dear to my heart, like new technology) are put off. It’s a slippery slope toward treading water, where nothing ever gets improved because things are so bad. It’s the root cause of why so many organizations are not able to make substantial improvements in their business results. I’ve always been a believer in the phrase “That which you focus on will grow.” It’s high time for the industry to start publicly measuring and reporting on cash reserves.
Here’s a thought: What if every foundation and government agency based its grants on how many months organizations have of working capital? I know it’s counterintuitive — you wouldn’t be applying for a grant if you didn’t need the money. But the likelihood that the grant money would be used wisely goes way up if the organization is in solid financial shape.
Would this be hard? Yes. Would this be healthier for the arts industry? Yes!