Beauty and the balance sheet
The balance sheet is an essential and eternal puzzle for any nonprofit arts organization.
First you figure out what each one means by itself,
the jingle, the periwinkle, the scallop
full of moonlight.
Then you begin, slowly, to read the whole story.
Mary Oliver, from “Breakage”
It is an annoying but inescapable truth that all capacity comes at a cost. For arts organizations, the capacity to make bigger and more complex work, more consistently and more frequently, requires more people, more money, and more stuff. How we acquire and sustain all three of those “mores” is a central puzzle of Arts Management practice. And the pieces of that puzzle are laid out in the balance sheet.
The balance sheet (aka statement of financial position) is a snapshot of all the things of economic value a business owns, and all the ways it owes resources to others. Put another way, the balance sheet lists the financial resources an organization has rights to, alongside the financial responsibilities it has accumulated over time.
So when you build or buy or renovate a building, for example, you increase the total economic value of what you own. But that economic value had to come from somewhere. Your capacity (the building) came at a cost that was covered by an array of sources (debt, savings, and investments/donations). The balance sheet shares both sides of that story.
Why is the balance sheet such an essential and eternal puzzle for a nonprofit arts organization? Because a nonprofit follows a logic (or perhaps a belief) of mission over money. The entity has a purpose. That purpose requires capacity. And the costs of that capacity cannot or will not be covered by earned revenue or investment (which is why it’s a nonprofit). Capacity has a cost in the for-profit world, as well. But the promise or proof of earned revenue generated by that capacity helps cover the bet.
In the nonprofit world, capacity doesn’t generate adequate revenue, so donors, debt, and unpaid labor tend to fill the gap. This can make the enterprise (and the balance sheet) weaker over time, manifesting in deferred maintenance, old or faltering equipment, and underpaid, overworked, or under-supported staff.
The climb toward beautiful work is an essential part of a thriving arts organization. But it's the arts manager’s job to make sure the road rises to meet you.
From the ArtsManaged Field Guide
Function of the Week: Program & Production
Program & Production involves developing, assembling, presenting, and preserving coherent services or experiences.
Framework of the Week: Statement of Financial Position
The Statement of Financial Position (also known as the Balance Sheet) is one of the three primary financial statements used by (and required for) formally organized business entities in the United States. The Balance Sheet reports a company’s Assets, Liabilities, and Net Assets at a specific point in time. In brief, it offers a “snapshot” of what a company owns and what it owes to lenders and investors.