Sarah Thelwall talks about the nitty-gritty of running a business in the cultural industry and about how to fine-tune the financial side of cultural organisation’s work.
1. Strike a balance between your creative drive and basic financial knowledge
People who come to the creative industry or cultural sector seek to tell consumers about their products, including IT products that they created as a result of their creative activity.
During my training courses, I often draw a chart pitting those who are driven by a creative component against those who are focused on a client in their business. While the former are focused on realising their creative potential, the latter, representatives of the commercial sector, are above all interested in making an actual profit, and therefore often begin with the questions “What would the customer pay for?” and “How can I improve my product so that it meets those needs?” Therefore, in my opinion, the single and most significant feature that sets apart cultural organisations and creative industries from the commercial sector is their approach to work at the initial stage.
Plainly speaking, I would say that disdain for employing business skills is prevalent in the cultural industry. Thoughts along the lines of “I’m an outstanding creative person and will surely find my clients” sound fairly confident and arrogant, but often reveal a lack of understanding of the fact that they actually need to begin with ensuring a sufficient inflows of funds to be able to carry out their plans.
I am by no means encouraging creative people engaged in the cultural industry to shift their focus and create products proceeding from the needs of clients, as this is simply impossible for them, since their thought process works in a completely different manner. However, I believe that they can at least try to strike the kind of balance between their creative drive for working and possessing basic financial knowledge. This would significantly improve the situation.
2. Never rely exclusively on grants; it’s always better to have several sources of revenue
Another concomitant problem of cultural organisations is that many cultural professionals are used to having virtually all their activities financed through grants. They turn to European, state or local authorities with requests to fund their projects.
And I would say that this exceptional world where they are told “Here’s a grant, take it” is gradually disappearing in Europe. Therefore, it is imperative to find new ways of getting revenue. And people nowadays tend for some reason to resist changes instead of adapting to them.
You should never rely exclusively on grants; it is always better to have several sources of revenue. Undoubtedly, the type or source of financing will always depend on what the money will be spent on. For example, loans are suitable for the construction of a new building or its completion. In such cases, the use of loans to help address this issue, without lowering cash flow indicators to a critical level, is perfectly natural. But you should not use the loan for other purposes, as this may be risky and unjustified. Likewise you should not resort to crowdfunding to raise funds to cover capital costs, such as building repairs, purchasing equipment or undertaking certain studies. And this is the case for the sole reason that people want to see results, a visible positive result in the organisation that they can see with their own eyes.
Interestingly, the practice of generous funding of culture through grants is absolutely unheard of in the United States, where much less public funding is given out, though there is a very different attitude to private donations. From the perspective of taxation, it is more advantageous for Americans to give money in the form of charitable contributions.
So, if you had not previously attached due importance to the need to meticulously consider the financial side, then in the future, you will not be able to effectively address issues relating to revenue or diversification.
3. In a competitive environment, the budget has to be both effective and realistic
If you are setting about drafting the budget, first you need to make sure that you have clear-cut goals and a clear idea of your project activities. If you have the possibility of consulting the budget of a similar project previously implemented by you or a partner organisation, then make sure to give it close attention. Of course, this does not mean that you have to copy it. However, it will allow you to see what types and what level of organisation’s expenses would be useful to consider in the course of building up your own budget.
As practice shows, often cultural organisations fail to include “hidden” expenses, such as electricity, heating, lighting, telephone services, insurance, etc. Please note that in a competitive environment a budget has to be both economically effective and realistic.
As far as projected revenue is concerned, two options have to be reckoned. The first one is an optimistic scenario focusing on your aggressive set of goals, and that you should show the marketing and sales departments and potential sponsors. The second one is a reasonable and realistic one that includes the calculation of the minimum revenue that you have to generate to cover expenses or the funding gap between the project’s cost and allocated grant. This option should be shown to those financing your project and everyone else outside your organisation.
If I were to compare the minimum target revenue with a glass that should be filled, I would say, “I want your glass of water to spill over the brim, and you can always come up with what to do with the excess later.”
4. Find someone whose lead you can follow
In part, the best way to project revenue is to find a similar project and take a look at it. However, it is possible that a creative person would say, “No one has ever done this before. What I do can’t be compared to anything else.” Nevertheless, it is always very useful to find someone whose lead you can follow. It may be your initial experience of taking part in a call for proposals to organise, for example, the first creative centre in Ukraine. And it may well be that this will be something new for Ukraine, and yet there is a very real possibility that such a centre already exists elsewhere in the world. You can go and learn from them. And if you succeed in finding someone who is not your direct competitor, it is quite possible that he will share his experience with you, tell you what could go wrong, what you couldn’t have imagined before, and point to you what can be improved.
You can almost always find someone with whom you can compare yourself. But there’s another thing to keep in mind here. It makes no sense to compare yourself exclusively with the best players on the market. It is better to take a closer look at mid-sized organisations, as this will be a far more objective assessment.
If you strive to attract as many donations as possible, for your project to be the most popular and your website with the most traffic, it is quite likely that you will have difficulties achieving success in all these areas. It is better to ask yourself, “What is the minimum number of areas that should be included in my work?” And if you arrive at achieving this modest option, everything that you will achieve beyond this minimum will be viewed as an additional reward.
Thus, benchmarking is good to use for determining the general course. It will not show you what you need to do specifically with this and that, but it will tell you where the right solution lies, give you a wide range of directions. This is truly useful internally for an organisation, when you have to make a decision based on facts and data, and not only on the basis of previous experience.
5. Talk about when you expect to get positive results
Creative co-operatives are undoubtedly efficient. You can find thousands of examples of co-operatives working in culture around the world. I have seen a large number of organisations led by creative professionals and such organisations are nothing more than a group of people who have come together to create.
However, in such matters you have to always be careful, especially if you wish to cooperate on a barter basis. For example, let’s say we want to organise a cultural co-operative in order to open a gallery. Firstly, you have to discuss all work-related details, planned implementation stages of the project, money that needs to be spent on each of them and who is responsible for what. In addition, let’s assume that each one of us has different financial condition and, accordingly, a different starting asset base and a need to generate revenue within specific time limits. One of us may need to make money for food, to pay rent for his accommodation, pay for everyday expenses. Such a person would be interested in his investment paying off in the shortest possible period. Meanwhile, someone else can afford to wait five years for the investment to pay off, as running costs are covered by funds from other sources.
Therefore, it is also necessary to discuss how much time you can afford to wait to obtain positive results, otherwise problems may arise later. If you know that it may well take more than two months to get results, then you should tell your colleague the following: “We’ll need two years for this. What can we do so that I can go on working on the project and at the same earn a living?” Thus, the ability to understand different starting situations and circumstances influences the possibility for carrying out other inherent activities for which we do not receive financial compensation.
6. It is better to set a higher rate for your services than to undervalue your work
Let’s say that you want to make 50,000 a year. The sum is hypothetical; we need simple figures for clarity. At the same time, two days a week, i.e. 100 days a year, you would be able to dedicate to work with clients and take a fee from them. If you take five days a week, that would be a completely different approach to work, after all besides working with clients, there is also administrative work, meetings, search for potential clients, accounting. All of these are important components for which you cannot make the client bear a burden of expenses. And such work requires at least three days a week. Thus, if, let’s say, we have two paid days a week, 100 a year, you have to divide 50,000 by 100. So it turns out that your fee is GBP 500 a day.
If we assume that there are five paid days a week, then the daily rate will be significantly lower. The difference is that if we take GBP 200 a day, then in order to get a decent salary, you’ll have to issue invoices for more days a week. In reality, this is very unlikely. Therefore, you need to set the right rate proceeding from what you wish to obtain as a result.
Incidentally, there’s one more point that also needs to be taken into account and that is the willingness of people in this segment to pay the set price. However, I always say that it is better to set a higher rate for services than undervalue your work. This means that you can devote fewer days to working with clients instead of running around like a madman trying to work more days to make a decent living.
This also means that to some extent you can afford to be generous in your work. For example, if there’s an interesting or somehow useful project for me, I can afford to work longer on it for the same money. You see? But I can afford to do this only if I am paid well. If I am paid little, why go out of my way?
If you have a low evaluation of yourself, people may think that you are not sufficiently professional. Conversely, if you overvalue your services, this may deter certain clients. So what, if you have enough work. But if you urgently need money, for instance, to pay your rent, do what you see necessary, do not be afraid to agree to a lower price. However, if you have enough work, the last thing you need is to do it on the cheap. It is better to be regarded as an expensive professional and work fewer days a week than to be swamped with work for a low price. Where’s the pleasure in that?
You also have to note that raising the price for a client is very difficult. If you have already said that your fee is GBP 200 a day, and you are dealing with a long-term client, who is used to the fact that you work for this rate, I am certain that he will not agree to a price increase. And not because he doesn’t like your work, but rather because this expense item has already been provided for in the budget based on the amount you had earmarked initially. Personally, I was able to raise the price for a permanent client only once in 20 years. I have addressed this issue in the following way: once I get a client, I work with him for the same price permanently, and when I want to raise my rate, I give it to new clients.
7. Instead of doing everything absolutely perfectly even before launching a project, it’s better to launch a pilot project and test it in practice
Creative people tend to spend a lot of time and money in search of the perfect visual solution for a brand, the proper perception of it by a consumer, on creating a perfect website, logo. Although I recognise the importance of all of this, this too is fraught with two pitfalls.
Firstly, you will never reach a firm decision and spend months on coming up with and approving the perfect logo, or developing the website, at a time when you just need to be moving forward.
Secondly, you are spending money on this, money which in this case is as good as wasted. After all, if you are implementing your idea for the first time, there is no guarantee that everything will go as planned.
Turn your attention to the right direction, because if you are going to be so busy making sure that your idea is conveyed as perfectly as possible, this will, in a sense, slow down the whole process. Instead of doing everything absolutely perfectly even before launching a project, it is better to launch a pilot project and test it in practice. For the first trial, it is enough for the project to inspire trust, focus on a right consumer and be satisfactory as a whole.
It is likely that my position will not please the creative team, but this will be useful for them. Not without reason the English have a saying, “Perfection is the enemy of good enough.”
8. That reality doesn’t meet expectations doesn’t exactly mean that it’s not what you were looking for
In fact, when you are doing something for the first time, reality rarely meets your expectations. If you have not done anything similar in the past, your ability to accurately and rationally evaluate events is unlikely to be great. And in this case you should ask yourself the following question: “So it’s not what I expected, but does it work in overall terms?”
Let’s say you have imagined a certain target audience, but you obtained a different one. Does it really appreciate what you are doing? After all, that reality does not meet your expectations does not exactly mean that it is not what you were looking for. Could it be that you accidentally found what you needed? And when it comes to the target audience, this issue needs to be raised at least once a year.
9. Taking part in events that don’t bring immediate profits is worth it, but at the same time you need to understand what exactly they will give you
Quite often, the organisers of events themselves call you and ask: “Would you like an exhibition spot? We are holding a so and so event, would you like to take part, do you have your own stand? It will cost this much.” In such cases, you should always immediately discuss what exactly you would gain from participation, why it would be useful.
Could there be situations where you are going to do something and not make money from it? Of course. This is time for marketing. You promote your product, people learn about you, you can find a new client base that you didn’t have before. There are many reasons but you have to make sure that you will actually get what is promised.
For example, a number of events are held in the UK where I am often offered a stand. These events are mostly attended by fresh graduates. They don’t pay me, and the likelihood that a few years from now they will come and pay is quite low. And that means that it’s not worth it, it’s not my market. In any case, taking part in the events that do not bring immediate profits is worth it, but you should understand, at the same time, what exactly they would do for you and when they should be included in your activities.
10. Make time for your accounts at least once a month
There are many software packages that can help you keep track of accounting, though most of them are in English. I have developed my own software, MyCake, in partnership with KashFlow IRS. We are one of those who provide online accounting services, and I personally think that such a system works best for small businesses or organisations. It is more convenient and cheaper than someone sitting at a computer in the financial department. This is because such systems make it possible for different people to access different information volumes, it will never get lost even if, for example, the computer gets wet or breaks, it will still be there.
Today, it is easy to save completed work and have access to it from different locations. In addition, you can add other additional programs and applications to this program. Recently I installed Receipt Bank for myself. For example, I’m driving somewhere, I had a cup of coffee on my way, got a receipt. I can take a photo of the receipt, and it goes directly into my accounting system. And if it is in a foreign currency, then the system converts it automatically into the right currency. I can also link my system to PayPal, add different stores, operations… Most such accounting systems have inbuilt applications and I think that this is a viable solution.
It is also okay to have a specialist who manages your finances. So it is up to you whether you want to use a program or hire a specialist, however you have to make a decision and regularly make time for accounting, at least once a month, to monitor the current situation and understand it… If you do everything right, you will be able to predict your future revenue, which in turn will allow you to calculate the approximate amount of taxes.