06/02/2014 08:30 am ET Updated Aug 02, 2014

Financial Literacy

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Too many arts managers are not comfortable with financial concepts and data. They can create an operational budget that adds up correctly, but have little knowledge of the workings of the stock and bond markets, the implications of interest rate movements, or of recent economic activity. This makes it very challenging to develop credible financial forecasts and budgets. A strong budget cannot be based simply on internal analysis; an understanding of the financial environment in which the organization operates must lie at the foundation of any forecast. Those arts managers that appreciated the economic trouble brewing at the beginning of 2008 were equipped with budgets for the 2008/09 season that reflected the problems that lay ahead. Those arts managers who did not, suffered the most when the stock market crashed. And when we fail to achieve the fiscal balance projected in our budgets, we lose credibility with the very people who must believe in us if we are to continue to receive their support and the support of their friends and associates.

Financial literacy also plays a vital secondary role: those arts managers comfortable with financial concepts and with a grasp of the financial news have an easier time conversing with those board members and donors, and especially those prospects, who come from the business community. One of the easiest ways for arts managers to establish a strong leadership profile is to appear knowledgeable about major trends in the financial markets, important financial news items and how these are likely to influence the organization. Many of our supporters secretly or not so secretly harbor the belief that arts managers are simply failed business people. If we had what it takes to be successful in business, we wouldn't be working in the arts, they reason. We must work diligently to appear as professional and informed as any of their employees if we are to combat this belief and become the respected leaders our organizations need.

Creating a strong base of knowledge about economics and finance is not difficult even for those who did not study these subjects in school. There are too many books and courses available to name.

It is surprising to me how many arts managers do not even read the financial section of the newspaper. It makes sense that we turn to the arts news first every morning, but we must be up to date on stock market information, major mergers and acquisitions, moves by the Federal Reserve Bank, legislation before Congress that influences stock and bond prices, etc.

When we fail to impress with our knowledge of financial concepts, our board members feel the need to compensate for our shortcomings and tend to be skeptical about the budgets and forecasts we prepare. This leads, all too often, to board members and committees questioning our budgets, at best, and usurping the financial management function, at worst. This is a slippery slope that can lead to poaching of a whole host of management responsibilities, a sure recipe for disaster.