Texas Ballet Theater, along with many other arts nonprofits, is quickly discovering the difference between a balance sheet and a cash flow statement. The major ballet company finds itself $500,000 shy of the cash it needs to pay current debts, and $2 million short of its annual needs. Says board chairwoman Robin Arena:
“Up until last year, we had a balanced budget…. But having
a balanced budget on paper is not the same as being financially stable.”
Arena has offered to step down if it would help the organization reach its emergency fundraising goals. And she blames the board and leadership team (herself included) for allowing the gulf between income and expense (or between current liabilities and available cash) to grow so large. Says Arena again:
“I don’t want to put other people down, because the finger could be
pointed at me, too, but there are some huge staff weaknesses [when it
comes to] not putting budgets together or not approving them
correctly…. Ultimately, [the budget] would be the managing director’s job, but we didn’t believe he had the skill set in that job.”
So, essentially, the administrative leadership and the board would have to say ”no” to all three of the CEO questions I posted last week.
It’s yet another indicator that the financial health of the cultural nonprofit world was clouded quite a bit by the economic growth of the past decade. And the story offers more proof that every significant nonprofit should map and adjust their cash flow projections, even if they’ve passed a balanced budget.
The budget shows you the beginning and end of the roller coaster ride, but it shows nothing of the nail-biting ride in between.
Great issues to raise with the questions last week and this primer on some of the basics. I want to raise the question, though, about whether or not they did actually have a “balanced budget”. I did a quick review on Guidestar and noted that the balance in Unrestricted Net Assets on the balance sheet has been decreasing in 2004, 2005, and 2006. If they are running out of cash then I would guess that maybe 2007 was also a deficit year. That would mean that the operating budget has not, in fact, been “balanced”. This is so easy for nonprofit managers and directors to miss because of the confusing accounting requirements about restricted and unrestricted funds. It’s not easy to understand and so easy for temporary project grants to make the financial picture look much better than it really is. That distinction needs to be yet another part of required training.
Thanks Kate, for doing some legwork!
You provide more evidence that the board and the professional leadership lacked the ability to flag early indicators of financial trouble — a skill and a responsibility that should be fostered by professional leadership, but ultimately falls to the board.
Andrew,
I’m actually planning on using this case for a workshop next week. There’s been a series of articles in the Star-Telegram discussing the ballet’s financial woes.
One of the big misconceptions of the nonprofit sector is that revenue must equal expenses every year, which is not true. If that were the case, an organization could never increase its assets and therefore never increase the stability of its capital structure. That’s like telling individuals they have to spend all the money they make every year and not put any away in a savings account. Is it good to have no money in your savings account? Of course not – so why is that equivalent situation ok for a nonprofit?