Financial Leaks

The longer I stay in the arts the more I appreciate the "invisible" skills that are needed to make things work.

By invisible skills I mean skills that are vital, but rarely discussed in a public manner.

One of those invisible skills is financial management.

If you are trying to make a living through your art you are running a business.  That's an obvious, but necessary, point.

And a key to running any business is knowing how much money is coming in and out.

It's also about making smart revenue projections . . . and having a plan for managing expenses that is more then "let's pay everybody as little as possible and hope they take it."

I say all of this from the perspective of someone who was horrible at financial management (at least when it came to running a business) when I first started and learned the value of those things only through painful experience.

And why was I such a crappy financial manager?

Because I was busy.  I decided that everything was more important then working out a cash flow statement and reconciling the ol' checkbook.

I decided that I couldn't find the money to hire a decent bookkeeper.  Truth was, I could have, but I didn't make it a priority.

I didn't even take advantage of the numerous support organizations that existed to help nonprofit arts organizations manage their finances.

Those were all bad decisions, and I see so many arts organizations making similiar choices, so I decided to send up a warning flare.

Poor financial management will ruin your artistic ambitions.

I don't care how talented you are.

It will ruin it.

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What does good financial management look like?

Here's a little test.  How long would it take for you to answer any of the following questions:

How much cash do you have in the bank right now?

When is your next check from a funder scheduled to come in?

How much cash do you expect to have in the bank 60 days from now?

What are your weekly fixed costs?

Who is your largest vendor, in terms of money paid to that vendor?

What are the payment terms for that vendor?  Is it Net 30.  Do you get a discount for paying early?  Do you even know what Net 30 means?

How many unpaid vendors to you have right now?  When do you expect to pay them?

Let's say you take me to lunch and pay for it with your company card.  What's the process of taking that receipt and getting from your wallet into your financial management system?

How much cash do you expect to have in the bank 120 days from now?

If you couldn't get me reasonable, accurate, answers to those questions in say 72 hours then you are a ship headed for a iceberg.

And if you think those questions are irrelevant, or boring, or not artistic enough for you to be bothered with . . . then again . . . the iceberg is coming.

Put it like this:

Every arts organization ultimately fails for one reason.

They run out of money.

Take the time to learn strong financial management skills.  They are a life saver.

 

 

Comments

[Sheila Sky @SkyArtsMgmt]

I'm with you. Basic financial management is critical. I have had clients who have paid a $5,000 bill twice without knowing it, completely ignored record keeping for 2 years, and committed to and embarked on cross country tours without even a draft budget. Self-serving perhaps, but I would recommend any fledgling arts group spend 1 to 2 hours with an experienced consultant who can help them create a system which tracks financial, promotional and artistic data with as little ongoing fuss as possible. Alternately, I would recommend sitting down with Heather Young's excellent book Finance for the Arts in Canada. They will either learn what they need to know, or learn that they need help -- both valuable outcomes. Hiring a consultant means you get to learn from the mistakes of others -- because you won't live long enough to make all those mistakes yourself.