Keeping control of costs or reducing costs within your arts organisation will be a constant challenge; made more complex by a need to maintain quality and standards.
It is important to start from the right place when considering costs. There are few if any individual costs within your organisation, that if cut, would not have an impact upon some other area or function. Everything is interconnected.
This suggests it is better practice to take an organisational-wide approach to cost management than to focus solely upon a single aspect of cost.
The easy, albeit lazy way is of course to simply look at a single significant cost, or the cost of labour and make a dictate that these should be reduced by a minimum percentage. In many instances you will likely achieve your short term goal to reduce costs, while likely doing irrepariable damage to the long term sustainability of your organisation.
Remember most costs can be cut once only. Cost cutting is not an exercise you can do ad infinitum. This suggests a strategy for being the lowest cost producer in your sector is likely to be unsustainable.
Cost reduction must also be looked at alongside measures for improving profitability through creating operational efficiencies and improving revenue through gaining more sales. Cost alone is only one part of the holy trinity.
Increasing revenue + cost control + effectiveness = a sustainable arts organisation
If you are fortunate enough to have a finance manager taking responsibility for financial management then you someone that should be monitoring revenue and costs on a daily basis. The key tool for overseeing finances is to project and monitor cash flow, in real time. Trends in revenue and costs then become easier to see, and potential problems identified before they create a desire for knee-jerk cost reduction programs.
If you don’t have a finance manager, it isn’t difficult for the Treasurer and Director to meet monthly to compare actual costs against projected costs. This will also allow your committee of management to make proactive decisions.
Even if all you do is take your financial accounts for the past three years and compare key items, revenue, wages, operational expenses, admin expenses, financial surplus or loss. The start asking question like, why has our revenue flatlined? Why are costs rising when wages are stable? What areas are we spending most our money? How might we do things differently?
Arts organisations fail because people on boards, committees of management and in management roles fail to ask and answer key questions. Don’t be one of those people.
art4u australia helps arts organisations to improve revenue, control costs and be effective. You can download our quick health check or email John Coxon at email@example.com