The economic news coming out of Europe these days is grim. The fiscally strong Germany calls the shots, forcing its southern neighbors -- most conspicuously, Greece -- to adopt draconian austerity measures in exchange for massive European Central Bank loans designed to keep national economies afloat. Is it any wonder that unemployment in Greece has skyrocketed and economic growth is non-existent? Spain and Italy are not far behind. It’s payback time for years of living beyond national means; robust pension plans, health care, and other social services are withering for many European countries. The upcoming elections in France may decide if Europe’s second largest economy can avoid another recession. Fasten your seat-belts, mes amis – it’s going to be a bumpy night. Here in the U.S. the solutions to our own economic hurtles – high unemployment, weak growth, and a too large burden of debt – are subsumed into the ever hardening ideological debates of the right and the left. Will it be “cut, cap, and balance” or “we are the 99 percent?” Perhaps we’ll know for sure in November. Or perhaps not.
As I read my daily Washington Post and digest all of this economic mud wrestling, I often find myself chuckling quietly as I am reminded of some potent words of wisdom that good non-profit arts managers not only preach, but usually practice. I humbly offer this advice to the world’s financial ministers, moguls and mavens as my own small contribution to solving our global economic problems.
Rule #1: Don’t project a deficit budget. Our boards of directors don’t like it when we serve them up an out-of-balance budget to approve. This means that revenue projections should be conservative and expense projections should fall within the revenue. Plus a little extra net revenue to feed the fund balance. Just a tad. You really do have to live within your means.
Rule #2: No long term borrowing to fund your operations. Long term borrowing is for buildings. Grow your working capital to finance your operations. If you absolutely must borrow to pay the bills, make it short term and know how you will pay it back. Get yourself a bank line of credit when your finances are in great shape so that you have it available when cash flow gets murky.
Rule #3: Put some cash aside. Even better than a line of credit from the bank, create your own “working capital fund” and borrow from yourself! And don’t even think about using this fund balance as a means to hide deficits. Tsk tsk. Who do you think you are? Congress?
Rule #4: You can’t cut your way to fiscal health. As Dolly Levi said, “Money is like manure; it's not worth a thing unless it's spread around encouraging young things to grow.” Leave those production and marketing budgets alone! I would certainly recommend that Paul Ryan and Mitt Romney read Michael Kaiser’s The Art of the Turnaround.
Rule #5: You don’t have a crystal ball. State governments have been very fond of projecting overly-optimistic rates of return on pension fund investments in order to kick the can down the road. Now all those pension pay-out chickens are coming home to roost and wreaking havoc on state budgets. Just ask the Governor of Illinois. Since we don’t know the shape of things to come, we can help ourselves if we do a very good job in managing our risks. Let’s face it; creating art is a pretty risky business, in so many ways. So by all means, take those artistic risks. But just make sure you understand the downside and plan for it. After all, “whoops” is not a word our trustees and major donors like to hear.
Are you on to me? I’m not really speaking to world leaders. I do have chutzpah but not that much. I just find myself shaking my head over the incessantly woeful economic news and thinking about the old days when business and government leaders used to look down their noses at arts managers as they wagged their finger, “If only you ran your business like we run ours you wouldn’t get into these messes.” To which I now say, “Ha!”
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