Sunday, December 2, 2018

What Do You Do If The Economy Goes South?

Good morning
And the beat goes on..........................

Economic health is a cyclical thing.  It goes from robust to decline, and back again, with some regularity.  That's due in part to the reality that the economy is largely dependent on human confidence or lack thereof, and that condition is subject to all kinds of subjective criteria - including politics and paranoia.

Of late, the stock market has been on a mini roller coaster, rising and falling, though the underlying conditions really haven't changed much.  The once stratospheric housing market is cooling off, and some say it's over.   Both of these markers may simply now be in a period of what is called "a correction".  Add to that, global trade wars have investors worried, resulting in layoffs at some affected companies.   It may be that the decade long growth in the economy, including record low unemployment, may not continue unabated for the longer term.

So what happens if the economy cools off considerably?  What will it mean?

History tells us that another recession is probably a matter of when, not if.  But how deep a recession and how long might it last?  Nobody can definitively answer those questions.

The deeper the downturn, if there is one. and the more likely, for us in the nonprofit arts, that our widespread undercapitalization situation will leave many of our organizations hurting, if not their existence threatened.  Nonprofit arts organizations continue to rely on five revenue streams: government support, foundation support, individual philanthropic support, performance or exhibition revenue from audiences and earned income from all other sources.  Earned income has never, unfortunately, been of significant size to rescue us from downturns in our other cash flow streams.  And, as we are all painfully aware, maintaining high levels of audience income continues to be challenging.

When economic conditions change negatively, government usually sees a reduction in income, and their natural response is to cut back on expenditures.  Unfortunately, for us, the arts are most often one of the early casualties of that approach.  Such cuts are rarely the same across the board.  Some states and local jurisdictions have reserves and will weather any economic downturn better than others, and so the hurt for the arts won't likely be the same everywhere, if, in fact, the economy does a downturn.

The same may be true of foundations, who will be under pressure to divert funds to a host of other seemingly more demanding and priority causes.  And in any case, foundations lack the resources to  rescue all the organizations, no matter how worthy, that may be in peril.  And individuals - at least the middle class - may feel the squeeze and be less comfortable with the same level of their previous support.

So, if there is, in the future, another round of economic hard, or harder, times, at the very least the arts may find it more difficult just to tread water, let alone continue any growth.  Again, some organizations will fare well, others will have a harder time.

Of course, the economy may stay robust and healthy for quite some time still, but it's reasonable to anticipate that, at some point, we ought to be prepared for negative changes in the economies at the global, federal, state and local levels, with perhaps great territorial variation.  Economics is not a precise science, despite the preachings of the media pundits and the financial sector experts.  Right now may be a good time to consider what it would mean for your organization were a recession to be on the horizon.

So what do you do?

First, you take a long, cold hard look at your finances and capitalization, and your budget, to see where you might be if the worst case scenario were to happen.  The prudent thing to do is consider the issue before it's on top of you.

Second, you look at your projections for income and expenses with a suspicious mindset.  You try to figure out what income on your books might not actually materialize, and what expenses might increase.  You look at what you might be able to cut if it came to that.  In other words, you need a plan, now, in case of a precipitous or even cataclysmic event.  You may have only two choices: take in more money, or spend less.  You have to figure out which approach is realistic, and will work for you the best.

Its entirely possible that many smaller and even mid-sized organizations would be faced with cuts as the only alternative.  And so very hard decisions would need to be made as to where those cuts could / should come from.  There are no easy decisions here, and both predictable and unintended consequences would need to be considered and accommodated.  We're talking about some hurt here.  No way to avoid it if it comes to that.

Third, if changes in the economy are still sometime off in the future, this is a good time to address -head on - the audience development challenges.  We know our audiences are shrinking - big time for some, a tiny bit for others.  But all of us also know that the population is accessing art across levels of platforms very different from our historical live performance / exhibition audience paradigm.  We have simply got to figure out how to capture the larger audience that exists outside of our traditional approach.  And that's only the half of it, because then we've got to figure out how to monetize any new directions we take.  You may not be able to solve this conundrum, but we have absolutely got to begin to try now.  Any progress will help to minimize the hurt if, or when, it comes.

Again, some will be ok, others will not.  So Fourth, you have to figure out where you fall - a hiccup in your affairs, or a big time problem that will threaten what you do.

Fifth, on a local or regional basis, arts organizations should ratchet up their lobbying efforts now with government, so that if the time comes, they will have already laid the ground work for making their case in competition with all the other interest groups that will want a piece of the dwindling support pie.

Sixth, ditto that approach with local foundations, and individual donors.  Conversations should be held now about what to expect in an uncertain future.

And finally, watch this very short video clip:

It is a clip of a baby bear cub desperately trying to follow its mother up a treacherous snow capped mountain to safety at an upper ridge.  The little guy has a lot to overcome.  

Perhaps the most important thing you can do is, like the little cub, stay the course and keep trying.  You
Don't Quit.

Have a good week.