The Accounting Equation for the Rest of Us

Posted on February 1, 2021April 24, 2021 by John Cattanach

One of the first things you are taught when studying bookkeeping or accounting is the accounting equation which is Assets = Liabilities + Equity. I had such a hard time getting this straight in my head because most people don’t ask what is the value of my assets? They ask how much is my company worth? Using some basic algebra, the accounting equation can answer this question as Equity = Assets – Liabilities. This equation makes so much more sense to me and I would think to many business owners.

In an earlier blog, I talked about breaking accounting rules. In that post, I cautioned that you need to understand and respect a rule before you can break it. So, let’s accept that the accounting equation is A=L+E. However, in my practice, I am going to turn that around when presenting information to my clients, so the equation is expressed as Equity (how much your company is worth) equals your Assets (what you materially own) less any liabilities (what you owe to others). Doesn’t that make more sense?

Admittedly I have not done a ton of research on why the equation is expressed as A=L+E, but I am sure the reason is along the same lines as to why debits and credits seem to be backwards from a client’s perspective. It may be as simple as this is the way the balance sheet is setup. In example, the traditional balance sheet might show $5,000 in Assets and $5,000 in Liabilities and Equity. Great the equation is in balance and all is good. Except, wouldn’t it be more informative to show the report as Equity is $-3,000 because your Assets are $8,000 but your Liabilities are $11,000. The net worth of the company is negative due to such high liabilities. This story does not come through on a condensed balance sheet.

What I am promoting is that we should understand the accounting basics, but we need to transform those principles into a form and language that makes sense to those we work for. So, for me, the accounting equation will be E=A-L so that I and my clients can better grasp the concept. However, I will be ready and willing to translate it back to A=L+E if you really need me to.

Creative Accounting

Posted on February 1, 2021April 24, 2021 by John Cattanach

Creative Accounting. Sounds suspicious doesn’t it. In many contexts it is a phrase to be weary of, but it can also refer to the creative side of accounting. Most people think of accounting as cut and dry, boring, and unimaginative. Well, it can be if you want it to be, but how you setup your finances, processes, and reporting tells a lot about your business. It is essential that your financial story matches what you are selling.

There are standards and good practices to follow in bookkeeping and accounting, but there are also a lot of choices and interpretations to be made. Setting up your Chart of Accounts and how you use those accounts should follow basic and accepted practices, such as how they are numbered, but what accounts you use and how you label them should match how you understand your business and how you want others to understand your business.

A big reason that people don’t like working with money or have trouble understanding their money is that they are using systems and terminology that they have been told use. These people have never had the opportunity work with someone that is not afraid to bend the rules and break the mold a bit. Your financial statements need to be accepted and understood by those outside your organization, but they do not need to be standardized. Having clear financial reports that mean something and connect with what you are doing will go a long way towards convincing others that you know what you are doing and that you have it together.

Money is not the end goal of many organizations, but money is the fuel that feeds the goals and mission of an organization. It is important to make sure your funding is truly going towards your priorities and not meandering in areas that are less important and less effective. Setting up your accounting correctly will help with using your money intentionally and see areas where money is drifting off course and could be used better elsewhere.

Don’t be afraid to have books that you, your staff, your donors, and grant administrators understand and reflect the true nature of your organization. However, a word of caution that all trained artists understand, you must know and respect the rule before you can break the rule. Be sure you understand the accounting rules you are breaking or work with someone that can help you break them.

Are you ready to break some rules today?

Remember When Flying Was Fun?

Posted on January 14, 2021April 24, 2021 by John Cattanach

Pre-9/11, taking a flight, especially a domestic flight, was a fairly enjoyable experience. There were some security measures in place but generally it was an open and casual experience for those traveling and those meeting travelers at the gate. (Yes, you used to be able to meet someone at the gate as they came off the plane.)

After 9/11, security around flying tightened up significantly. Now there are long lines to get into a terminal, removing shoes and belts, and restrictions on how much liquid you can pack in your carry-ons. COVID will be the 9/11 of the live events industry and unfortunately what was once an open and casual experience will become less enjoyable with more incentives to not go.

The Society of Ticket Agents and Retailers (STAR) in Great Britain published an article in which they state that “the industry must begin to commit to practical solutions for the future and invest in intuitive, simple customer-centric solutions that build confidence in the sector once again.”

One issue they address is the idea of “ghost tickets” or those tickets in an order not used by the primary purchaser. If someone buys four tickets in an order, the venue has no idea who specifically used three of the tickets or even if the purchaser attended. In the era of contact tracing, it may be required for a real person to be attached to each ticket. This will complicate and slow down the sales process as well as feel invasive for many patrons. The idea of just walking up and purchasing a ticket, particularly with cash, may just be gone forever.

STAR goes on to predict that customers can expect when attending live events that ID verifications, pre-event health checks and on-site validation will be part of the experience. This will be needed for contact tracing and “assessing customers’ likelihood of transmitting the virus before entry.”

“Long queues are never good for the customer and venues often spend considerable time and resources keeping them short. However, entering a venue may become more complex in future due to the enhanced level of checks needed.” – STAR

To try and control the long lines and improve the process, some venues have opted for a simple online form to be filled out, creating a patron testimonial. Other venues have called upon software providers to integrate the process into the customer check in process. Ultimately, we are headed towards the health passport. This will be some kind of identification that demonstrates a recent negative test result or proof of immunity following a vaccine or exposure.

“If, in future, it becomes a requirement for venues to check an individual’s ‘health passport’ alongside their ticket we will need to ensure that this extra step in the ingress process works seamlessly when managing the entrance flow.” – STAR

I don’t think any of this bodes well for live entertainment. Pre-COVID, we already had a challenge of getting people to leave their houses to come to our venues, now we will require a stringent admission and identification process to participate in a live experience.

The good news is that the audience has already shown resilience in adapting to being subjected to a metal detector sweep and bag-searches and more recently a willingness to participate in social distanced seating and temperature checks. The problem is that each of these steps creates an additional barrier to someone attending your event. Venues, producers, and presenters will need to work very hard to minimize these hurdles get the experience back to as open and casual as possible.

Remember when attending a concert was fun?

The source article for this post can be found at Ticketing Business News.

Keepers of the Flame

Posted on January 12, 2021April 24, 2021 by John Cattanach

Board governance is a tricky subject, but it is worth taking on this topic. Getting your Board’s purpose and function setup correctly is critical to ensuring that your organization can thrive.

Governing boards, advisory boards, and fundraising boards come in all shapes and sizes. Some boards are awesome at what they do, some are ineffectual, while others can be downright destructive. If your board is serving the organization, then great, you can stop reading. If your board could do more (or do less) then this article is for you.

In a nutshell, the board of a non-profit is the owner of the non-profit and they provide oversight in the interest of the public’s trust. Non-profits are built to support a mission or service purpose. There may be staff that is invested, passionate, and carries out the daily work of the non-profit, but it is the board (as an entity, not as individuals) that is the keeper of the mission.

The board’s primary responsibility is to ensure the fulfillment of the mission and that the organization will sustain to fulfill the mission. The sustain part is where the fiduciary responsibility plays into a board’s role. To break this down to even more basic elements, the board should be focused on the Why of an organization along with an evaluation of the What of the organization. They must ensure the Whats are serving the Whys.

One area that the board should not be involved in, except for assessing sustainability and risk, is the How an organization functions. This is the job of the executive director and staff. They figure out and implement the How to achieve the What. It helps if the staff is dedicated to the Why and fully understands how the Whats manifest the Why. The board can help with this through evaluations and feedback.

Operationally the board’s role is to provide general oversight, guidance, and professional expertise. They should also be ambassadors and advocate for the non-profit in the community. I realize many boards are focused on fundraising, this can be a component of what they do, but really fundraising is a How function and should be carried out by staff. Board members can use their connections and advocacy to help in fundraising but expecting your board to be fundraisers undermines their objective function of oversight and accountability. Being able to point out this level of accountability will likely help your fundraising efforts. Everyone likes to know their money is being used wisely.

If your board is focused on keeping the mission and asking challenging questions of the organization’s activities, then it is doing its job. This kind of scrutiny and continuous self-improvement will make your organization stronger, more resilient, and be able to provide a bigger impact for more people.

Who Is YOUR Customer? Everyone?

Posted on January 11, 2021April 24, 2021 by John Cattanach

Wrong. YOUR customer is not everyone. YOUR customer is passionate about what you are offering. If you haven’t already come to this realization, I’m sorry to be the one to break it to you, some people just don’t care about your passion.

Have you heard the saying that when you talk to everyone you are talking to no one? There is a lot of truth in this. Everyone is not interested in your message. We all have different likes, dislikes, and tastes. If you water down your message to appeal to the most people then it will not connect with those that share your passion and it will become background noise to everyone else.

The reality is that marketing is not about just attracting people to you, it is also about repealing those that have no interest. You want to connect with people that will LOVE what you are doing. You need to message specifically to these people. You will also want to talk to those that may have an interest in what you are doing but trying to attract everyone is simply a waste of your time and money.

There is a much higher return on investment (ROI) if you connect with and bring in a person that loves what you are doing. They are going to come back for the next purchase, visit, or event. They will become your next regular customer or subscriber. They are going to become your ambassador. They may even eventually become a donor. Investing in this core customer base will pay off time and time again.

Connecting with those that have some interest in your offerings is important too since they may not yet know how passionate they are about your work or they may end up liking your work enough to land in that ring of support around your core customers. You need these people too.

What you don’t need are people that don’t care. Even if you get them to come to your business, gallery, or event, they are likely to not have a good time, not return, and tell their friends about their unenjoyable experience. Best to leave them out of your circle. Let me give you an example of speaking to the wrong audience.

Groupon is very popular with with many businesses and organizations as a way to attract new customers. Well, Groupon buyers may be a new customer for you, but they are likely to not be a return customer. This group is really an customer of Groupon. They are in this group because they are passionate about getting a deal. These people are more motivated by the deal rather than what they are getting. This passion will only translate for you when you offer the next deal. Selling your service at a discount is probably not your goal. If you have extra capacity to give away, then great but be careful of relative pricing and giving your core customers a discount path when they likely would be willing to pay more.

If the Groupon displaced regular customers, then the money you lost by offering the Groupon could have been spent better through messaging targeted to your core customers. This investment will pay for itself many times over whereas the Groupon just provided a way to paper the house or provide some additional foot traffic. Don’t fall for the delusion that Groupons are building your customer base.

To find your core customer base, talk to your current core customer base. What drives them to your work? What value does it provide in their lives? How does it make them feel? Where do they hang out? What media do they consume? Once you have the answers to these questions you will have the messaging and methods to talk to YOUR customers.

What Dreams Are Made Of

Posted on January 11, 2021April 24, 2021 by John Cattanach

I don’t believe that money is the stuff of dreams, but for better or worse, dreams become reality through money. Dreaming of more money is fool’s folly. Dreams come from your purpose and vision. Make sure your expenses are aligned with your vision to ensure that your dreams can become reality.

One of my favorite questions ever asked of me by a potential funder is “What more could you do today with an extra $10,000?” To be honest I didn’t have a good answer. This is because my reason for initially going to this donor was that I needed more money. He correctly challenged this ask with Why do you need more money? I bring this story up to illustrate that the answer is not more money, the answer is better priorities and clear actions that will produce your desired impacts.

One of my least favorite responses is “We don’t have money for that.” This is rarely the case. What this response is really saying is we don’t have the priority or will for that. This is why having a clear sense of purpose, vision, goals, actions, and measures should be the foundation to your financial structure. It’s so rarely about how much you have verses how you use what you have.

You will likely have limited resources. This just means you need to limit and focus your immediate actions to achieve success with attainable goals. Perhaps you have heard of SMART goals; Specific, Measurable, Attainable, Relevant, and Time-Bound. This methodology can be used to assess your options and make sure you are selecting priorities that can be realized. You can then turn these accomplishments into metrics or stories to motivate others to support your cause and generate additional funding to move on to the next priority. Success begets success.

So, when you have a funding issue, be sure to look at it as a priority issue and be clear as a leader what are your priorities are. Your staff, patrons, donors, and stakeholders will admire you for this clarity and conviction. It will ultimately make saying the inevitable NO easier because you have a clear reason behind that decision.

It is always worth your time to invest in aligning your finances with your story and your impacts. It is easy to let your spending drift off purpose. It takes setting aside reflective time and using discipline to bring things back into focus to use your resources for their greatest good.

An easy way to do this is always keep an answer in mind for that $10,000 question. What could you do today with an additional $10,000? If 10k seems outside your scale, decide what you would do with an extra $1,000 or $3,000. The point is knowing your desired actions, what the cost of those actions will be, and what impact those actions will have once achieved. A SMART answer like this will impress anyone.

So, what could you do with an extra $10,000 today?

Access to Experienced Leadership

Posted on January 11, 2021April 24, 2021 by John Cattanach

According to Michael Kaiser, “the central problem facing the arts today is not a lack of flute players, choreographers, actors or painters. The main challenge the arts world must address is the lack of a large, trained corps of managers who know how to find resources, attract audiences and other constituents and provide support to our artists.”

Mr. Kaiser goes on to illustrate this leadership challenge as it particularly impacts small organizations. These organizations are founded on passion and pure grit to make their mark in the world. They enjoy a period of great entrepreneurship and growth but soon find the level of experience or expertise needed to maintain or move a larger organization forward is beyond the skills or interest of the founders. They may also be able to take in young, talented individuals develop their skills and give them experience only to lose them to larger, established and better funded organizations. This then forces the smaller organization to start over with leadership rather than growing with that leadership.

The good news is that there are several arts managers in the performing arts industry that are willing to share their expertise with multiple arts organizations rather than just focus their efforts on just one. These consultants may not be there to do the daily work of running and growing an organization, but they can be brought in to provide experience to help develop the management skills of young leaders or of founders looking to improve their skills. They can also provide a sounding board or alternate viewpoint for more seasoned administrators. Perhaps the organization just needs a structural boost around governance, finances, programming, marketing, or patron/donor development. These limited strategic planning projects can provide direction and best practices for the operating staff for months if not years.

It would be a shame if the passion and grit that was put into an organization’s founding turned out for not if the organization fails to thrive or grow. That mark on our world will be minimal if not disappearing all together. Even temporary access to quality, experienced arts leadership can get these organizations over the hurdles and keep that passion and determination focused on moving forward rather than settling for mediocrity or non-existence.

THE QUEEN’S GAMBIT – AN EXAMPLE OF PERSISTENCE IN ART MAKING

Posted on January 5, 2021April 24, 2021 by John Cattanach

I know that Netflix’s The Queen’s Gambit has been a big success and resonated with many of you. So, I thought I might share this article from INC.com written by Jason Aten about the 30-year process it took to make the mini-series a reality. It is a great study in perseverance and believing in your creative vision.

The Queen’s Gambit has been a huge hit for Netflix. In the first 28 days it was available on the streaming giant, it set a record for the most viewersever for a scripted limited-run series, with more than 62 million accounts watching at least part of an episode.

Only The Witcher and Tiger King had more viewers during that window. That means that not only is The Queen’s Gambit one of Netflix’s biggest hits right now, it’s one of its most popular shows ever. I don’t know that anyone could have predicted that a scripted limited series about chess would become the most popular show on the world’s largest streaming service, but, hey, it’s 2020.

More interesting, however, is the fact that it took producer Allan Scott more than 30 years, eight different directors, and nine rewrites before getting the show on TV. In an interview with The Saturday Post, Scott describedhow he originally purchased an option in 1989 for the novel by Walter Tevis about an orphan in the 1950’s who learns to play chess. In 1993 he acquired the exclusive rights to turn the book into a movie.

Walter wouldn’t name all of the directors he tried to convince to help make the film, but it wasn’t until he connected with Scott Frank, who wrote the screenplay for Minority Report and Logan, that things started to fall into place. In 2017, Netflix agreed to produce the seven-episode series.

It isn’t like Scott is a newcomer to film production. Scott has written, or co-written a dozen films, the most well-known of which is probably The Preacher’s Wife, which starred Denzel Washington and Whitney Houston. Still, there’s no question he’ll be most remembered for an overnight success that took 30 years to make.

It isn’t hyperbole to say The Queen’s Gambit is a huge success. Since its release at the end of October, the show has topped Netflix’s most-popular originals and earned rave reviews from critics and audiences, including a 97 percent rating on Rotten Tomatoes.

There is an obvious lesson here: almost nothing that appears to be an overnight success actually is. In most cases, like The Queen’s Gambit, things that seem to appear from nowhere and rise to immediate success actually take a lot of hard work over a long period of time.

That should be encouraging. Imagine if Scott had given up a decade or two ago. It’s not an entirely unreasonable notion. It’s not hard to think about the number of times he must have considered giving up entirely. The lowest point came in 2008, when Heath Ledger had agreed to direct a film version that ultimately never happened due to the Australian actor’s untimely death.

It would have been easy to walk away and forget the entire idea. That’s normal under far less complicated circumstances than waiting three decades to see something you believe in finally come to life.

It’s easy to think “my moment has passed,” or “it just wasn’t meant to be.” I suppose it’s possible that’s true, but I think it’s equally as likely that whatever moment it was that just passed wasn’t yours, and that yours is still to come.

Also, just to be clear, nothing is “meant to be.” If it was, it would all be easy, and it’s almost never easy. It only looks that way as an observer because you only see the finished product. It can easily make you doubt your own goals or dreams because they don’t look like success–yet.

Of course, if you convince yourself it wasn’t meant to be–if you give up–it’ll never look like success. If you quit, that’s it. It’s over. That doesn’t mean it won’t be hard–even devastating sometimes. It does mean that the hard work is worth it, even if it takes a few decades longer than you expected.

The original article by Jason Aten can be found here.

IS NOW THE TIME TO PREPARE FOR REOPENING?

Posted on December 30, 2020April 24, 2021 by John Cattanach

The short answer is yes. Now is the time to put a plan into place and communicate that plan to your stakeholders. However, arts organizations should develop flexible plans that will accommodate a lot of different expectations and needs as we move forward.

There is likely to be a slow evolution to a new normal. I don’t expect people will be ready to flock together this summer as they did in early 2020. Instead, I expect people to adopt differing levels of risk. Some will be ready to jump right back in and be shoulder to shoulder with strangers. Some may be OK with this only if masks are required. Others will want to maintain social distancing before, during, and after the event. While others may not be willing to step back into a venue for a while, if ever again. This does not mean they are no longer your patron, but you will need to serve them in a new way.

Programmers and producers need to reimaging presenting in terms of these new expectations. If the production has multiple performances, then maybe different performances can have different rules of engagement. This performance will not require any restrictions (though staff may still be practicing social distancing and mask wearing). The performance on this date and time will be mask required. This performance will be socially distanced. You can offer live streaming or video on demand content to reach those that don’t feel comfortable coming to the theater yet.

This is all similar to where the industry was headed with young audience performances, sensory friendly performances, social media friendly performances, and don’t forget the classic matinee developed for those that did not want to come out at night.

We will just need to expand our offerings to meet new expectations. This can be done. Even in a single performance certain sections of the house and select lobby amenities might be reserved for the expectations set forth above. Changing the audience culture expectations by performance and creating a cohesive and welcoming whole-venue experience will likely be the most compelling, but each venue and organization should be able to find a way to implement accommodations and make patrons of all types feel welcome.

Another option is for the venue or arts organization to adopt an audience culture standard and clearly communicate that. This will attract those that are comfortable or willing to adapt themselves to the stated conditions and repel those that find the conditions undesirable. Audience members are not required to see your productions. They can choose to attend or not attend your performance and the audience environment is a big part of that decision. For example, consider attending a music concert in the past with one venue being an open floor where packing people in or dancing was an acceptable practice vs. a concert venue with assigned seating where those activities would be discouraged, not allowed, or simply difficult to carryout. Same artist, same show, but completely different audience experience expectations. You have been already setting these expectations, you just now need to be more nuanced and open as you set those expectations.

Whatever expectations you decide to set, the plan should be expressed with optimism and not restriction. It is also important to leave room for modification over time while not opening the door to individual accommodation at every event.

NOW IS THE TIME TO INVEST

Posted on December 16, 2020April 24, 2021 by John Cattanach

You may think now is the time to hunker down, conserve resources, and just get through this. I say you are right, mostly. However, you should approach this forced opportunity to pause as a chance to evaluate where you are and where you need to go.

The good news is that the COVID vaccine distribution as begun! This is likely the beginning of mitigating the coronavirus pandemic. Note that I did not say end the pandemic. That line of reasoning is too simplistic, this pandemic experience will forever change our society. Going back to normal is not really an option, there is only moving forward with a new shared history.

The performing arts and live events industry have been hit particularly hard by the restrictions on mass gatherings. I expect to see those restrictions slowly be lifted as general infection and hospitalization rates drop. However, the collective damage to our industry and patrons has already been done. The concept of or the fear of more shutdowns will play on everyone’s minds. Then there is the personal tolerance for risk. Some people are undaunted and just want to get out there, others are going to wait and see how others are doing, and then some will simply avoid gathering for a long time.

This new normal means that the performing arts need to adapt and meet our changed business and patron’s expectations.

We will need to be more lenient with our cancellation and ticket return policies
We will have to build in more resilience to our financial modeling to account for a higher risk of shutdown
We will have to find ways to blend the experiences of the exuberant patrons with those that are more hesitant.

Knowing your audience’s needs and expectations on an individual level will be more important than ever before.

Therefore, now is the time to invest in strategic planning, audience development, and the honing of your marketing messages.

You are likely past the panic point of transforming your organization, figuring out how to survive, and you are now in the waiting phase. Use this time to invest in your sustainability. Figure out how to develop a more resilient financial model. Consider the various expectations, fears, and wants of your old and new audiences. And figure out how to communicate that you are sustainable, you care, you understand, and why people should trust you to take care of them when you provide an exceptional experience.

The thought of spending limited resources on strategic planning right now seems counterintuitive or downright foolish when you are just trying to survive but investing now will allow you to launch into the new world with confidence and precision. Many will wait to see how the others are doing, but you could be that organization that is exuberant and ready to celebrate the rebirth of live events with your patrons, new and old.

Your audience is ready to come out and play, are you ready to give them an experience worthy of their expectations?

Feb

Jan