Expanding the Financial Toolbox (2007-2010)
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The majority of arts and cultural organisations are undercapitalised.
This means that they have less financial capital than they need in order to operate effectively and/or grow. They lack financial reserves to provide a buffer against financial shocks, like the reduction or withdrawal of a key grant or an economic downturn, and financial capital to invest in their development, be it artistic or organisational. Unrestricted income is hard to come by with most funding linked to particular productions or outputs and core funding is relatively scarce. For these reason arts and cultural organisations may benefit from using a range of financial mechanisms other than just grants. Such mechanisms cannot replace grant or other fundraised income, or compensate for a decline in earned income, but rather they can complement such revenue sources.
All the work we have done on this theme demonstrates the importance of offering sound diagnosis and capacity building support alongside the use of these financial mechanisms. This is necessary to ensure that organisations are asking for the right sort of finance for the right project i.e. a project that fits with their strategy for advancing their mission, which makes sense relative to their stage and state of development and which will contribute to their income rather than being a cash drain.
A small number of arts and cultural organisations are already actively pursuing work in this space and we are working with some of them, examples include a small cluster of arts and cultural organisations in Tyneside developing new business ventures based on digitalisation and a group of arts and cultural organisations in Scotland seeking to establish a new financing mechanism/s to support small scale creative practice.
Some of the alternative financial mechanisms that we have considered are mechanisms for raising or channelling philanthropic or blended contributions (commercial and philanthropic) for example, endowment funds, exchange and barter arrangements and bond financing. Others for example, loans and quasi equity (or revenue sharing arrangements) can be used to meet the development and set up costs of new products or services generating new unrestricted income.
Following our breakthrough report in 2007 into these so-called New & Alternative Financial Instruments, we have now revised and added to these documents to create the Expanding the Financial Toolbox report set which includes:
- Case Stories of how individual arts and cultural organisations can use alternative financial mechanisms
- A helpful glossary of relevant financial terms
- Introduction to alternative financial providers
- Case Story Part 1: A group of organisations explore ways to grow existing income streams
- Case Story Part 2: Creating a strategy for financial resilience through new forms of finance
You can also read three case studies we wrote in 2007 about arts and cultural organisations that received loans from Charity Bank and look at our very popular 'Income Spectrum' which shows the full spectrum of income that arts and cultural organisations can deploy.
Core individual resources
The resources listed below in type and alphabetical order are the key resources to use as you work through this issue.
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