For nearly 12 years the Cleveland Foundation has made a concerted effort to strengthen a group of cultural organizations that are important to the diverse quality of our cultural sector. But many have business models that carry a lot of risk and insufficient funding to keep them healthy in even good times. The risk factors for these groups are inherent in the nature of the business of making art and include:
- Performing arts or exhibition schedules that require the creation of a whole new, untested body of work each year
- Earned income at or below 50% of total income
- Lack of working capital, risk capital and/or cash reserves
- Lack of or insufficient endowment to support operations at recommended levels
- Insufficient staff capacity and inability to attract and retain qualified staff
Our efforts have focused on developing a sophisticated level of financial and operational literacy among these organizations through high level executive seminars designed specifically for the cultural sector by National Arts Strategies.
We have consistently supported consulting in the areas of strategic and financial planning, management, marketing, technology and human resource development and board development. And we frequently have supported the implementation of plans and projects that emerge from these consultations.
Beyond this we have, in certain cases, provided actual capitalization support through challenge grants for working capital – an unusual grantmaking approach for most foundations.
Recently a report came across my desk that validates everything we have strategically focused on in Arts and Culture here at the Cleveland Foundation. “Getting Beyond Breakeven: A Review of Capitalization Needs and Challenges of Philadelphia-Area Arts and Culture Organizations” is a terrific primer on what capitalization is and why every organization that hopes to live beyond a few years needs some.
Funded jointly by the Pew Charitable Trusts and the William Penn Foundation, the report acknowledges the historic balance sheet focused work pioneered by National Arts Strategies and the Nonprofit Finance Fund, and provides a very good summary of the risk factors and financial health indicators for organizations of any size, from annual budgets of $150,000 to more than $20 million.
Its financial profiles of fictional organizations with diverse business model drivers would be useful to review for any organization dealing with similar issues: Growth vs. Mission, Risk Capital vs. Organizational Capacity, Structural Deficit plus Deferred Maintenance, Audience Development vs. Facilities/Collections Stewardship, etc. I recommend the report to all nonprofits.
