Why Does Working Capital Matter?
Working capital is a measure of the organization's liquidity that represents its unrestricted resources available to meet day-to-day obligations. It is a simple calculation of unrestricted current assets minus current liabilities. Months of working capital is a useful metric that shows how long an organization can survive at its current expense size in the absence of revenue. When organizations have sufficient working capital, they can responsibly manage and take risks, such as covering short-term obligations to others, better navigate unpredictable shortfalls in revenue, or manage needed facility maintenance, technology, and equipment. Healthy working capital gives arts leaders breathing room when faced with uncertainty or the prospect of loss and allows organizations to reflect on, and reconsider, the best path forward.
Using data collected from over 1,000 arts and cultural organizations, the report reveals that average levels of working capital increased to 5 months, or the equivalent of 41.7% of annual expenses, starting in 2017 and remained fairly stable through 2019. It is important to note that median working capital -- or the midpoint in the range of organizations -- was only 1.5 months, showing skew to large organizations. Most cultural groups had inadequate working capital pre-COVID.
Released during a tumultuous climate at the end of 2020 - we can use these findings to answer key questions about how prepared organizations were to weather the downturn brought about by the pandemic, and how pre-pandemic can data help organizations and funders rebuild for the future.
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How To Use This Report
- Get a better sense of pre-pandemic averages and trends to deepen our understanding of where organizations were as they headed into the crisis.
- Contextualize the effects of the pandemic and tell your organization's story using a data-driven approach.
- Debunk preconceived notions on how financially healthy certain cultural sectors were prior to the pandemic to inform funders and board members about where support may be needed now.
- Refer to these findings to build a preparedness strategy for a post-pandemic era.
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