January 27, 2011Promoting Capitalization Promoting Capitalization: Understanding the Arts and...
-
Upload
martina-tucker -
Category
Documents
-
view
222 -
download
0
Transcript of January 27, 2011Promoting Capitalization Promoting Capitalization: Understanding the Arts and...
January 27, 2011 Promoting Capitalization
Promoting Capitalization:Understanding the Arts and Culture Facility Investments and Building Reserves Grant Preliminary Application
January 27, 2011
Agenda
January 27, 2011 Promoting Capitalization
• About The Kresge Foundation• Institutional Capitalization Goals• Capitalization• Preliminary Application• Q&A
2
January 27, 2011 Promoting Capitalization
• The Kresge Foundation is a $3.1 billion private, national foundation that seeks to influence the quality of life for future generations through its support of nonprofit organizations
• The Foundation works in six fields of interest:• Health Program• Environment Program• Community Development: Detroit and National Program• Education Program• Human Services Program• Arts and Culture Program
The Kresge Foundation
3
The Arts and Culture Program
January 27, 2011 Promoting Capitalization
• The Kresge Foundation’s Arts and Culture Program seeks to build vibrant communities enlivened by the presence of healthy arts and cultural organizations, creative and well-supported artists, and well-integrated arts and community-building efforts
• The Arts and Culture Program is focused in three areas: • Institutional Capitalization• Artists’ Support Services• Arts and Community Building
• This webinar addresses the Facility Investments and Building Reserves grant opportunity within the Institutional Capitalization Focus Area
4
About Institutional Capitalization
January 27, 2011 Promoting Capitalization
• Through the Institutional Capitalization focus area, Kresge expects to see:
• A shared understanding of basic definitions, principles and practices of capitalization
• The adoption of capitalization best practices among organizations• Better capitalized arts and cultural institutions that are stronger and
whose business models are more sustainable, where appropriate• Arts and cultural institutions that are well positioned to produce high
quality, impactful, innovative and relevant artistic product
• This focus area provides support in five areas:• Field-wide efforts to promote and adopt capitalization principles• Facility Investments and Building Reserves• Sector Leaders• Place-based Cohorts• Strengthening Arts Facilities Effectively (SAFE)
6
About Facility Investments and Building Reserves
January 27, 2011 Promoting Capitalization
Why facility investments and building reserves?• The Arts and Culture Team’s Institutional Capitalization focus area
uses facilities and building reserves as an entree to help organizations examine their level of comprehensive capitalization
• While this grant opportunity places an emphasis on facility investments and building reserves, it is truly about comprehensive organizational capitalization
7
What is Capitalization?
January 27, 2011 Promoting Capitalization
• Capitalization is the accumulation and application of resources (operating and working capital, operating reserve, risk capital, endowment and building reserve) to support achievement of an organization’s mission over time.
Design, test, and refine effective programs
Deliver high quality and
effective programs
Maintain adequate supportive
infrastructure
Risk CapitalOperating and
Working CapitalOperating Reserve
Elements Needed by All
Steward necessary fixed assets and collections
EndowmentBuilding Reserve
Needed by Some
Ensure appropriate longevity of programs
9
Source: TDC
• Without adequate capitalization, your mission is at risk
Why Does Capitalization Matter?
January 27, 2011 Promoting Capitalization10
Inability to innovate or
realize benefits from innovation.
Inability to spend adequate
resources to create quality
programs.
Inability to steward fixed
assets or collections.
Inability to attract talent or
maintain quality partners and
vendors.
Inability to weather risks,
and/or inability to deliver quality product over
time.
UnderlyingRisk
Passing up new program ideas.
Inadequate cash flow to handle
expansion.
Borrowing from advance ticket
sales.
Permanently drained lines of
credit.
Making payroll is an adventure.
Collections calls.
Chronic deficits are covered by endowment and reserve draws with no way to
replenish.
Warning Signs
InadequateRisk Capital
Inadequate Operating and
Working Capital
Inadequate Endowment
Inadequate Building Reserve
Inadequate Operating Reserve
Capital Fund
Roof has been leaking for past
18 months.
Collections are crumbling.
Source: TDC
January 27, 2011 Promoting Capitalization
• Capitalization is embodied in the balance sheet• The balance sheet records an organization’s
accumulated financial performance over time• The Income Statement (the Statement of Activities) shows only one
year’s revenue and expenses
• The balance sheet also demonstrates the strength and availability of an organization’s asset base to support its future
• Finally, the balance sheet shows an organization’s degree of liquidity
How Well Are You Capitalized Now?
11
Source: TDC
• What are we looking for in your balance sheet?
Unpacking the Balance Sheet
January 27, 2011 Promoting Capitalization
Balance SheetCash/InvestmentsReceivablesFixed Assets
Total Assets
PayablesDeferred RevenueDebt
Net Assets
Total Liabilities and Net Assets
Income Statement RevenueExpenses
Net Income
Endowment
Operating and Working
Capital
Operating Reserve
Elements of Capitalization
Building Reserve
Risk Capital
12
Re
qu
ires
Liq
uid
ity
Source: TDC
What Are We Looking For in a Capitalization Strategy?
January 27, 2011 Promoting Capitalization
• There are no cookie cutter answers• A capitalization strategy looks at four distinct pieces:
• Mission and vision• Business model drivers• Time horizon• Marketplace
• With this in mind, the strategy determines the types of funds required
• It then articulates the necessary size of the funds, the timing of the need, and the method for obtaining the required resources
13
Source: TDC
Audience
Audience + facility
Audience + high fixed costs
Audience + facility + high fixed costs
January 27, 2011 Promoting Capitalization
High flexibilityLow capital intensity
Low flexibilityHigh capital intensity
14
What Are Your Business Model Drivers?
Fixed costs
Fixed costs
Source: TDC
What is Your Time Horizon?
Immediate(Individual View)
Highly specific artistic expression – often focused on a particular artist
Highly flexible with limited fixed costs
Rented or borrowed facilities
Medium Term (Organizational View)
Artistic expression fulfills established brand identity
Fixed costs must be tightly controlled
Facility ownership may or may not be supportable
Long Term (Institutional View)
Fixed costs extensive and multi-faceted
Obligation to persist as civic anchor or long-term stewardship of collection or art form
Facility ownership often necessary
January 27, 2011 Promoting Capitalization15
• Higher risk tolerance may be appropriate• Requires coverage of basic needs – working
capital, risk capital, and operating reserves.
• Level of obligations call for low risk tolerance• Requires larger scale of basics and, often, plant
reserves and endowment to meet all obligations.
Fixed costs
Fixed costs
Fixed costs
Source: TDC
Importance of the Marketplace
January 27, 2011 Promoting Capitalization
• A thorough understanding of the marketplace tests the mission and vision and predicts the resources available by asking:
• Who is the anticipated audience? Is the product or service needed or wanted in the community? What level of support will they provide?
• With whom might the organization be competing locally for audience and support?
• These questions can only be answered in the context of the local community and are particularly important during projected program or facility expansions
16
Source: TDC
Resources
January 27, 2011 Promoting Capitalization
• Analyzing the marketplace also helps determine necessary operating resources for the environment
• With whom is the organization competing for talent and key resources? How does that impact fixed costs?
• What investments are necessary in marketing and development?
• Organizations with facilities must also define long- term systems replacement needs
• These organizations often operate with a systems replacement plan (SRP), which articulates anticipated need, but does not address the funding of those needs
17
Source: TDC
Capitalization strategy articulates size and shape of capital needs grounded in organization’s inherent business model drivers and strategic goals
January 27, 2011 Promoting Capitalization
Mission/Vision• Artistic/cultural production • Theory of change for impact
on audiences and other beneficiaries
Market• Customers• Donors• Competition
Resources• Ongoing resources to
sustain operations and a facility if appropriate
• Human resources• Key investments
Planning process informed by Mission/Vision, Market, and Resources engages board, staff, partners, and supporters, and encourages a holistic understanding of the organization.
What Are We Looking For in a Strategy?
18
Integrated StrategyProgrammatic strategy maximizes artistic
quality and impactOrganizational strategy includes adequate
human and other resources for marketing, development and space
Source: TDC
Time Horizon and Business Model Drivers
What Does This Look Like Over Time?
January 27, 2011 Promoting Capitalization
• Once need is defined – prioritize!
Endowment
Operating and Working
Capital
Operating Reserve
Elements of Capitalization
Building Reserve
Risk Capital
• The capitalization strategy identifies the needs and sources, and prioritizes among them
• Generating reserves often implies surpluses. Break-even budgets do not allow organizations to implement a real capitalization strategy
• Preserving the more capital-intensive funds is difficult without adequate operating funds
Net
Ass
ets
19
Operating surplus
Surplus or non-operating fundraising
Non-operating fundraising
Source: TDC
300000000000
January 27, 2011 Promoting Capitalization
Preliminary ApplicationFacility Investments and Building Reserves
20
Getting Started
January 27, 2011 Promoting Capitalization
• Read the supporting documents on the Kresge Web site: • Program Philosophy and Terms• Guide to the Facility Investments and Building Reserves Grant
Application• Guide to Strategic Planning• Guide to Building Reserves• Reading List• FAQs
• Capitalization is a new topic for many, and we believe that reviewing these materials in their entirety before applying will help applicants
21
Eligibility
January 27, 2011 Promoting Capitalization
• Who is eligible?• Organizations with arts and culture as the primary purpose of their mission • US-based organizations• 501(c)3 organizations not classified as a private foundation• Organizations with facilities that are government-owned, but operated by
separate 501(c)3 organizations• Organizations with audited financial statements
• Who is not eligible?• Art-focused subsidiaries of larger parent organizations such as universities
or human services agencies• Start-up organizations (less than two years of operational history)• Government-owned and operated entities• Organizations with compilations or reviews, or financial statements
prepared on a cash or modified cash basis
22
What We Support
January 27, 2011 Promoting Capitalization
• Organizations may apply for two types of grants• Facility Investments and Building Reserves• Building Reserves
• If seeking a facility investment, renovation and repair projects will be prioritized over new construction
• Grant amount will be dependent on the type of project and the size, scope and business model of the organization. However, grants will not exceed $1 million and/or a period of three years
• Some grants may be awarded on a matching or challenge basis
23
A Highly Competitive Process
January 27, 2011 Promoting Capitalization
• Round 1: 141 preliminary applications; 21 invited full proposals; nine grants
• Round 2: 134 preliminary applications; 10 invited full proposals; grants still under review
24
Criteria and Review Process
January 27, 2011 Promoting Capitalization
• Step 1: Competitive assessment of preliminary applications for alignment with the Arts and Culture Program’s values:• Create opportunity and enhance access to arts and culture through
authentic and relevant programs that exemplify excellence in the field; that involve people of all social and economic backgrounds; and increase participation of new and non-traditional audiences.
• Exhibit a high level of community impact through work that contributes to a vibrant arts and cultural ecosystem and exemplifies excellence in the field; benefits the broad local community and reflects the diversity of the community population; advances community building efforts; and embodies key principles of community planning to enhance quality of life.
25
Criteria and Review Process
January 27, 2011 Promoting Capitalization
• Values continued:• Stimulate innovation through work that furthers best practices in
the field; uses new and possibly untested approaches; and brings multi-party, interdisciplinary approaches to problems that defy solution by a single sector.
• Support institutional transformation and the capacity to profoundly influence the overall organization and its operations; or create new business models to strengthen financial stability.
26
Criteria and Review Process
January 27, 2011 Promoting Capitalization
• Step 2: Competitive assessment of the overall quality of the preliminary application and the strength of the comprehensive capitalization strategy including:• Evidence of planning, including but not limited to external market
research and analysis for earned and contributed revenue, benchmarking research, system replacement strategy
• Evidence that the proposed project fits within the larger capitalization strategy and that it is the next appropriate step in that strategy, and that the organization understands how the proposed project will impact the future operating budgets and balance sheet
• Evidence of a realistic fundraising plan, if appropriate to the request• Assessment of the liquid unrestricted net assets available for
operations
• The determination as to whether to request a full application is assessed on the competitiveness of the overall preliminary application
27
How to Apply
January 27, 2011 Promoting Capitalization
• All Facility Investments and Building Reserves grant applications must be submitted through our online application system• Find the “Apply Online” link on the Institutional Capitalization homepage
28
Competitive elements
January 27, 2011 Promoting Capitalization
• Competitive preliminary applications demonstrate the following:
• Values that are addressed in a detailed way and which align with the Program’s
• A capitalization strategy that aligns with the organization’s mission and strategic plan, and which:
• Accurately diagnoses business model drivers• Defines the needs and plans for each type of fund, and prioritizes
among them• Includes a strategy to build surpluses and reserves over time
• Building reserves strategies based on a realistic plan, accurate data, and policies which address use, withdrawal and replenishment
• Realistic fundraising plans, when appropriate to the request• Evident collaboration among the CEO, CFO and Development staff in
completing the application• Unrestricted Net Asset Tool correctly completed
29
Current Preliminary Application Deadline
January 27, 2011 Promoting Capitalization
• Spring 2011 deadline is Tuesday, March 1, 2011 at midnight Eastern Standard Time
• Decisions on these preliminary applications will be made within eight – 10 weeks
30
January 27, 2011 Promoting Capitalization
www.kresge.orgThe Kresge Foundation
3215 W. Big Beaver Road
Troy, Michigan 48084
248.643.9630