A steady look at costs

Every arts and cultural organisation needs to fundraise to generate income. Our top fundraisers are in high demand and everyone responsible for fundraising is under pressure to perform. But while fundraising is essential, how many arts organisations put as much attention into reducing costs?

I think we’ve probably all been through poorly managed cost-reduction exercises that usually concentrate on just one or two areas, seem contradictory to the aims of the organisation, or even worse, are set up simply to manage a redundancy process.

By going through an effective cost-reduction process, organisations can communicate their efficiency to donors with confidence

If we’re honest, many arts organisations operate with a public-sector mindset. If we reduce costs, does that mean our public funding from Arts Council England reduces as well? What’s our true incentive to remove costs if it might have a negative impact on our fundraising?

It would be great to see the organisations that can most demonstrably reduce costs without impacting quality as being the ones at the top of the pile when it comes to favourable funding outcomes. In my view, along with reporting fundraising successes within annual reports to funders, we should also be moving to a model that requires us to report our efficiency savings during the year as well.

A sustainable approach

Cost reduction should not be about cutting services or staff, but about sustaining them. However, having a full-time cost-management specialist on the books is a luxury few can afford. The responsibility to improve efficiency usually falls to staff who are already overloaded with more than enough duties.

With little time and short-term goals, this often leads to superficial exercises. Adopting an approach to work with just the cheapest suppliers may seem logical, but it fails to consider a wide variety of additional factors contributing to the overall situation such as supplier loyalty, quality and convenience.

We know from the training on our programme and from working closely with philanthropists, trusts, foundations and corporates that many donors view their gifts as social investments. Their due diligence processes go far beyond examining organisational outcomes and the ability to successfully deliver programmes, but also scrutinise financial sustainability and business models, including administration costs.

By going through an effective cost-reduction process, organisations can communicate their efficiency to donors with confidence – a huge enhancement to a fundraising programme.

Personal experience

I’ve just been through this process in my own organisation and it’s been both illuminating and painful. Encouraged by one of our non-executive directors, it’s taken us over a year to complete. And we’ve been through everything from stationery and utilities to tax credits and the way we use our rental space.

Our stationery bill that the team thought couldn’t possibly be reduced went down by £1,000 a year. We also found that we were eligible for some £30,000 of innovation tax credits for our investment in new digital systems – this tax-break wasn’t even on our radar before. We’ve reduced costs against turnover by 7%, and spent the savings by investing in staff and new digital infrastructure.

I’m the last person to advocate tick-box or cynical cost-reduction exercises, but I am now convinced of the benefits of a steady look at costs in the round. And I’m encouraging every arts organisation I work with to explore costs alongside fundraising needs through the initiative Cause4Save.

Managing a cost programme

So what do you need to consider to effectively manage a cost programme? Here are six pieces of advice:

1. Work in partnership with staff and trustees: Cost-saving exercises can be destabilising and threatening for some. A transparent approach and being clear about the end goal – what the money saved will help achieve – is essential. Involve everyone and be clear that nothing is sacred. It’s true that there are very few luxuries in business practices in the arts, but there are always efficiencies to be made.
2. Don’t scrimp on quality: This may be obvious but don’t reduce the cost of your audit or legal advice if it means that the office junior turns up instead of the senior partner who you have come to expect – cheapest isn’t always best.
3. Seek out unusual partners for new ventures or innovative ways of delivering existing activities: Explore options to make savings through the VAT relief for sharing back-office services or through joint procurement. How much money could be saved if you had a shared process for database procurement across the sector or if you considered sharing a fundraising post across organisations?
4. Scenario plan: Putting together some different scenarios for reduced levels of income is really important. What would you keep if you had 25% less income than expected, or 50% less? What if a grant ceased completely? Scenario planning can be a great way to explore prioritising expenditure and to identify ‘sacred cows’ that could be challenged within budgeting processes.
5. Beware of cutting the ‘easy to cut’: Often the two areas that are easiest to cut are the marketing and training budgets. But marketing is essential as a strong, effective marketing plan can help raise donations, boost participation and encourage long-term growth. It’s the same for training – it may be straightforward to cut them, but they are also likely to have a negative impact on employee morale.
6. Don’t forget Gift Aid: Charities recouped a record £1.26 billion in Gift Aid tax relief from HMRC last year. That’s 20% more than they did five years ago, but still less than half the total available. How can we make the case to Treasury for further funding if we don’t maximise the tax breaks that do exist?

Michelle Wright is the Founder and CEO of fundraising and development enterprise Cause4 and Programme Director for Arts Fundraising and Philanthropy.
artsfundraising.org.uk

This article is part of a series on the theme Fundraising for the future, sponsored and contributed by Arts Fundraising & Philanthropy.

Arts Fundraising and Philanthropy runs one-day training courses on essential fundraising skills, trustee leadership half-day courses, bespoke and tailored training, and a number of one-day courses are offered on demand.