Philanthropic advisor Rebecca Thomas remembers the plight of a struggling regional dance nonprofit organization that was barely making ends meet. In fact, the dance company was losing money year after year, says Thomas, a nationally recognized leader in her field.
The reasons why were mounting: Its costs exceeded its revenue, including a number of salaried dancers in its dance company; it was serving a socioeconomically challenged community, which limited how much it could charge for its programs, school and classes; and it was housed in an historic building that needed extensive maintenance and was even depreciating.
After consulting with Thomas and her team, the nonprofit realized it had a problem with capitalization, or the resources an organization needs to fulfill its mission over time. If the nonprofit lacked funds to achieve its quarterly goals, then it was nearly impossible for the company to support its long-term desire of becoming the community’s premier arts institute.
With achieving capitalization in mind, Thomas helped the dance company plan a multiyear roadmap to understand how to improve its financials and strengthen its capitalization. Some concepts were very tangible, such as employing additional staff members to improve the development department, and others were more abstract, such as cultivating relationships with donors and funders. To better maintain its aging building, Thomas assisted the organization in finding a better way to articulate and position its needs for cash reserve.
“Capitalization supports artistic freedom. If there’s enough capital in an organization, it can take risks with artistic products, and it can innovate from a position of strength. There’s a deep connection between finances and the arts that cannot be undermined.”REBECCA THOMAS
Alongside the national association Grantmakers in the Arts and hosted by the Broward Cultural Division, Thomas will present her decades-long findings at two upcoming workshops on September 17 at NSU Art Museum Fort Lauderdale. Designed to build stronger financial health and vibrancy in the nonprofit arts sector, the half-day workshops strive to develop a common vocabulary about capitalization among both funders and grant seekers and investigate its universal application for financial health in the nonprofit world.
The workshops were created in part due to executives at Grantmakers in the Arts realizing the importance of educating funders on the needs that nonprofits naturally have. “We want cultural organizations to be better equipped to do their job,” says Eddie Torres, president and CEO of Grantmakers in the Arts. “To do so, we realized that we first need to make sure we’re talking to arts grantmakers about what it is to face the financial challenges of running a cultural organization.
“When organizations are poorly capitalized, they basically don’t have operating capital to weather a storm. When an organization isn’t capitalized properly, artists aren’t paid, programs are undermined, moral is low, and the strategy just becomes ‘how do we survive?’ Market volatility is real, and we have to act in response to that.”EDDIE TORRES
Torres likens it to having healthy personal finances, which most financial experts quantify as having six months’ worth of cash on hand in the event an emergency occurs. He says the average nonprofit has maybe three months cash on hand, and having that much can be a pipedream for many struggling groups.
During the workshops, Thomas touches upon sustainability, which she says is made up of three components: Does the organization earn and raise enough money to cover full costs every year and generate a surplus? Does it have enough cash on hand to manage risks (such as if the executive director leaves or a major funder can no longer provide support) and support risk-taking? Does the organization have access to capital for periodic change, such as growing to offer more programs, acquiring a facility to better impact a community or reaching a new audience?
The challenge, Thomas says, is becoming sustainable – and remaining so. “While we know sustainability is important, we might not have a clear understanding of what it looks like and how to get there,” she says. “One board member may think it’s an endowment, another might think it’s having a facility, and another might think sustainability is having enough cash on hand to cover cost and a few additional goals. During the workshops, we try to help organizations and their players achieve a shared understanding of what health and sustainability looks like to them.”
At the end of the workshop, Torres says arts organizations usually walk away with vocabulary on how they can better talk to a funder and board of directors, as well as newfound viewpoints. Board members and funders have inherent assumptions, he says. Some may believe creating an endowment is good idea, but the reality is that hospitals and universities mainly benefit from having endowments, he says. Another common assumption is to be healthy an organization needs to be growing.
“An organization that is growing is inherently not stable. You wind up with an organization that is in inertia and is always looking to the horizon on when they will be stable. The assumption is that if you’re stagnant, then you’re not growing. The truth is that you’re indeed stable, as long as you have some cash reserved for a rainy day. It might not be sexy, but it’s the truth.”EDDIE TORRES
For Thomas, who has been conducting these workshops across the nation for nearly seven years, seeing how both funders and nonprofits can rewrite their scripts on achieving sustainability through capitalization is the best part of it all.
“I’d like for everyone who attends these workshops to feel more confident in communicating their financial story and needs,” she says. “I’d like them to leave with an approach and a set of steps on how to improve their financial health. But most importantly, I’d like everyone to leave with an understanding that capitalization supports the arts. It’s all connected.”