Arts Finance - Balancing the books

Financial administrators in the arts sector are walking a tightrope. Organisations that have struggled to control costs are now in crisis. The black hole at the Royal Opera House has dominated the headlines for several weeks and, in the past month, the Royal Shakespeare Company has announced a #1.6m deficit.

There are hundreds of organisations like these in the UK, from the small to names that are known worldwide. Revenue funding has been static since 1992. So theatre, ballet and opera companies, orchestras and many galleries work in a mixed economy that relies on a public and private subsidy, box office and other earned income for survival.

Ex-Arthur Young accountant Jack Haslam has a unique overview as finance director of the English National Ballet. As finance director at the London Arts Board he oversaw revenue-funding decisions affecting 150 organisations from major theatres to small community groups.

Haslam is anxious to dispel any perception of chaos. ?Arts organisations are surprisingly resilient. In six years at the London Arts Board, only three organisations folded. Financial systems in arts organisations are better than those in equivalent small private businesses. Cash flow is an all-important tool.

?Most finance staff are now operating reasonable controls and producing two-year forecasts,? Haslam maintains bullishly. You have to hope he?s right because they will certainly need these skills over the next few years. With #812.1m already distributed by the Arts Council of England, proposals to extend National Lottery grant allocations to new good causes in unrelated areas mean increasing financial volatility.

At the moment, the three biggest players in the subsidised arts are the Barbican complex, the Royal Opera House and the South Bank Centre which manages the Festival Hall complex. The South Bank has a #113m Lottery bid under consideration to support an ambitious #150m redevelopment programme. The final decision, involving both the Arts Council and culture secretary Chris Smith, is due in December.

South Bank Centre chairman Sir Brian Corby may retire early if the bid is rejected. But key Labour luminaries are also associated with the project: architect Lord Richard Rogers, and publisher Paul Hamlyn who has promised #17m match funding.

Keeping in line all the elements of a multi-handed partnership funding package while waiting for Lottery support is said to require a complex balancing act from South Bank?s financial managers. Divided between the National Heri-tage and the Arts Council Lottery funds, the bid covers four art forms and has demanded high-profile partnership funding comitments.

Added to which, Hamlyn is likely, or so it is understood, to withdraw his #17m unless the project develops according to the existing plans. Nothing is certain in the pervasive atmosphere of political uncertainty. Labour is rethinking the way in which funds are distributed to the arts. The larger organisations currently exert considerable leverage and their needs have threatened to distort allocations to smaller operations. But, when the South Bank Centre?s giant grant has been determined, future lottery bids will be capped at #15m.

Policy on grant aid has historically spread funding misery evenly throughout the sector but this is now giving way to a more strategic approach. The aim will be to channel resources to fewer organisations at more realistic support levels. Already, the Scottish Arts Council is following this route; the London Arts Board is taking steps to reduce the number of client organisations receiving help; and others may follow. This does not suggest that there will be a solution soon for day-to-day concerns such as trying to predict box-office receipts, meeting the payroll, handling the bank manager and the possible removal of funding.

There are other concerns. Most arts organisations are structured as ?charities limited by guarantee?, which means that they will be affected by the current review of charity taxation. Finance managers face continued uncertainty about VAT on friends and supporters schemes (already a problem with local inspectors adopting inconsistent attitudes).

Investing in finance staff

The relationship of finance managers with artistic staff is of critical importance. The need to balance the budget means pressure to rein in cutting edge and experimental work. But the money men have to understand something of the creative side and get a feel for the objectives of their organisation. Working as a team requires good interpersonal skills in handling enthusiastic and committed staff who are not working in a standard business.

The input of good finance staff is increasingly valued within arts organisations and they have a particular role to play as custodians of the arts. Creative staff can no longer afford to overlook the commercial implications of programming decisions and are increasingly realistic.

Qualified finance staff in the arts are paid well below the going rate elsewhere, reflecting the poor remuneration of senior managers working on the creative side. This has caused concerns about adequate financial controls in some organisations – large and small. Certainly, many of the smaller ones have only survived successive funding cuts through improvisation and sheer determination. With staff salary levels eroded across the board, some have combined administrative and financial functions in a single post in an effort to save costs.

Steven Rutherford, a headhunter working at Michael Page, regularly recruits senior finance staff for arts organisations. He says: ?An accountant working for #50K in the commercial sector would earn #40K for an equivalent job in the arts. Despite this, I?m always confident that I can get the right staff for arts organisations. Accountants working in the arts are like creative staff. They appreciate arts.?

After years of austerity, financial managers in the arts are unanimous: there is no fat left to cut. So many economies have already been made that companies can find it diffi-cult to see beyond the short-term issues and to approach business development in a commercial way.

Some of the larger accountancy firms have taken a lead in training managers in the arts. It is also hardly surprising to see arts organisations turning to financial experts in business and industry for help with their forecasting, planning and commercial development.

The Association for Business Sponsorship of the Arts runs the Business in the Arts project which acts as a kind of dating agency. Its Board Bank scheme matches arts organisations with the senior professionals who can instil good corporate governance. A separate placement scheme finds private-sector specialists to tackle particular management problems. Over 1,200 individual placements have been organised to date, covering a range of assignments. Half of them have had a finance and business planning focus.

Chartered accountant Steve Payling was placed on assignment with the Compass Theatre, a touring company based in Sheffield. Trained at Price Waterhouse, Payling is now management accounting controller for the Recipe Dish Company, a major subsidiary of Northern Foods which has a strong tradition of supporting the arts.

Payling?s job has been to improve financial planning. This meant streamlining how Compass produced financial information and ensuring that this, and operational data, was properly used. The benefits to the company are obvious; sets of financial information, produced in isolation before, are now combined to create a wider understanding of the commercial operation. For Payling, the placement provided an opportunity to be less task-driven, to develop other skills, and to talk through and share ideas.

Rewarding expertise

Anupam Ganguli, finance manager for resources operation at the BBC, has helped Tara Arts and the Florence Trust through BSA. At the latter, he improved the financial planning skills of untrained staff, ensuring better controls, projections and financial policies. At Tara, he helped the organisation to comply with the Arts Council Lottery ?stabi-lisation? programme, which provides an expert makeover to selected organisations with the purpose of strengthening them creatively, managerially and financially. Ganguli was impressed with the ?amazing enthusiasm? of staff. Providing financial expertise is rewarding for individuals and companies involved both in one-off projects and in giving assistance at board level. It is certainly invaluable to the recipient organisations. In the past, there has been criticism of the performance of arts trustees, often due to their less than perfect grasp of financial complexities.

But accountability, corporate governance and getting the right skills at the top are becoming the most significant concerns to the sector, and to arts-funding organisations.