I spend a great deal of time writing about the imperative for arts organizations to focus on revenue. Adding revenue allows arts organizations to pursue their missions and meet financial obligations.
Yet, unfortunately, it is far easier for boards and staffs to concentrate on expense control as a solution when money is tight.
This is understandable: limiting expenses seems so much more controllable than searching for new revenue especially when the economy sours and many people question whether additional earned and contributed income can be achieved. In fact, I have observed that boards will do just about anything to reduce the pressure on fundraising even if it means reducing the ability of the organization to pursue its mission.
Raising more revenue is a much healthier and mission-driven approach to solving cash problems. But this does not mean it is the only approach that should be pursued.
One important technique for cash-strapped organizations is developing a payables strategy.
Most troubled arts organizations exert one form of payables control: they simply don't pay their bills on time. But there are more sophisticated tools available for managing payables and every arts organization that is facing cash constraints (and many are in this economic climate) should, at least, explore them.
The basic premise when approaching a mounting pile of payables is that almost no one benefits when an arts organization goes bankrupt, especially creditors. Because the liquidation value of most arts organizations is so low, creditors face losing everything they are owed in bankruptcy.
So developing an extended payout plan is almost always a palatable option for creditors, as long as the payout plan is believable.
I also seek forgiveness of debt wherever possible. When I arrived at American Ballet Theatre in 1995 we owed $5.5 million dollars to a variety of creditors. I asked my secretary Rhoda Oster to approach every vendor to whom we owed money. In most cases the debts were small and so old that the artists had written them off. Rhoda achieved almost $250,000 of forgiveness.
It is also essential not to use all the cash on hand to pay off old payables unless it is essential to do so and, especially not to pay the squeakiest wheel first simply because they complain. Prioritize your debts based on whose services you need the most, not who screams the loudest.
Many arts organizations use a large emergency grant to pay off as much as possible as soon as possible and then find themselves in another cash bind. The longer the cash emergency lasts, the harder it is to find donors to make emergency grants.
I prefer to keep money on hand and only pay as much as is necessary.
Reducing payables is an incremental task; shrinking the payables stack every month indicates a successful turnaround.
Achieving a payables plan with each vendor can only be achieved if you are communicating with vendors. Too many organizations refuse to answer vendor calls (because they can be so unpleasant) and provide no information about when payments may be forthcoming. This simply angers the vendors and makes it harder to come to a longer-term solution.
And finally, as with all aspects of fixing a troubled organization, celebrate successes. When the entire organization celebrates the shrinking level of vendor debt, everyone becomes more confident that solvency can be achieved.
And this makes it far easier to get to the vital task of building revenue!