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Some disassembly required
The nonprofit arts organization was assembled from available parts. Some don't quite fit.
There is a bird and a stone
in your body. Your job is not
to kill the bird with the stone.
Victoria Chang, from “Love Letters”
It’s easy to forget that the nonprofit arts organization was not cut from whole cloth. Rather it was assembled from available parts – many of them designed and developed for the for-profit commercial world. And yet it seems a constant surprise that those parts don’t always fit.
Take, for example, the income statement – a financial report taken “off the rack” from for-profit enterprise and applied to nonprofit ventures. An income statement has a “top line” of revenue and a “bottom line” of profit or loss. In this story, revenue is the beginning and profit is the end. Expenses are the plot twists and the hero’s challenge in between.
That is not the story of a nonprofit enterprise.
For a nonprofit, the driving story is about purpose. That purpose comes at a cost. The financial story begins, therefore, with expense – with the “cost of mission.” Along the journey, earned revenue pays some of that expense, but won’t cover all of it. The remaining expenses define the “need for subsidy” and the opportunity for fellow travelers to share the burden of a common goal.
In short, the nonprofit story begins with expense and ends with a chasm (deficit) or a bridge (surplus) for the journey to come.
Many nonprofits acknowledge this essential shuffle when building their budgets. They start with program planning and the expenses they represent, then they project the earned and contributed revenue those programs might attract. If things don’t add up, they revisit the cost of mission and reimagine the many paths to revenue.
Still, when it comes to public financial reporting, most nonprofits are still entangled with the for-profit story line. So it’s up to thoughtful arts managers to remind themselves and those around them not to lose the plot.
From the ArtsManaged Field Guide
Function of the Week: Sales
Sales involves designing, deriving, and capturing inbound revenue from goods, services, or access.
Framework of the Week: Requisite Variety
W. Ross Ashby’s “Law of Requisite Variety” states that any control system must be at least as various as the system it seeks to control. Said another way, an arts organization needs a repertory of action that matches the world it seeks to engage. The more complex and various the world, the larger the repertory required.
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