Despite dire predictions from many—including me—the cultural sector has emerged from the pandemic with strengthened finances. Federal funds, philanthropic largesse and extensive cost cutting have left many arts organizations with sturdier balance sheets than we have seen in decades. Early data from SMU DataArts for 500 cultural groups shows that the median organization had six months of unrestricted working capital in 2021, compared to two in 2019. Many of RTA’s clients, both large and small, have seen similar or greater increases in their liquidity.
Arts leaders know these gains are temporary and don’t reflect material changes to their core business models, which should reliably bring in earned and contributed revenue to cover costs. In many cases, liquidity gains came at the expense of artists and administrators who were let go temporarily or permanently. In some cases, one-time windfalls from national funders and major donors appeared like manna from heaven.
Pink slips and plum gifts aren’t the stuff that sustainable budgets are made of. As labor costs rise and pandemic funds evaporate, some organizations are already beginning to see the reemergence of earlier operating gaps. These deficits threaten to erode one-time, pandemic-fueled liquidity gains.
But it doesn’t have to be this way.
Newfound assets present a launchpad for __comprehensive capitalization__: _the allocation of liquidity for the pursuit of change, assurance of stability, and management of risk_. Cognizant that this flush feeling may be fleeting as the risk of recession rises, many of our clients have been asking how to develop a sound strategy for recently accumulated funds. Some are simultaneously preparing capital campaigns to secure additional assets that they believe will help them navigate the future. Capitalization planning helps organizations with newfound assets _and_ those that seek to raise new funds.
To capitalize on this moment (pun intended), we recommend three ways cultural organizations can secure, deploy and save assets to achieve sustainability goals.
Battered by the news headlines, conversations in many cultural nonprofit boardrooms have turned to questions of “what if?” Over the past month, I’ve participated in several discussions that went something like this:
- “What if our major donors shift their funding to social justice, women’s rights and legal advocacy organizations?”
- “We just heard from a national funder that their longtime support of our organization may be in jeopardy. How will we meet this year’s budget if they reduce the size of their annual gift?”
- “What if the NEA [goes away](https://www.nytimes.com/2017/01/30/arts/design/donald-trump-arts-humanities-public-television.html)? How will potential ensuing cuts in government funding at the state and local levels affect us?”