DALLAS--(BUSINESS WIRE)--The National Center for Arts Research at SMU (NCAR), an organization providing evidence-based insights that stimulate the health and impact of the nonprofit arts and cultural industry, has found the majority of arts and cultural organizations have precariously low levels of working capital, or resources available to cover day-to-day operating needs.
In its “Working Capital Report,” NCAR found on average, arts and culture organizations had working capital equivalent to five months’ worth of total expenses. While this might seem like a comfortable cushion, it reflects very high levels of working capital concentrated among a minority of institutions. Working capital levels varied by arts and cultural sectors. Skewed by large institutions, art museums had average working capital of more than one year, while orchestras on average had only approximately 15 days of working capital.
“We are at a time when the financial health of our arts and culture organizations is at a critical level. While few arts leaders wake up with excitement over working capital management, many lose sleep over it,” said Zannie Voss, director of NCAR. “Healthy working capital gives arts leaders breathing room.”
Overall, NCAR’s research showed that the majority of arts and culture organizations are cash-strapped. Average working capital for performing arts organizations, as well as for half of the museums, is equivalent to fewer than two months of total expenses.
Moreover, the majority of organizations experienced a decline over time: 55 percent of organizations had less working capital relative to their expenses in 2016 than in 2013. More constrained working capital over time was the norm for organizations in every sector except Music.
Large museums averaged far higher levels of working capital than other types of arts and cultural organizations and skewed the overall average high, a phenomenon that was true over the three-year period the report was conducted.
“[We] have high fixed costs, and program costs can not only be high, but they can be lumpy. That is, since much of the expense for a given exhibition can fall within a limited time, and the flow of earned income and membership income is fairly steady, it can be helpful to have a larger pool of working capital,” said Jeremy Strick, director of the Nasher Sculpture Center in Dallas, Texas.
Other arts leaders have felt the financial pressure from low working capital.
“Philadanco is too important to this community and to the black dance community, and world of dance in general, to let it die because of funding cuts. Several prior corporate arts funders have left the city, and mergers of banks and the loss of foundation funding for dance have caused drastic changes. Most of the government and city funding suffered major cuts, and our bottom line felt it severely starting with the demise of the NEA’s Expansion Arts,” said Joan Myers Brown, DFA, DHL, DA, founder/executive artistic director of Philadanco (The Philadelphia Dance Company).
Some organizations with severely constrained working capital have been forced to take drastic measures. The Arkansas Repertory Theatre announced in April it was suspending operations and cancelling the rest of its season due to continued declines in ticket sales, contributions and grants. The board chair was quoted in a news story as saying the organization was asset rich and cash poor. The organization is attempting to raise $750,000 to remain open, while considering a new model of operations that might include producing fewer, less expensive shows with shorter runs and selling real estate assets.
NCAR integrates and analyzes existing national data, including data from DataArts, the U.S. Census Bureau and IRS, to reveal relevant insights into the health of arts organizations. Cultural organizations have capitalized on NCAR’s findings and have implemented practices that help ensure financial health for a long time to come.
“The level of funding from the community in 2016 was not sufficient to cover the expenses necessary to put on that season,” said David Bennett, general director of the San Diego Opera. “In response to the deficit, the board approved taking steps to improve the company’s financial condition. This included the kind of actions recommended by NCAR, such as selling an underperforming fixed asset – in our case, a Scenic Studio property – and using the funds to establish a reserve for the future. While continued work is needed, these steps allowed SDO to navigate through a period of negative cash flows.”
To read the full findings of NCAR’s “Working Capital Report,” visit: http://bit.ly/NCARWorkingCapital. The report also includes an accompanying white paper co-authored by NCAR Advisory Board member Rebecca Thomas, president, Rebecca Thomas Associates, which explains why liquidity matters and provides tips for arts professionals: “5 Steps to Healthier Working Capital.” Link to white paper: http://mcs.smu.edu/artsresearch2014/working-capital.
To learn more about how NCAR helps arts leaders answer questions and tell the story about their own organization's operational performance, visit http://mcs.smu.edu/dashboard/.
Established in 2012, the National Center for Arts Research at SMU (NCAR) provides evidence-based insights that stimulate the health and impact of the nonprofit arts and cultural industry and profession, equips leaders with tools and insights that strengthen communities, and shines a light on the relevancy of arts to drive engagement and expand participation in communities across the country. For more information, please visit smu.edu/artsresearch.
About Rebecca Thomas Associates
Rebecca Thomas & Associates (RTA) partners with philanthropic and nonprofit leaders to expand opportunities for community and cultural vitality. RTA helps grantmakers achieve impact by aligning capital to organizational needs. It assists nonprofits as they plan for, navigate and learn from change. It supports the field with knowledge and perspective about what it takes to build resilient institutions in the service of their missions. For more information, please visit http://www.rebeccathomas.com/.