Playing the Numbers: Learning the New Rules of Museum Finance

Playing the Numbers: Learning the New Rules of Museum Finance

• 1.
  Playing by theNumbers: Learning New Rules of Museum Finance Deborah Frieden Deborah Frieden & Associates Robyn Raschke University of Nevada, Las Vegas Marjorie Schwarzer & Ryan Pinter University of San Francisco
• 2.
  Pew Trust Findings(2007) 77% of cultural nonprofits: Weak or very weak financial position. 73%: less than 3 months of cash. 81%: inadequate working capital to invest In new ideas and infrastructure. Chronic low cash = unhappy creditors and low flexibility. Goal: break even & avoid a deficit year.
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  alance Sheets MarjorieSchwarzer and Ryan Pinter alanced Scorecard Robyn Raschke udgeting for capital campaigns Deborah Frieden
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  Know how toread your balance sheet • Balance Sheet – What you have, what you owe, and what you’re worth. • Assets – What you have that has $ value & can be measured. Some are more liquid than others. Some are depreciated over time. • Liabilities – Debts incurred in the process of obtaining assets. • Net assets – What you are worth. Difference between what you have and what you owe. To invest in organization’s health.
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  • Recurrent cashcrunch (which leads to excess borrowing) • Declining assets-to-liabilities ratio (dipping into reserves) • A major one-time contribution/influx of cash that extends services without guaranteeing long-term financial support or additional revenue. • Excess solvency: assets-to-liabilities ratio > 8.
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  Cash is King A healthy organization should have enough liquidity (cash) to cover 90 – 180 days of operating expenses. Divide an organization’s annual operating expenses by 365. Then compute: Cash + other short-term investments Daily cash required
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  MUSEUM A EXPENSES FY 2012 1.942 million 365 days FY 2013 1.935 million 365 days
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  MUSEUM A EXPENSES FY 2012 1.942 million 365 days = $5,321 per day FY 2013 1.935 million 365 days = $5,301 per day
• 9.
  Museum A BalanceSheet FY 2012 Cash 282,762 Savings 0 Prepaid Expenses 0 FY 2013 Cash 178,382 Savings 0 Prepaid Expenses 37,646
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  Museum A BalanceSheet FY 2012 Cash 282,762 Savings 0 Prepaid Expenses 0 TOTAL 282,762 FY 2013 Cash 178,382 Savings 0 Prepaid Expenses 37,646 TOTAL 182,148
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  Museum A BalanceSheet FY 2012 Cash 282,762 Savings 0 Prepaid Expenses 0 TOTAL 282,762 5,321 FY 2013 Cash 178,382 Savings 0 Prepaid Expenses 37,646 TOTAL 182,148 5,301
• 12.
  Museum A BalanceSheet FY 2012 Cash 282,762 Savings 0 Prepaid Expenses 0 TOTAL 282,762 5,321 = 53 days cash on hand FY 2013 Cash 178,382 Savings 0 Prepaid Expenses 37,646 TOTAL 182,148 5,301 = 34 days cash on hand
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  Grow Working Capital Ratio analysis is a quick rule of thumb to help you assess your capital position. A healthy organization will have at least $2 in current (liquid) assets for every $1 owed, but no more than $9: $1. • Current Ratio: Current Assets Current Liabilities
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  Museum A BalanceSheet FY 2012 Cash 282,762 Savings 0 Accts. Receivable 76,000 Inventory 30,237 Prepaid Expenses 0 FY 2013 Cash 178,382 Savings 0 Accounts Receivable 304,336 Inventory 23,199 Prepaid Expenses 37,646
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  Museum A BalanceSheet FY 2012 Current Assets 389,099 FY 2013 Current Assets 543,563
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  Museum A BalanceSheet FY 2012 Current Assets 389,099 Current Liabilities 118,679 FY 2013 Current Assets 543,563 Current Liabilities 95,425
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  Museum A BalanceSheet FY 2012 Current Assets 389,099 Current Liabilities 118,679 = 3.27 FY 2013 Current Assets 543,563 Current Liabilities 95,425 = 5.69
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  Thank you.
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  Playing By TheNumbers October 6, 2014 Planning A Capital Project © Deborah Frieden Deborah Frieden & Associates And Getting It Right From The Start deborah.frieden@gmail.com www.deborahfrieden.com
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  The Steps toA Successful Project Are: 1. Create Clear Goals & Objectives 2. Admit What You Don’t Know and Get Help As Early As Possible 3. Create Clear Decision-Making Process 4. Develop a Concept Budget As Early As Possible and Get Stakeholder Buy-In 5. Plan Resources To Address Both $S & People
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  Answering the 5Big Questions Why? How? What? When? Who? $ $ $ $ $
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  Why? • Willthe Project Further the Mission? • How Will We Better Serve Our Community? • What Are Our Key Goals & Objectives for the Future? Do We Have A Vision? • Can We Clearly Articulate Our Goals & Vision? • How Will A Capital Project Secure the Future of the Institution?
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  Bart’s Adventure –Education Program Space at Birmingham Museum of Art Capital Projects From Small to Large de Young Museum
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  How? • HowWill We Define the Project? • How Will We Implement the Planning? • What Kinds of Expertise Will Be Required? • What Are The Resources We Can Bring? • How Will Funds Be Raised? Have We Got a Fundraising Plan?
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  It’s About thePeople and the Process Program Planning with Senior Staff Kathleen Bartels, Director of the Vancouver Art Gallery (pictured). Museum of Craft and Design Planning Session
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  What • Program  Space Needs – Quantitative  Functional Use Descriptions – Narrative & Qualitative  Technical • Benchmarking – Context for Decisions
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  When • EstablishingOverarching Time Based Needs  Fundraising  Institutional Direction & Vision  Capacity of Institution & Resources  Outside Controls or Influence • Building a Schedule From Milestones • Creating a Cash Flow Statement  Linking Funding Sources to Outflows  Pledge Timeline
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  Establish A ConceptualBudget As Early As Possible A Concept Budget Is Used for: • Establishing Fundraising Budget & Plan • Hiring Architect & Engineering Team - % of Hard Costs for Fees • Establishing a Design-To-Budget
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  Hard Costs =General Construction Costs Are Built on Program: Space, Use & Technical Needs Step 1 – Create a Conceptual Budget for Purposes of Initial Planning • Use Benchmarking to Understand the Range You’re In • Use Your Space Program as a Basis • Hire an Estimator • Use Benchmarking as Reality Check • Use the SNIFF Test
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  Benchmarking  Sizeof Comparable Spaces  Percent of Total Space to Specific Dedicated Spaces  Project Costs With Escalations Cautions with Benchmarking  Reporting Differences - No Apples to Apples!  Dramatic Economic Changes  Projects Scope Differences  Sources of Data
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  $s per 2013Today's Cost at Opening S.F. 2.7% per Yr. $s Museum 1 California Hard Costs $ 143,000,000 $ 488 $195,675,743 $668 Total costs $ 202,000,000 $ 689 $276,409,092 $943 Museum 2 Southeast Hard costs $ 80,600,000 $ 455 $108,660,063 $614 Total costs $ 124,000,000 $ 701 $159,901,792 $903 Museum 3 Midwest Hard costs $ 18,850,000 $ 661 $20,386,275 $715 Total Costs $ 29,000,000 $ 1,018 $30,450,000 $1,068 Museum 4 Southwest Hard costs $ 120,250,000 $ 668 $130,050,375 $723 Total Costs $ 185,000,000 $ 1,028 $200,077,500 $1,112 Museum 5 New York,N.Y. Hard costs $ 50,000,000 $ 852 $60,236,576 $949 Museum 6 Northeast Hard Costs $ 26,200,000 $ 762 $27,510,000 $800 Museum 7 Midwest Hard costs $ 27,200,000 $ 800 $28,560,000 $840 Museum 8 South Hard costs $ 19,500,000 $ 696 $25,145,846 $855
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  Education Program SpaceBenchmarking Education and Program Areas by Museum Gross Building Area Education & Programs % Programs to Total Museum 1 311,389 21,400 7% Museum 2 589,000 20,800 4% Museum 3 630,000 67,600 11% Museum 4 163,500 5,000 3% Museum 5 234,000 6,875 3% Museum 6 292,000 17,981 6%
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  Building a Budget Hard Costs = General Construction Soft Costs = • Fees – A&E, Specialty Consultants, Project Management, Legal, City Agencies, etc. • FF&E – Furniture, Fixtures & Equipment • Relocation Costs • Public Relations & Marketing • Operational Ramp Up • Operational Deficit Support • Financing • Fundraising • Events
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  Renovation of Existing Buildings Birmingham Museum of Art de Young Very Different Than Building New
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  Step 2 –Use the Conceptual Budget to Kick-Start Serious Planning – Move from Gross Estimates to More Specific Budgets • The “Who” Internal to Organization is Established • Address the “Who” External to Organization  Hire Architect and Consultants  Address P.R. & Marketing along with Fundraising • Continue Building Soft-Cost Budget • Use Benchmarking as Reality Check • Use the SNIFF Test
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  Who • BoardLeadership  Establishing Committees & Terms of Reference  Fundraising and/or Capital Campaign • Staff Leadership  PM Liaison with Whom?  Decision Making Structure  Resource Allocation • Selection and Contracting of Expertise  Architects & Engineering  Economic Advisors  Legal Counsel  Campaign & Political Consultants
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  People Going ThroughA Process with Shared Goals Full Cost Benefit Reduced Risk Investment Security Institutional Sustainability
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  A Balanced Viewto Strategic Performance Measurement Robyn L. Raschke, PhD., CPA Lee Business School-Accounting
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  Think about it… Would you be able to drive from home to work ONLY by using the rear view mirror? Source:http://www.qcidirect.com/rearview-mirror-extender.html
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  It’s not enough  Although important, financial statements measure PAST performance.  A Balanced Scorecard (BSC) is a management tool that considers financial and non-financial measures by linking strategy to measurable goals
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  It begins withyour MISSION  What is your organization’s vision of the future?  Why does it exist?  It should focus on the OUTCOMES the organization wishes to achieve (end) and not the programs (means)
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  4 parts tothe BSC The Mission Financial/Governance Perspective Internal Perspective Intellectual Perspective Customer/Public Perspective If we succeed, how will we look to our financial donors? How do we create value for our customers? Which processes How can we must we excel? learn and improve?
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  Financial/Governance Perspective Accountability between the museum and society  Objectives & Measures include:  Fundraising capability  % increase  Diversity of sources  Fundraising efficiency (fundraising expenses divided by total contributions received)  Increase in partnerships/sponsorships  Help share cost of exhibits  Increase in earned revenues (gift shops/events/café/etc)
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  Customer / PublicPerspective  How do we create value to our community and visitors?  Objectives & Measures include:  Public engagement  Increase in first-time visitors  Percent of returning visitors  # of schoolchildren that visit  Range and variety of programs  Visitor satisfaction  # of collaborative projects with other institutions
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  Internal Perspective Operational effectiveness & human resources  Objectives & Measures include:  Staff & Volunteer development  Employee satisfaction  % of budget dedicated to training & development  # of curators  Internal communications & Information processing
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  Intellectual Perspective Stewardship of collections and development of new knowledge  Objectives & Measures include:  Preserve collections  Percent of work displayed  Artwork purchased  Artwork loaned to other museums  Knowledge creation  Publishing  Research Grants  Media coverage on exhibits
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  Example: Museum ofthe American Cocktail “the Museum of the American Cocktail seeks to advance the profession and increase consumer knowledge of mixology while stressing the importance of responsible drinking. MOTAC celebrates and preserves a rich aspect of American culture while providing educational resources for professionals and the public. We also aim to broaden career opportunities in the spirits industry and encourage more participation from women and members of under-represented groups in the field” Source: http://www.cocktailmuseum.org/about/
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  Example only (thereis no “correct solution”) Perspective Key Goal Measure Financial/Governance sponsorship capability increase in # of sponsors, diversity of sponsorship Customer/Public engagement capability # of public events, # of events to the professional mixologist Internal staff & volunteer recruiting capability quality of staff, employee & volunteer satisfaction Intellectual knowledge creation capability # of publications, # of curated exhibits
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  Note: KPI’s areKey Performance Indicators Source: Boston Consulting Group (2011) & A. Zorloni (2012)
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  Thank you! Contactinformation: robyn.raschke@unlv.edu Resources used for this presentation:  Kaplan, R.S. (2001). Strategic Performance Measurement and Management in Nonprofit Organizations. Nonprofit Management & Leadership (11:3), pp. 353-370.  Zorloni, A. (2012). Designing a strategic framework to assess museum activities. International Journal of Arts Management (14:2), pp.31-47.