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Financial literacy in the cultural sector: is there any research done?

Copyrights: Oleg Dergachov

In a time of a global financial crisis, identification and gathering of stable financial resources in cultural organisations with a non-profit, public or charitable status obviously becomes extremely difficult. Many business companies already cut their sponsorship involvement and other forms of corporate support. Foundations’ policies are different, depending on their status and the way they accumulate funds-from private donors, community involvement, regional or national cultural funds, percentage of the annual profit of corporations, etc. Governments in some countries already announced an increase of the state support for arts and cultural organisations and projects. Others are reconsidering their subsidies for the cultural sector without much certainty about the future....

My impression is that cultural managers in general do not favour mathematics and accounting. Financial analysis is not their strength. This is somehow normal as creativity and figures seems like two different worlds. In many cases cultural managers don’t realise that financial information is a “universal language” and is internationally recognised. Financial statements are done by people, about peoples’ relations and in a way to be useful for people. Gathering, analysing and interpreting financial information is a key to success in any organisation or project. Financial documents are the “mirror” or any organisation as they can give an overview on how an organisation functions, where the major problematic areas are, and how the future is foreseen. The three main financial statements which form the basis for analysis of an organisation’s performance are: the balance sheet, the profit and loss statement and the cash-flow statement. To be able to manage efficiently any cultural organisation or project, it is important to be able to read and analyse financial statements and reports, as they are the ‘wheels” in any management process.

Managers' job and accountants' job in a financial process is different. Elaborating the budgets at the beginning of a financial process and analysing and interpreting the data at the end of the same process is a managerial job. Once when the budgets and the fundraising strategies are planned and the organisation has started operating, there is logically a need to monitor and record all financial relationships and connections. Data gathering, processing and recording is an accounting activity. Cultural managers should certainly not be accountants, but they should be able to prepare and understand budgets and analyse financial statements so that their decisions for further development combine all aspects of a cultural process-creative, marketing, organisational and financial one. Therefore, an ongoing relation between top managers (directors) and accountants is required in order to secure smooth coordination between creative and financial activities in an organisation. This is certainly one of the pitfalls in the cultural practice, as artistic directors and top managers of cultural organisations and projects in many cases can’t read and analyse financial statements, while on another hand, financial managers and accountants are unable to fully understand artistic and cultural processes – they just record the transactions and processes in financial statements and journals.

The ongoing communication and joined work between the creative and financial top-managers and directors in an organisation is of utmost importance, especially in relation to decisions on:
- Choosing of the optimum size and most effective structure of financial sources and conditions of financing, while at the same time considering the creative potential, the core mission of the organisation and the expectations of the main stakeholders;
- Securing stable and long-term relationships with the sponsors, foundations, donors and other external support structures;
- Optimising the structure of the expenditures and balancing the expenditures with expected incomes (revenues) in order to manage the organisation in a situation of financial surplus, or profit while at the same time secure maximum motivation packages for the whole staff and contractors;
- Securing a positive cash-flow and accounting liquidity at any time and a full control on it;
- Identifying priority areas in the capital investments and innovative strategies which needs major financing.
- Considering the ratio between the investment costs and the operational costs and the critical point of return of investments.

Do we have researches done on the level of financial literacy of cultural managers and project managers in the arts and their training needs in this respect? What could be done to decrease cultural managers' fear of figures and financial statements?

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