Randy Cohen

In March 2014, the Nonprofit Finance Fund (NFF) published its annual State of the Nonprofit Sector.  While there are several reports published annually about the nonprofit arts sector—such as our own National Arts Index—this report offers the added appeal of showing how the arts stack-up to the rest of the nonprofit sector.  With a smidge over 5,000 survey responses, the arts made its presence felt with 919 responses. (Nationally, there are about 1.5 million nonprofit organizations, 95,000 of which are arts organizations.) It’s good to see arts leaders contributing to knowledge of the field by participating in such sector-wide research.

Financial Performance Indicators 

While I wasn’t one of those kids who read the last chapter of an adventure novel first, I will confess to jumping right to certain financial performance indicators in these reports. I am always curious about whether organizations are finishing the year with a deficit or surplus, or if they are breaking even.

• Among all of the nonprofit survey respondents, 28 percent ended 2013 with a deficit. Arts organizations fared a bit worse with 30 percent ending 2013 with a deficit.
• Ever the optimists, and definitely a sign of an improving economy, only 15 percent of arts organizations project ending 2014 with a deficit.
• The last National Arts Index report showed about 40 percent of all nonprofit arts organizations filing an IRS 990 tax form finishing 2011 with an operating deficit.  Thus, both the Index and NFF report show arts organizations just a few percentage points worse than all nonprofits in their tendency to run deficits.

Related are the findings about cash reserves.  A common rule of thumb is that an organization should have 3-6 months of operating budget in the bank as reserves to protect against cash flow issues caused by rising expenses or revenue shortfalls.

• 55 percent of all nonprofit respondents said they had three months or less cash on hand.
• Among the arts organizations, that figure was a slightly more concerning 61 percent.
• At the extremes, 16 percent of arts organizations have less than 1 month of cash reserve (bad news), while 21 percent said they have six months or more (good news).

Priorities for the Future

Nonprofit Finance Fund Survey

Given these financial findings, it is no surprise that nearly half of arts nonprofits (47 percent) indicated that “Achieving long-term stability” is their #1 priority.  A distant second was “not enough staff” (22 percent).  The evidence suggests, however, that arts organizations are addressing their #2 priority before their #1… 44 percent said they hired new staff in 2013, and 30 percent indicate that they will do so in 2014.

What is the Impact of Increased Competition in the Arts Marketplace?

We have reported before in this space about the persistent and rapid rate of growth in the number of nonprofit arts organizations. NFF asks a great question about increasing competition from new arts organizations. Interestingly, by far the most popular response (37 percent) was, “We have not experienced increased competition.” Really?? While I do believe that we are stronger as a sector when we collaborate and work together, most organizations working in the same market DO compete with each other for the time and affection of audiences, philanthropy, media coverage, and sponsorships. Other responses to this question, such as “reduced attendance” and “lower earned and contributed income” barely made it into the double digits. (Feel free to take issue with me on this in the comments section below.)

Looking Ahead

Hopeful views of the future and investment in new staff are evidence that the arts are resuming their entrepreneurial ways.

• 46 percent of the arts respondents expect their financial outlook to be the same as 2013. 35 percent indicated that 2014 will be harder and 19 percent expect times to be easier in the year ahead.
• In line with the optimistic side of that forecast, about half of the arts respondents will expand programs and services in 2014.

NFF has done the nonprofit field a service by conducting this survey and broadly disseminating its findings.  There are many more results in this report about services, grantmaking, and working with funders.  Give it a read and share with us what YOU find most interesting in the comments below!