Have Arts Nonprofits Learned Anything from the Recession?

April 2, 2017; MiBiz

Arts organizations did not fare well during the big recession. While most did eventually bounce back, their journey through that period was marked by scarcity in most if not all of their revenue streams. Many depleted not just their reserves but whatever endowments they had, and because the end point to the crisis remained so uncertain for so long, a number of organizations faced the question of closing.

Some shared characteristics put arts organizations at severe risk—in particular, their need to capitalize new facilities, productions, and exhibits. Organizations that had started but not completed such campaigns found themselves in acute circumstances. Then, there’s the issue of where the arts stand in communities’ sets of priorities. General turbulence in the environment and the many threats of cuts to essential services and advocacy create a greater call on the available pool of donations. Lastly, there is the potential for the elimination of the National Endowment for the Arts (NEA), reducing the funding for arts in general. All together, this might constitute another perfect storm for many arts groups.

Even so, some arts organizations in Southwest Michigan are thinking about or have just finished major campaigns. One $5 million campaign described in this article as being in the early planning stage stuck me as having some large and well known risk factors. The organization is relatively new, and the leaders hope its unique nature will be intriguing to potential donors. But, the money is meant to build a facility and pay for only one year of operation. Buildings, of course, need care and feeding. They generate fixed costs and disallow a certain measure of budget flexibility. That can be hard on any new organization, never mind one being started in a turbulent and uncertain moment.

We want to remind our readers in fields facing uncertainty of some things to keep in mind:

  • Focus on keeping fixed costs low.
  • Focus on keeping liquidity and reserves high.
  • Make sure that you have a way to maintain relationships with donors even if your revenue dips and your staff development capacity wanes. This was a major difference between larger and smaller development offices during the recession.
  • Make sure your board understands the risk factors in the environment and knows what it is girding up for. That will allow them to plan for success even given any barriers or uncertainties that exist.
  • Read what we wrote about what happened to arts organizations during the recession. (Two particularly relevant pieces can be found here and here.) Forewarned is forearmed.

—Ruth McCambridge